Discover Two Factors That Determine Your Money Mindset
Oct 20, 2022
It’s a large conference of fee-only financial planners, and on walks to the stage Dr. Sarah Newcomb from Morningstar. She begins her incredible presentation with her research on wealth and well-being and how important it is to help clients foster economic stability and psychological well-being. It is a major money nerd moment for me. Some people get excited to hear their favorite musician in person. I get excited to hear from my favorite researchers in person.
I have followed Dr. Newcomb’s work for years, including her book Loaded: Money, Psychology, and How to Get Ahead Without Leaving Your Values Behind.
As Dr. Newcomb walked through her research, I thought about how this could help you on your journey of financial intimacy.
I know that the journey of building, creating, and sustaining financial well-being is an ongoing process. Most of us need to continually dedicate some of our time to deepen our understanding of money and mental health.
Let’s look at how her research can help you achieve greater financial well-being, an essential part of financial intimacy. Remember, when we each focus on our financial well-being then as an intimate couple, we can foster deeper financial intimacy.
2 Factors That Determine Financial Well-Being
Stop and think for a minute. What are the factors, elements, and variables that you think determine a sense of financial well-being? Does age, income, education level, or gender come to mind? If you are saying, yeah, of course, these factors matter, you will be surprised that from a statistical standpoint point these factors don’t hold up as predictors of financial well-being according to Dr. Newcomb’s research.
Hum. So what predicts your financial well-being? Mental timeline and financial confidence have a higher predictive power on your overall sense of financial well-being. Please remember that financial well-being does not mean you are the richest person in town. Financial well-being is a felt sense and objective reality that you can manage your life with your financial resources.
Factor One: Mental Money Timeline
What’s your mental money timeline? A mental money timeline is how far into the future you typically look and plan for. How far into the future do you typically look?
- Days
- Weeks
- Months
- Years
- Decades
- Generations
Dr. Newcomb’s research shows a powerful connection between mental money timeline and net worth. When people reported having mental timelines in the years, decades, and generations, they had substantially more net worth, which is the objective part of overall financial well-being.
If you answered days, weeks, or months, don’t despair. You can psychologically start to practice stretching your mental money time horizon. Stretching your mental money timeline may not be easy at first, but it is something that can be done over time.
One method is to start with your normal time horizon and then imagine what life could look like at the next mental time horizon. On the whole, does it seem hopeful or bleak? I have learned from many of my clients that looking into the future brings anxiety, fear, shame, and sometimes just a big old blank.
If this is your reality, therapy can be beneficial. Part of the short time horizon response can be associated with unresolved trauma from your past. Your mind and brain learn to bypass making plans for the future out of the understandable need to attend to survival needs.
My clients and others on the healing journey eventually develop the ability to become reflective about the past, live in the present, and make plans for the future.
One word of caution is that if you are so heavily focused on the future, while it may help build net worth, it may mean you are missing the joy of the present. As Dr. Newcomb named it, this is “Wealth without Well-Being”. These individuals often become misers. Some trauma survivors become so future-oriented and wealth-building-focused that they miss the everyday joys of life.
Factor Two: Financial Confidence
Financial confidence is the second factor found in Dr. Newcomb’s research to predict financial well-being. Financial confidence was assessed with a simple question. Do you feel like you can handle what comes your way financially? Respondents answered between 0 - 10, with 0 being not confident and 10 very confident. As might be expected, people who answered 5 or higher had substantially better financial well-being outcomes than those who did not. Responses of 5 or higher were not connected to income, education or gender.
If you are a self-critical person, this is not the time to beat yourself up. Financial confidence can be developed over time through many different pathways. Including, but not limited to, financial role models/mentors, books, blogs, podcasts, courses, financial planning, and financial therapy, therapy/counseling.
The more important step here is to check in with your financial confidence. My financial confidence has moved along the continuum up and down through different seasons of life. Being able to take stalk and become reflective about your financial confidence is important.
For financial intimacy, it is important to reflect on where your spouse is on the financial confidence side of things. Many of the couples I have worked with have intentionally and unintentionally undermined their partner’s sense of financial confidence. Yet it is our sense of financial confidence that is essential in being able to take action towards shared financial goals, desires, and dreams.
4 Money Mindsets and Becoming Money Masterful
On this journey with money, I continue to be surprised about what I learn about myself. With learning, healing, and growth, I can look back and see how I have changed along the way. So much of it is influenced by the different environments I find myself in. Including financial planning conferences.
4 Money Mindsets
Dr. Newcomb shared four different money mindsets that emerge around financial well-being.
- Vulnerable - This person struggles with economic stability and psychological well-being
- Protect Me/Miser - This person has large amounts of money (this is relative) and low psychological well-being
- Care Free/Spendthrift - This person has low economic stability and higher levels of psychological well-being
- Money Masterful - This person has both high economic stability and psychological well-being.
When we understand that wealth and well-being walk hand in hand and are not at odds with each other, we open up psychological space to pursue both. As I reflect on these four different money mindsets, I see how I have spent time in all four.
How about you? Where have you been from a money mindset space before, and where do you find yourself now?
How about your partner?
This would be a wonderful article to share with them, and take time to talk through this together. If you do this, please do not diagnose your partner or tell them where you think they are. Ask for their self-evaluation and then be curious and empathic about why they evaluate themselves that way.
While making sustainable economic and psychological changes can be complex (many pieces) and dynamic (as one piece changes, the others do as well), it is possible to move the needle towards increasing money masterfulness.
It likely means working with several professionals to help you get there, including a comprehensive financial planner that can help you evaluate your objective financial stability and provide a guided path forward. It may also mean that you need to work with a mental health professional that can help you foster a greater sense of confidence in yourself and your financial decision-making.
If you are ready to take the next step towards becoming money masterful, I invite you to get a copy of my award-winning book The Healthy Love & Money Way: How The Four Attachment Styles Impact Your Financial Well-Being.
Would you like to work one on one to improve your money mindset, then consider Therapy Informed Financial Planning. Schedule your 30-minute free discovery call.
Wishing You Healthy Love and Money,
Ed Coambs,
MBA, MA, MS, CFP®, CFT-I™, LMFT
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