Whether you are starting your first business, an entrepreneur, focusing on a side-hustle, or self-employed, you have to develop the right money mindset to succeed. That’s not to say the people who are employed can get by with an “improper” money mindset, but having a steady source of income gives people a little bit more leeway.
On the other hand, entrepreneurs or business owners can’t afford to have the wrong ideas about money or destructive financial habits. If they want to grow their business and achieve financial freedom and stability, they need to avoid certain money mindset pitfalls.
Though just having the right mindset is not enough. People have to instill the right financial habits actually to start moving in the right direction, and that takes time and discipline. But it does begin with the mindset. If you can’t think right, the chances are that you may not act right as well. At least not in a way that can ensure the financial strength of your business.
Money Mindset Pitfalls to Avoid
Everyone has their preconceptions about money, and it’s hard to change how you’ve thought about money for your whole life. This is the reason why many psychologists believe that children should be taught about money from an early age. How it works, how it spends, how much importance it deserves in an individual’s life. Plus every culture and family have their own values about money. All these things should be instilled from a young age.
To become successful in life, people have to change a lot of things about themselves, and a money mindset is one of them.
1. Making A lot of Money is Impossible
This is one of the first misconceptions that many people carry about money. These are usually the people who have always seen people around them, grinding away just to put food on the table. Or they may be people who severely underestimate their own capabilities and potential, and what they can do if they really tried.
If you wish to succeed in life, that’s the first wrong idea about money that you have to shake away. Making a lot of money is not impossible. It’s certainly not easy, but it’s also not impossible. People who have accepted that their lot in life is limited, and they will never be able to move beyond their own mediocrity, become stagnant. It’s good from a catharsis perspective, but terrible from a growth-oriented point of view.
If you have decided that making a lot of money is only possible for people who come from well-connected families and wealthy backgrounds, or for those who are gifted, you may never be able to give your all to your efforts to make money.
2. Making Money is Easy
The other side of the coin is just as wrong. If your mindset is that it’s straightforward to make money and can do it whenever you put your mind to it and give it everything you’ve got, you are likely to waste a lot of time. For people who don’t have enough resources and connections, becoming financially successful requires a lot of planning, efforts, diligence, and perseverance.
Making money is hard; making a lot of money is a lot harder, and it requires focus. If you take it lightly and don’t put in as much effort as you should have, you will likely fail and lose hope. Setting the bar high enough for making money, will keep even early (and expected) failures from knocking you off course.
This is usually seen in talented individuals who feel like they can do almost anything if they just work hard enough. And when they realize the truth and realize it’s not that easy, they get disheartened. So don’t think making money is easy, realize the fact that it’s difficult but attainable, and hopefully, you will make enough effort to help you reach your goal.
3. Introspection Isn’t Important
Carl Jung said – “Who looks outside, dreams; who looks inside, awakes.” And while the scope of this quote is significantly larger than money mindset and introspection, it does point towards an important truth. You can’t be a successful entrepreneur or a true creative spirit if you don’t dare to dream. But to truly realize your potential, you have to look inside.
Introspection will help you realize what your current money mindset is, and that can help you improve it. You will figure out how you actually think and feel about spending money, and what your decision making process it when it comes to making financial decisions. You can connect the dots inside and find flaws that need to be worked upon.
This mental scrutiny is not as easy as it sounds, because ignorance is bliss, especially when it’s about your own flaws. But if you are to evolve mentally, you have to understand and work on your existing money mindset.
4. Money Blocks Don’t Exist
Introspection will also help you find your money blocks. You may have trouble negotiating for the fair price. This is one of the common money blocks that many entrepreneurs face. They have trouble adjusting to the fact that what they perceive as the fair value of their product and services, might not be fair according to the buyer/client, and they either negotiate too emotionally or not at all.
Similar to negotiation, other money blocks include trouble reconciling what you love with what makes you money. When turning your hobby into a business, you may not give enough thought to how you should price your product or services, and clients might take advantage of it.
If you don’t think money blocks exist and everyone, including you, has them, then that’s the wrong mindset.
5. The Right Price Dilemma
Some people think that since they know their business inside and out, they are the sole arbitrators of what the price should be. On the other hand, some people externalize too much and believe that only the market can judge the fair price of their product/services.
Both mindsets are wrong and represent two extremes that you should avoid. You should never feel nervous to ask for a fair price, but you have to research the market, the need for your product, and similar products available, to decide on a fair price.
If you set the price too low, simply to enter the market (a strategy that many apply, but it’s rarely the right long-term solution), you may be dismissed as low quality, or you will push away your clientele when you finally ask the fair price. Or you will have to bring the quality down to match the low price.
6. Money = Business Success
Money isn’t the only criteria of business success; neither is it something that you can afford to ignore. If you focus too much on research and development or building a clientele while your finances are going downhill, you are unlikely to stay open for business. You have to focus on everything simultaneously.
But thinking that your business is successful only when it’s bringing you a lot of money, also reflects the wrong mindset. It shows that your business has no values and no broad-spectrum aims and that you will do anything to keep the money rolling in.
That will prevent you from attracting the right (and loyal) clientele. They can be values like giving back to the community, solving a problem, providing a much-needed service, etc. help anchor down your business. And they also help you bull through hard times when business is not bringing in as much money.
7. You Can Save For Every Eventuality
It’s not exactly a money mindset, but that’s a huge part of it. People are too organized (and OCD) about sticking to a plan, often create safety nets for their businesses. While it’s a good thing, overdoing it can spread your resources too thin. You can’t prepare for every possibility, and you can’t build a financial safety net against every crisis your business might face.
Plan for failure, prepare for it, but never turn your back on it. The history is full of organizations that became things of the past (Blockbuster, Kodak, etc.) simply because they were too tied to convention and their own safety plans, and couldn’t evolve fast enough.
If you think there is a way to accumulate enough resources or devise a perfect business model that can withstand everything, you are wrong. You may be too scared to take advantage of new opportunities, or you will erect too many boundaries around your own growth potential. Risk is an important part of business, and if you are too afraid of it, then you may need to work on your entrepreneurial spirit first.
There are several other money mindset pitfalls that people don’t see and deal with until it’s too late. Like getting trapped in your past financial mistakes, considering debt the lifeblood of a business, chasing quantity over quality, thinking money is the ultimate incentive, etc. The “bottom line” is that people don’t work on their mindset. Everyone has preconceived notions about money, and they can be constructive and destructive. And until people realize the flaws in their ideas about money and how it impacts their life, and how their financial habits play out in their personal and professional life, they won’t do anything about it.