This article on how to beef up your financial mindset in 2021 is brought to you by our friends at Benzinga. Mindset is a key to changing your financial habits and building wealth. By changing your money mindset in 2021, you will be able to achieve your financial goals for the year.
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You may already intuitively know how to care for your money: You know you must spend less than you earn, you must amass an emergency fund and fund your 401(k) for retirement.
But all of that takes discipline. Unfortunately, when you haven’t been diligent enough about saving, investing and stockpiling your IRA, you might feel a teensy bit guilty about how you’ve handled your money in the past and might need to get back on track from 2020.
Fortunately, there are some relatively simple steps you can take to improve your financial mindset and tackle your lack of discipline to a positive money mindset and turn them into great habits.
Here’s how to achieve peace of mind about your money in 2021.
What is a Financial Mindset?
So, what is a financial mindset?
Your financial mindset is a predetermined set of beliefs about money. Consider a few “money thoughts” you have yourself. Believe it or not, even if you can’t verbalize your mindset, those thoughts are still there! Do you have these money thoughts? Here are a few examples:
- “Money is the root of all evil.”
- “The pursuit of money means you’re a bad person.”
- “You need to be rich to invest.”
- “Retirement is far away.”
- “My financial problems are someone else’s fault.”
- “I don’t control my money — it controls me.”
And you may have some other thoughts that affect your money mindset. Some of these smaller ideas can affect your larger financial mindset.
Why Do I Need to Change My Financial Mindset?
Did you grow up with one of these mindsets? What we know about money when we’re kids often affects what we do when we grow up. If you had parents who knew a lot about money, you may invest more than the company match, save for higher education for your kids, diversify your investments and more.
On the other hand, you may have grown up in a home where your parents spent every penny they made.
So, how do you handle money as an adult?
Idea 1: You believe that what you don’t have is someone else’s fault.
If you think the amount you have (or rather, don’t have) is due to someone else, you need to change your money mindset. For example, let’s say you believe that because your dad didn’t teach you about money, it’s his fault that you never have any yourself.
Hmmm… it’s not really his fault, is it? Nobody’s stopping you from learning all you can about stocks, mutual funds, bonds and even bitcoin.
Idea 2: You think, “Retirement is decades away. I don’t need to start investing yet.”
That’s exactly when you should start investing. The younger you are, the more time you’ll have on your side and you’ll be able to grow. One of Americans’ biggest financial regrets is waiting too long to start saving for retirement. (Naturally, adults 50 and older expressed this regret at a much higher rate than younger respondents.)
Curious about how much you need to sock away monthly to build a $1 million nest egg by age 65? Let’s assume a 7% annual rate of return. You’d need to save:
- $381 a month if you start at age 25
- $820 monthly if you start at age 35
- $1,920 monthly if you start at age 45
- $5,778 monthly if you start at age 55
How old are you and where do you fit into this scenario? Luckily, if you’re 50, you can make what’s known as “catch-up contributions” to your retirement accounts. In 2021, that means you can contribute an extra $6,500 to a 401(k) on top of the $19,500 you can contribute. You can add $1,000 to IRAs on top of the standard $5,500.
Idea 3: You think, “Life is all about what you own.”
Think you need all the things? Cars, big house, RV, boat, etc.?
Remember, comparison is the thief of joy. It’s easy to compare yourself to other family members, to friends, even to fictional characters on TV.
Social media makes all of that worse. Here’s what happens…
- You base your entire knowledge about the people you’re comparing yourself with based on the beautiful life they show you on social media.
- Most people who look like they have a lot of money actually don’t — they have fancy cars and homes, beautiful landscaping and clothes but actually are drowning in debt. Gigantic mortgage, car payments, credit card debt fund their expensive lifestyle.
- You focus on other people all the time and lose focus on yourself and your own finances
Focus on yourself and your own goals, not comparing yourself to others. Celebrate the wins and update your goals as you reach them.
How to Set Your Financial Mindset for 2021
Here’s how to get your financial mindset set for this next year.
Step 1: Know that you can create good habits around money — you just need to figure those out.
You can do it! The first step is to have a positive attitude about the coming year. What habits do you want to implement this year? What are your goals? Check out a few suggestions…
- Save more than the company match at your job
- Build up an emergency fund
- Start a college fund for your kids
- Learn how to trade stocks
- Save for a 10-year anniversary trip
- Implement a budget
Whatever it is, imagine them coming true, then map out a plan to get there.
Step 2: Invest in yourself.
What tools do you need in order to implement these goals that you worked out in step one? You may need a course to make it happen.
For example, maybe you should take a class to learn about how to trade stocks. Maybe you need to invest in budgeting software. Investing in yourself doesn’t mean you need to take a college class, though you certainly could, especially if one of your goals is to get a better job or a raise.
You can:
- Take extra classes, attain advanced degrees, relevant certifications — whatever makes sense for you.
- Go to workshops, attend conferences or participate in webinars. Learn as much as you can!
- Read books, articles, white papers, anything related to the subject you want to learn more about.
- Learn more about various products that can help you attain your goals.
Step 3: Chop out things in your life that don’t work.
What doesn’t work in your life? What’s getting in your way to attain your goals? Maybe you…
- Are spending 80 hours of work a week and aren’t getting ahead financially.
- Want to launch a business and have an idea of what you want to do next but can’t with your current lifestyle
- Are unsatisfied with the way your career is going and need a change.
The bottom line is this: Get rid of things in your life that don’t work. You want to attack the right things in your life that will give you the best financial advantage.
Step 4: Set your short-term goals.
What do you have in mind in the short term for your financial goals? For example, let’s say that in three months, you’d like to set up an emergency fund.
How can you achieve that goal?
- Boil it down to the amount of money you want to save. For example, let’s say you want to save $1,000 in three months.
- How will you get there? Will you save $333.33 each month? How much does that break down per week?
- Do you need to pull money from somewhere else to make it happen?
- Figure out how you will evaluate how you’re getting there.
Step 5: Analyze your long-term goals.
What are your long-term goals and what do you need to do to get there? More importantly, what do you need to change in order to get to your long term goals?
For example, let’s say you want to save $1 million for retirement. How far away are you?
Don’t let anything get in your way of achieving your long-term goals. If you need to, it takes a little bit more organizing to get there, but it’s important to figure out what it’s going to take to do that, in smaller steps. If you need to, get help!
Get Your Financial Mindset Set for 2021
Financial freedom means you get to make your own life decisions! You control your finances instead of being controlled by them. You don’t let others influence your money decisions. However, financial freedom doesn’t mean that you’re “free” of the responsibility of handling your money well — you still need to mind your money.
You also start to become aware of how outside influences affect your money decisions. It’s possible that you’re not fully aware of how your views are shaping your decision-making!
As soon as you have more clarity on your mindset, you can identify beliefs and habits that affect your ability to stick to, create and attack your financial goals and plans.
About Melissa Brock
Melissa Brock is a 12-year veteran of college admission, founder of College Money Tips and Money editor at Benzinga. She loves helping families navigate their finances and the college search process. Check out her essential timeline and checklist for the college search!
