Spending Money with a Scarcity Mindset
Running out of money is a fear I’ve had my whole life. What if my bank account dries up and there’s nothing left?
For a long time, I thought there were only two types of money personalities: spenders and savers. In my mind, spenders were people that behaved foolishly with their money. They were wasteful, impulsive, and irresponsible. Savers, on the other hand, were smart, resourceful, responsible people. Savers would always have money for a rainy day because they hadn’t spent on useless things today. This was a money belief that I held onto all the way through college. I, of course, was the “right” kind because I liked to save my money. I had friends that would spend their paychecks from part-time jobs on shoes or take-out the moment they got them, so I was the smarter one, better one, when it came to money. Right?
But something didn’t add up. I saw my friends spending their money on things they loved and ways that brought them happiness. I always had money for a rainy day, but I didn’t enjoy spending it. So I did a quick search of “money personalities”, and came up with a million different results. There are compulsive spenders, compulsive savers, people who claim not to care about money at all, people who love money so much that they keep accumulating it by any means necessary, people that spend when they’re sad, people that spend when they’re happy. There are so many different ways to look at money, but to me, they still all boiled down to “spender” and “saver”, but this time with more complexities. Spenders and savers both have different triggers and levels to each.
I was way on the saver side and I realized that one side is not better than the other because we are all spenders AND savers. We should all save money for big purchases and retirement. But we all also spend money on rent, food, gas, movie tickets, electrical bills, new phones, expensive coffee, school supplies, and more. Where we fall on the spectrum of spender-saver usually comes from the values we were taught about money as kids. Moreover, being a saver was not the perfect money management ideal that I always thought that it was.
It turns out, savers also have vices. I didn’t know how to spend money and that was bad. That’s not to say I never spent money at all, because I did, but there was always a little bit of guilt in the back of my mind. Are you sure you should be spending $20 going to the movies with your friends? What if (insert your preferred giant catastrophe here) happens and you don’t have enough money to deal with it later? This is what’s called a scarcity mindset. Scarcity mindset is when you believe there are limited resources in the world, so if someone else has something, that means you can’t have it too or there is less of it for you. A classic example of this is an oldest child thinking their parents will love them less now that a new baby is on the way. They don’t understand that their parents can love them just as much AND love the new baby too. Love can expand without limits.
In regards to money, scarcity mindset means you think money resources are limited so if you spend money, you are using up the resources, draining them, reducing potential resources for another time. Oh boy, did that idea set off a lightbulb in my head. Maybe I wasn’t as perfect with my money as I had thought, because scarcity mindset fit me to a capital T. I always knew exactly how much money was in my savings account, and using any of that money made me feel guilty (because I was draining my resources) even if I was spending on something I enjoyed.
But before I could start to address this issue, I had to think back to where it came from. Growing up, I never went hungry. I never worried where I would sleep or whether my parents could take care of me. In this way, I was very fortunate. But, I was constantly aware that we never had quite enough money. The phrase, “We don’t have money for that” was frequently used in my home (especially in the toy store, but I’m thinking that wasn’t so much money related as my mom didn’t want more toys in the house).
Now, fast forward a couple decades, and I thought, “well, I went out to dinner with my husband last weekend, so I can’t afford to buy this new pair of shoes” or “I had to spend $5,000 on my surgery, so I can’t do any social outings for 3 months”. It’s almost as if I was punishing myself for spending money. How dare I spend $5k on surgery to get my hip fixed! You will be punished by no fun time with friends for THREE months!
I’m not suggesting you should spend on everything that comes your way. That sounds like an easy way to go into debt. But you should absolutely spend on the things that are important to you. The way that I’ve learned to combat my scarcity mindset is to plan ahead, and set money aside into different savings accounts to prepare for different situations. By putting money into different categories, I always know how much money I can spend within that category. For example, my husband and I had a nicely padded joint Emergency Fund that I used for my surgery. Did I make a big dent in that savings account? Yep. But using that money meant I didn’t have to miss my friend’s Bachelorette party in order to pay for my surgery.
There are plenty of financial experts out there that will tell you to only have 1 savings account. If that works for you, great. But personally, I love having as many savings accounts as I can. I usually have at least 5-6 for different categories of my spending. The ones I have right now are:
Emergency savings (joint with my husband)
Discretionary savings (joint with my husband for fun things like - new bikes, dinners out, etc.)
Travel
Frindy Dindy (it’s my grandmothers term, but it basically means YOLO, this account is for any random thing that I just have to have)
Investing (money I put aside from my paycheck for my Roth, taxable brokerage account, or occasionally an educational course)
Miscellaneous (my “who knows what else could come up” account)
By putting money aside from each of my paychecks into these accounts, I know that I am prepared to cover any unexpected plans. In this way, I can manage my scarcity mindset and spend guilt-free because I already put money aside for exactly that thing.
I encourage you to reflect on your own attitudes towards money. Do you tend to spend money as soon as you have it? Do you hoard it and feel guilty any time you spend it? The things we were taught about money as children inevitably affect our mindsets as adults. But understanding what those beliefs are, and where they come from, can help us make changes to move forward in a healthier way.
Action Items
If you don’t already have a separate Emergency Savings account, open one now. You should have an account where you keep money that is only used for real emergencies (think hospital bills, trips to the mechanic, broken hot water heater in the middle of winter).
Think of some of your most common spending categories. Can you set money aside from each of your paychecks for those expenses? For example, if you and your partner go out to $100 dinners every single week, put $200 per paycheck into an “eating out” account.
Your life may not be perfect, but it is imperfectly yours. The only way to live it is your way.
