What’s Your Money Mindset?

I come from middle-class roots and was brought up with what I’ve recently heard referred to as a “middle-class money mindset.” By that, I mean that I’ve been primarily concerned with:

  • Getting an education
  • Developing a skill/career
  • Honing that skill
  • Using that skill to work and trade time for money
  • Saving that money
  • Working to a ripe old age, and then retiring
  • Living happily ever after

More recently, I’ve come to realize that this isn’t what I want out of life. Rather, I want to develop a “wealthy money mindset.” By that, I mean that I want to:

  • Embrace the concept of compounding interest
  • Always spend less than I earn and avoid debt
  • Save/invest as much of my income as possible
  • Achieve financial independence
  • Spend my “work” week pursuing my passions
  • Never retire, but rather continue pursuing my passions
  • Give generously

Wealth is, of course, a very personal concept, so your definition might differ from mine. That’s fine — to each his own!

My story

The following is a brief synopsis of how I came to realize that I need to abandon my middle class money mindset and replace it with one of passionate, wealthy living.

After graduating from high school, I secured student loans and worked part-time as a waiter to put myself through college. I chased after the “middle class dream” of getting a degree and building a career in hopes that it would lead me down the path toward wealth and peace of mind. At the time, I had no personal definition of wealth. The only “goal” that I had was that I wanted to do whatever I wanted whenever I wanted. I was truly ignorant and clueless.

In May of 2000, I graduated from college with a degree in Information Technology. I had over $30k in student loan debt and more than $5k in credit card debt. As far as the world was concerned, I was finally ready to start my career and begin trading my time for money!

As I continued down the path of modern consumerism, I was indifferent toward my personal debt. Then, about six months ago, I finally had my fill of running on the hamster wheel of life and getting nowhere fast. I started a personal finance blog, committed myself to debt reduction, and vowed to pursue my newfound passion all the way to financial freedom.

My extreme mindset makeover

In a recent discussion with my father I told him that I had rewritten my entire view of money and wealth. Intrigued, he asked me to elaborate. I explained to him that I had come to the realization that I needed to get out of debt, reduce my standard of living, spend less than I earn, give generously, save the difference, and eventually live off the interest. Knowing me from birth, and knowing my traditional spending habits, he was flabbergasted to hear such words coming out of my mouth.

I actually fell off the middle class mindset cliff the day I sat down and figured out exactly how much of my money goes toward interest payments month in and month out. If you’re in debt, I suggest that you do the same. Once I realized how much of my money was going toward interest payments, I was able to put my debts in proper perspective. From here, I:

  • Developed a financial philosophy based on sacrifice – The more I sacrifice in the short term, the faster I’ll reach my financial goals. I’d much rather sacrifice when I am young, than worry about money in my later years.
  • Discovered the importance of financial mentors – My mentors are people who have already accomplished what I have set out to accomplish, and are currently living the life that I want to be living. Conferring with these mentors helps me to continually transform my financial thought process from that of a middle class man to that of a wealthy man.

I’m now committed to doing the following in pursuit of financial freedom and wealthy living:

  • Eliminating all debt including my mortgage
  • Simplifying my life
  • Saving aggressively, increasing as my debts dwindle
  • Giving generously, increasing as my debts dwindle
  • Pursuing my passions and developing income from them at my own pace
  • Continuing saving/investing until I can live off my nest egg

These last points are going to be unique to each of us, but the general principles of my extreme mindset makeover stand. Now I just have to figure out how much I want/need to save before I start giving the surplus away, but that’s a topic for another day…

23 Responses to “What’s Your Money Mindset?”

  1. Anonymous

    I really appreciated “What’s Your Money Mindset?” post of all the fivecentnickel pieces. I have forwarded on to a number of people. I think I am going to put it in a frame – suitable of hanging on the wall. It should be read daily!

  2. Anonymous

    Changes in our perseptions and understanding is a great thing that triggers crucial changes in life. I’ve read numerous articles on “change your attitude to money” stuff and came to conclusion that there’s someting to it. When you start positioning yourself differently, you start getting quite a different attitude. Your post is one more proof to this theory. Thank you for sharing, and good luck!

  3. Anonymous

    Thanks for sharing your background and story with us. I really enjoy reading the changes you have made.

    Now you have a goal to achieve financial freedom. As I know we must invest our money so that we have enough passive income and become financial free. But you don’t mentioned about your “investing plan”. Just curious about this and would like to hear your opinions on this case.

  4. Anonymous

    @Everyone: I suppose my use of the term “middle-class” is distracting from the actual point of the article. Let us address the old mindset as a “Trade Your Time For Money” mindset, so as not to confuse.

    Per the mindsets themselves, my emphasis is not on how bad a “trade your time for money” mindset is, but instead on how much better a “wealthy” mindset is. I also wanted to remind readers of my definition of wealthy, as a point of clarity…so be sure to read it again from the article so you understand my perspective.

    @Kev: Great points & questions!

    Per my college education, I use very little of what I learned there in my career. Most everything I now spend my time doing on a daily basis comes from self-education after college.

    Hindsight is 20/20 so who knows where I would be if I hadn’t gone to college. However I can say this, If I would have went straight to work in my current career, I would have made money for the 6 years I was in college and would not have the college debt I now have. At that point I would have most likely been able to save for a down payment on a home (something I did not do for my current home).

    Who really knows, but great questions none-the-less!

  5. Anonymous

    I agree with what you’re saying, but I’m going to go out on a limb here and say that your “middle-class” mindset of yesterday is what gave you the luxury of changing your mindset today.

    Think about it – You financed a college education and that gave you the higher earning power and options you have now. You also financed your home. So, you borrowed money for the two largest “life purchases” a person ever has. Now that you’ve established yourself by borrowing money left and right, you’ve decided to “check-out” of the a consumer-driven mindset. Well… That’s great, but Isn’t that a relatively easy thing for you to do now? That’s kind of like hearing a barbarian say “I’m going to lead a life of peace and harmony now that I have slayed all my enemies.”

    My question is this. Lets say that you, me, or any of the others on here had this change of mindset at say… age 18. Where would be right now? Would we be better off now if we would have approached things like our education, or buying that first home differently? I honestly doubt I would. I financed the hell out of my twenties, but doing so got me to a place where I don’t have to finance anything in my thirties…

  6. Anonymous

    @bas: I have indeed gone from a consumerist-driven money mindset to a sustainable money mindset. We’ve made the same points, just have different terminology.

    @Trav: All of these things specific to investing are a matter of personal preference, so I choose to plead the 5th. 😉

    @Rosa: The delineation is in the established fact that middle-class people trade their time for money. Whereas wealthy people invest and live of their money.

    I have no intention of changing my “middle-class” values, which I hold dearly.

    @Auden: Another investment related question (aka Pandora’s box). I will say this…I plan to pay off my mortgage as soon as possible…right or wrong, due to my personal preference toward the benefits & drawbacks of each.

    Thank you all for your comments!

  7. Anonymous

    @ Travis: A lot of people w/that wealthy mindset and “invested at 7%” lost their shirts in the last year or 2 and probably wish that they’d put that money into their mortgage or even a small-interest-bearing MMA.

  8. Anonymous

    I’m with bas – i think what you’re describing as a “wealth” mindset is traditionally middle class. The idea that you get to be/stay middle class by *spending* money is pretty new.

    Two of my grandparents were middle class, college-educated people. Two were working-class people who managed to get comfortable in the post WWII boom years.

    Guess which side of my family likes new cars, big houses, and fancy clothes? We actually live pretty close to how my middle-class grandparents lived – conserving what we have and saving for the future, having one car and an affordable house, giving the little kids in the family savings bonds for Christmas.

  9. Anonymous

    Mindsets certainly make all the difference. This is an important realization and an important post.

    What I thought was strange was the conflict between two goals:
    – Avoid debt (including mortgage debt)
    – Save/invest as much of my income as possible

    The more debt you’re in, the more you can invest. This is probably a dangerous piece of knowledge, but it’s true, and I think most of the people we’d consider to live a “wealthy” lifestyle actually carry quite a bit of debt. They profit from the fact that a 5% mortgage can be invested at 7%. It’s just that their assets heavily outweigh their liabilities.

  10. Anonymous

    I applaud your goals.

    My confusion comes from your original “middle class money mindset” list. 1) Saving, 2) spending less than you earn, 3) avoiding debt, 4) giving generously – those were all things I learned in my decidedly middle class upbringing.

    To me, it seems as if you’ve gone from a consumerist-driven money mindset to a sustainable money mindset. The lifestyle we need to make us happy is different for all, along with the ways we get to that point, while those 4 things are sustainable no matter how you want to live your life.

  11. Anonymous

    The first thing you have to change is your mindset, and you’ve done that. You’ve set goals for yourself, which is step two. You’ve implemented steps to achieve your goals, like starting the blog and trimming your spending. Looks like you’re on your way. Nice going. I’ll have to check out your blog.

  12. Anonymous

    Consumerism is so insidious that it enslaves people without their knowledge. Consumerism drives the middle class money mind set. Congratulations, Matt, for breaking free. This is the Matrix!

  13. Anonymous

    @Everyone: thanks for the encouragement. Like I said in the post, this enlightened financial mindset was the huge milestone in my financial turn-around.

    @DDFD – I’m with you, I could care less about possessions. We entered the world with nothing & we’ll leave with nothing. The last thing we need to focus on while alive is seeking after possessions!

    @D – Yeah, I’ve heard that before…need to read that book

    @MLR – you’re exactly right…the MC mindset is just like so many other things in modern society…unsustainable. I’m happy that a change in thought patterns is gripping the States & taking them by storm.

    It reminds me of another post I wrote titled, “Why These Hard Times Are Good For You”

    @MostlyHarmless – Consumerism is definitely not just an American culture problem, it’s a “modern global culture” problem. I am very happy that you realize the need to follow your passions. That is so important in maintaining happiness & peace of mind.

  14. Anonymous

    Great post Matt! The entire time I was reading that I was thinking about Einstein’s famous quote about finance: compounding interest is the most powerful force in the universe!

    Glad you saw the light at the end of the tunnel.

  15. Anonymous

    As an Indian who grew up in the middle class setting, I noticed one thing…

    The Indian Money Mindset has all the items from your “middle class mindset” as well as “wealthy money mindset” except for (rather annoyingly) these two:

    # Spend my “work” week pursuing my passions
    # Never retire, but rather continue pursuing my passions

    Which is sad, because to me that is the most important thing of all. I mean, why put in all the hard work and do everything ELSE right, just to drop the ball on the one thing that makes it all worthwhile.

    To me, it is the equivalent of training hard for a marathon, and then calling it quits just a few steps short of the finish line, while you are yards ahead of everyone else.

    Thankfully my dad is more pragmatic, he said essentially, “Do whatever you enjoy, as long as its a good career move.” And well, luckily, I love the whole software engineering thing, and here I am, working as a software analyst, still unable to grasp the fact that I get paid this much for something this fun 🙂

    … looks like i went on a rant there…

  16. Anonymous

    Great post, I think a lot of us personal finance bloggers had a similar moment when we realized that we weren’t getting where we wanted to be, took charge, and changed our lives. Great story, and an inspiration to others who are just getting started!

  17. Anonymous

    I like it – I think mental mindsets are a big thing, and the right one (obviously the wealthy mindset) is probably one of the cheapest things you can do to get the ball rolling in the right direction.

  18. Anonymous

    Great post.

    I can’t 100% relate, but I can for the most part.

    I have always had that “wealthy mindset” but have watched as a few of my sisters struggled with the “middle class mindset.”

    The saddest part is when people keep getting knocked down so they try harder. In the long run, I don’t really think that MC mindset is sustainable if you want both wealth and happiness.

    Glad you found your way, though.

    Welcome to the club 🙂

  19. Anonymous

    Your distinction of Middle class mindset and Rich mindset matches with that of Rich Dad poor Dad and is similar to my line of thinking.

  20. Anonymous

    Great post! I ‘m with you on this– I have so changed what I want from life. I used to want the big house, big cars, and big job.

    Now, I don’t care how I make money (as long as there is enough to be comfortable with debts), I want a secluded right-sized house, and the time and good health to spend with my family.

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