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A scarcity mindset views resources as limited and finite. It is the belief that a fixed amount of a certain resource is all there is. That may mean there is not enough to go around to everyone or intense competition for that resource will exist. Folks may hold a scarcity mindset towards a number of different resources, and this mindset can develop from a variety of experiences. An individual who grew up in poverty, for example, may continue to deal with a scarcity mindset towards food even after climbing out of poverty.
In terms of financial mindsets, the general dichotomy is folks with a scarcity mindset and folks with an abundance mindset. A financial scarcity mindset means that an individual believes there is a limited amount of money. Clamoring to obtain and retain the limited supply of money is worth great effort and often comes with excessive stress. On the opposite end of the spectrum, an individual with a financial abundance mindset believes they can always obtain more money and lives without financial stress.
Negative Aspects of Scarcity Mindset
From the outset, a scarcity mindset towards money may seem to provide an individual with a frugal advantage. If a person focuses on acquiring and keeping money due to its scarcity, you may expect them to accumulate wealth rapidly. In reality, a scarcity mindset’s only certainty is an accumulation of financial stress.
Debilitating financial stress can shift the individual’s focus to short-term goals, limiting the brain space for mid-term and long-term financial planning. On a basic level, this may make it difficult for folks to save money for happiness spending goals because all extra money should be earmarked for an emergency. At additional levels of anxiety towards money, folks may not even feel comfortable using their emergency fund in situations that call for it.
Scarcity mindset is also largely responsible for aversions to investing and the statistically incorrect assumption that investing is synonymous with gambling. This view hinders wealth creation and can prevent folks with a scarcity mindset from adequately preparing for retirement. In career and wealth planning in general, the belief that money is a finite resource can also prompt individuals to view wealth accumulation or career advancement as a competition against others rather than just working to create enough for themselves. A major problem with this outlook is that the individual holding it never reaches enough.
In the most extreme cases a scarcity mindset can actually lead to debt. When an individual with a scarcity mindset creates an overly stringent budget, they forget to include a bit of happiness spending in their plan. Over time, a budget with absolutely no joy or room for error is unsustainable, so folks with overly restrictive budgets may overreact to the deprivation their budget created by overspending and going into debt. This debt leads to more financial stress, a more stringent budget, and a financially harmful cycle of stress surrounding money.
A Step Towards Abundance: Tricking Scarcity Mindset
If you experienced any of the negative stress outlined in the previous section, you probably have some degree of a scarcity mindset. That is okay, many folks do! There are ways to gradually overcome a scarcity mindset, even if it is so prevailing that you initially have to “trick” yourself into accumulating wealth despite it.
For a scarcity mindset that is so extreme that it triggered the cycle of tight budgets without any happiness spending followed by going into debt in a reactive spending moment, work to get out of debt while allowing a little happiness spending. The sustainable path to paying off debt requires a reasonable plan by still budgeting for the most important happiness spending. To facilitate sticking to the plan, set up automatic transfers for debt repayments and a high-yield savings account for happiness spending goals. This will force you to service any debts responsibly while allocating money for what brings you joy.
Automatic transfers are also an approach to tricking yourself out of the negative aspects of a moderate scarcity mindset. If you are hesitant to invest because the thought of investing and immediately seeing your portfolio value decline because of a market downturn is terrifying, plan to not look at your investments for some time. Just invest. You can do this by paying yourself first: Set up automatic transfers for any retirement accounts through your employer, like a 401(k) or 403(b), as well as a health savings account, if one is offered as part of your health plan. This money can be removed before you ever get your paycheck so you just live like it was never there in the first place! (Just make sure you indicate where you want this money invested initially.)
Even if your employer does not have these options, you can use the “pay yourself first” method on your own. Set up an automatic recurring transfer to occur the day after your paycheck arrives (or just monthly at a time of your choosing if you are self-employed) to send money to an IRA or high-yield savings accounts for happiness spending goals! You can quite literally force yourself to spend on fun.
Learning Real Abundance
While you may initially only treat the symptoms of scarcity mindset by tricking yourself into some abundance habits, it is important to eventually reflect on why this scarcity mindset drives your instinctive actions. Tori Dunlap has a terrific series of questions to prompt the reader to reflect about their history with money including their first money memories and defining events that shape their relationship with money. She also separates money mindsets into more specific categories than the scarcity vs. abundance dichotomy in a useful manner for reflection.
Whether you choose this method of reflection or another, consider what shapes your relationship with money. While a scarcity mindset can come from an upbringing where money was scarce, it also can come from growing up in an extremely frugal household or a household that experienced a significant decline in wealth and lifestyle. Plenty of folks who grew up with enough money still struggle with a scarcity mindset.
By tricking yourself into debt repayment, saving for happiness spending, and investing in your future, and reflecting on your own relationship with money, you bring yourself to a place where you can recognize your abundance. Once you feel ready to confront your mindset, you probably will have a history of automatic transfers that sufficiently paid down debt, saved for spending goals, or invested for retirement. You grew your wealth without thinking about it! What better proof of abundance?
Whether it is paying down debt or growing your savings or investments, these tricks increase your net worth. You can grow money without thinking about it. The proof of that pattern reinforces any reconciliation with a scarcity mindset that you need. You can build wealth without stress.
But no matter how much wealth you build, you need to learn to alleviate any stress generated from a scarcity mindset if you ever want to feel like you have enough. The main reason to overcome subtle levels of a scarcity mindset is to eventually reach a place of peace with your finances.
As someone who has reckoned with moderate levels of a scarcity mindset, I still catch myself feeling stressed about how little money was left over in my checking account—after maximizing a Roth 401(k), HSA, and Roth IRA, and contributing to multiple buckets of happiness spending goals. However, this happens less and less often as I have learned how to reset by telling myself I have enough money to support myself for more than a decade if some unpredictable emergency occurs. I have enough trust in my own abilities that I believe I can figure out a new way to make money, if needed, in a decade’s time because money is abundant, and having enough is possible.
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