What is a 'scarcity mindset' and how does it affect your finances?

"I hope money will just fall into my lap."

"I'll deal with this later."

"If I just had $10,000 in savings, all my problems will be solved."

If you've ever thought, "Why can't this happen to me?" or "When will it be my turn?" or "If I just had this…," then chances are you've experienced a scarcity mindset.

A scarcity mindset is when you feel there are not enough resources or opportunities to go around. According to WebMD," a scarcity mindset is when you are so obsessed with a lack of something—usually time or money—that you can't seem to focus on anything else, no matter how hard you try." Having a scarcity mindset impacts every decision you make because your brain operates on a set of beliefs that shape your reality. A belief system that you do not have enough or that you are not enough not only impacts your decision-making, but it actually impacts the way your brain functions, lowering your cognitive ability and intelligence while increasing impulsivity.

Apply for Heal Your Relationship with Money Course. 

A scarcity mindset impedes logic and reason. Even if you have the world's most perfect budget and debt repayment plan, if you regularly find yourself thinking, "I just need to pay this off, then I can do the next thing," you’re unlikely to stick with it because your budget becomes a reinforcement that you’re not “there.” By associating your money with an opportunity to “do the next thing,” you’re perpetuating the belief that your reality isn't good enough, that you need to pay off the debt as quickly as possible to be in a better place.  

As a budget coach, when I start working with clients, we don't touch their money until we work together to analyze their beliefs. A key part of my philosophy involves helping clients practice gratitude for their current situation instead of running away from the discomfort. So often, clients resent their finances and resent their debt and how they earn money. Resentment is one of the number one obstacles to building wealth; we have to learn to love and appreciate our money for it to work for us instead of against us.

A key indication that someone has a scarcity mindset is if they have an all-or-nothing approach to their finances. I’ve heard clients say things like, "I must get out of debt tomorrow," or, "I cannot save while paying off debt," or, "I can't leave my job until I’ve paid off my debt." Believing that you can't do something sends the body into a panic. We are programmed to react when we sense that our basic needs are being threatened. However, our bodies cannot distinguish between basic human needs like water, food, and shelter, and emotions such as loneliness or busyness presenting as genuine threats to our survival. Humans do not like being told what to do, and when we believe we can’t do something, it signals that we are not free, which makes us feel powerless. Which does not make us feel motivated. That lack of motivation and disempowerment can show up in our finances as overspending even when you know you don’t have the money, ordering in instead of cooking fresh groceries, or saying yes to friends when you really want to stay in. Just like trendy diets rarely work, an all-or-nothing approach isn’t sustainable for long-term success. Mindfulness around your decision-making is key to changing your mindset and improving your financial situation.

Ready for a change? Apply for coaching today. 

How you treat money is a direct reflection of how you handle life. Do you strive for balance? Do you navigate between effort and ease? Or do you react in the moment to emotional threats and allow your internal narrative to dictate your life? The answer for most people is that their beliefs are wreaking havoc over their decision-making. And it shows. Many Americans start accumulating credit card debt as early as their college years, and that debt balance increases 5% per year as they age. On average, 20-25 year olds have a recurring balance of $3,660, according to a report from February 2022. This is 59% higher than the average recurring balance of $2,194 from research conducted in November 2019. 

Another key indicator of someone with a scarcity mindset is how often they blame external factors for their financial reality. I’ve heard clients say, "You know, that recession in 2008 made it impossible for me to find a job in my field," or, "I lost all my income due to COVID," and the biggest example, "My parents never taught me how to handle money." Yes, all those factors might be true, but they are not the only reason why you’re in debt or feel like you’re bad with money. They are puzzle pieces that make up your belief system for why you could, should, and would be good with money. A person with a scarcity mindset cannot see the role those beliefs play in their spending, saving, and debt repayment. An attractor is someone who takes their adversity and turns it into opportunity, and sees those experiences as stepping stones to their desired life.

When you blame external factors for your financial problems, you’re also abdicating your power to change your circumstances. You’re explaining how the world works according to your beliefs and accepting that you have no control or power to change it. By living in a scarcity mindset where you place blame, you can comfort yourself with false assurances that you are never fully responsible for the outcome. On the other hand, without claiming responsibility, you don't get to reap the rewards of an independent, financially secure life. If you're always waiting for something else to happen to decide your fate, you lose your right to define your future. 

Adopting a scarcity mindset is easy. Depending on factors you truly have no control over—like how or where you were raised— you can mirror behavior that doesn't reflect your current reality. It is not uncommon for children or grandchildren to inherit a fear-based belief system around money because of generational trauma. And the presence of social media makes it easier still to fuel a scarcity mindset. It takes almost no effort at all to open up Facebook while you’re procrastinating work and see an acquaintance from college jumping off a waterfall on vacation to some beautiful remote island and begin to measure your success using someone else's perceived image or inherited privilege.

Apply for Heal Your Relationship Money Course.

Changing your circumstances is very rarely easy, and even if you start today, your reality certainly won’t change overnight. Accepting and trusting that things will improve over time can be a big hurdle to overcome on your financial journey. But by working on changing your mindset around money, time, things, and people, you can improve your day-to-day living and feelings. By taking ownership of your mindset, you can calm your nervous system, create strategic financial plans, and begin to design the life you want.