What’s your financial identity and how does it affect your ability to save money?
This month, we’re focusing on how to grow your savings account. In Part 1 and Part 2 of my blog series on saving more money, I looked at how good we are at saving money. (Spoiler: we’re not doing a great job.) I also discussed what it means to save money. If you think you’ve saved money by buying a new smart phone on sale, read the post.
In today’s Money Tip, we’re going to consider the role that your financial identity plays in your ability to save money.
What’s a financial identity?
Simply put, your financial identity is the way that you think of yourself when it comes to money. It’s also your financial comfort zone.
We’ve all read stories of people of modest means who win millions of dollars in a lottery, yet find themselves back in their habitual financial position a mere two years later.
Whenever a story like this pops up in the media, people are quick to assume that winners blow the money because they don’t have the financial skills required to make wise decisions. That’s partially true, but it’s not the root cause of the behavior; it’s the symptom.
The real reason that some lottery winners end up with little to show for the sudden turn in their financial fortunes is that the influx of money pushes them out of their financial comfort zone. They do not identify as a multimillionaire, therefore they do not behave as a multimillionaire would.
Self-sabotage
People who become multimillionaires the usual way – by growing their skill set, working tirelessly toward their goals, controlling spending, investing wisely, and learning from their mistakes – benefit from the slow(er) evolution of their financial identity. They adapt to the initial discomfort that comes with any growth and in doing so, they push the boundaries of their comfort zone. Over time, they redefine themselves, which in turn affects their behavior.
People who experience sudden wealth may unconsciously sabotage themselves (e.g. spending excessively, giving away the money, investing in businesses or products they don’t understand well) to get back to a more comfortable environment that reflects their financial identity.
It may be because of family or peer pressure to conform (e.g. “You think you’re better than us”; “You’re one of them now.”).
It may be because they feel overwhelmed by the need to make decisions for which they feel unqualified.
Or, it may be because they feel the stress of being thrust well out of their comfort zone. So, what do they do? They unconsciously get rid of the money to get back to “normal”.
What does this have to do with saving money?
Whenever I do a corporate workshop on money management and I broach the subject of saving money, I invariably get someone who says something like this, “It’s impossible for me. I’ve never been able to save money. There isn’t any extra to save.”
Do you see what’s going on there? They’ve defined themselves as “someone who can’t save money.” There isn’t a tip or strategy in the world that will work for someone who has decided, consciously or unconsciously, that it won’t work for them.
If, right out of the gate, your financial identity is that of someone who has no savings, or who is incapable of saving money, then you will always find yourself in that position.
Think of your identity as a thermostat. If you set your home’s central thermostat to 10 degrees Celcius (50 degrees Fahrenheit), you will be cold. You may have periods of feeling warm if you plug a heater into a given room, but the temperature will drop back down to 10 degrees when you eventually unplug the heater. If the furnace is set to 10 degrees, there’s no arguing with the number. The only way to get a warmer room over the long haul is to change the setting on the thermostat.
So, too, for your financial identity.
What’s your identity?
This month’s Money Tip is this: Identify your financial identity and ask yourself if it’s serving you well. If not, change the way you define yourself.
The fastest way to figure out your identity is to look at the results in your life as well as your reaction to my posts about how to save more money.
Do you have a growing savings account?
When you read my posts, did you find yourself mentally arguing about why it wouldn’t work for you?
Did you react with a , “Yes, but….”
Do you feel uncomfortable or stressed about the thought of having a growing savings account, mostly because you think it’s too difficult to pull off?
The answers will give you some clues about your financial comfort zone. If you’d like to broaden that zone, read on.
What identity DO you want?
Changing your financial identity can be as simple as saying, “I want to become someone who saves money on a regular basis and who has a healthy, growing savings (and investing) account.”
Then ask yourself, “What would someone who’s great at saving money do? How would they behave?”
Perhaps the first step is to track your spending (I’ll address this in Part 4 of the blog series) to see where your money is going.
Maybe it means setting up automatic contributions to your savings account(s).
It could also mean down-scaling your lifestyle, temporarily, to free up more cash for growth.
When you come up against a situation that leaves you confused, ask the key question once again, “What would someone who is great at saving money do?” Behave accordingly.
I can tell you that financially successful people ask a lot of questions and they constantly seek answers. If they can’t find an answer, they’ll locate someone who can help them. But they do get their answers.
Keep defining yourself as someone who has the characteristics you desire. Change your identity to change your results. And beware of the words you use to describe yourself.
From debt to a 7 figure net worth
I’m sharing the above tip with you because I’ve lived it personally and I’ve seen it at play in countless people with whom I worked professionally.
I went from being a heavily indebted widow with no income prospects, to being a business owner and investor with a 7-figure net worth. I have worked harder on my identity and my mindset than any other aspect of my life.
Of course, I’ve grown my skills over the years, but I’ve learned that success always starts in your mind. Any time you spend harnessing the extraordinary power of your mind for your highest, greatest good will reward you ten-fold.
Back to you. Take a few minutes right now to write down your thoughts. Reach out to let me know what you discover about your financial identity. Let’s work together to heat things up!
UPCOMING EVENT: For those of you who have some savings and now want to know more about investing, our next Women’s Money Group Workshop, on November 26th, is on that very subject! Here’s the link to learn more. I have a terrific guest speaker coming in to share her expertise. You can join in via live stream if you live outside of Ottawa. Details available here.