According to the American Psychological Association, 72% of Americans reported feeling stressed about money at least some of the time during the past month.
With financial stress being so commonplace, it is important to understand what we can do to manage it.
Today, we will be talking about the core components of mindfulness as well as how we can translate these components into financial mindfulness.
What is Mindfulness?
Mindful.org defines mindfulness as:
The basic human ability to be fully present, aware of where we are and what we’re doing, and not overly reactive or overwhelmed by what’s going on around us.
Mindful.org
One of the aims of mindfulness is to be able to step back and understand how our minds operate. To practice mindfulness is to watch how our thoughts swim together and interact without judgement, resulting in a better understanding of why we feel the way we feel.
Mindfulness can take many forms, however today we will be specifically focusing on financial mindfulness.
So let’s examine the seven pillars of mindfulness and see how we can apply each pillar to different aspects of our personal finances.
Applying Financial Mindfulness Principles
Pillar 1 – Non-Judgement
What is Non-Judgement?
All judgement can be derived from the assumption that there is a universally right and wrong way to do something. Furthermore, we do not want to make the ‘wrong decision’ that may result in not feeling accepted by others in our lives.
However, the truth is… everyone has an opinion. So if you make a decision in order to meet one person’s expectations… chances are you aren’t meeting somebody else’s expectations. It’s a game you can’t win.
In reality, everyone has their own individual financial goals. There is no right or wrong goal, just different goals. As we gain confidence in what we want to accomplish financially, judgement from others will have a lesser impact on how we feel.
Financial Example: Education & Career Choice
Our educational and career choices should be made based on our own goals and interests.
A lot of parents want their children to be successful, which usually translates to “you need to get a degree.” And while there is value in a degree, there are plenty of ways to be successful and make 6 figures without going to college.
If you don’t want to be a doctor or lawyer, then don’t do it!
There are plenty of other lucrative options to pursue such as going into a trade or even starting your own business. Whatever decision we make, it needs to be made with non-judgement. This will result in us living a more fulfilling life according to our values as opposed to worrying that we are disappointing someone else.
Pillar 2 – Patience
What is Patience?
With patience comes the acknowledgement that there is a clear distinction between our short and long term goals. The ability to be patient frees up our mental energy from focusing too much on the future and more on what is important today.
That is why we need to find the balance between planning for our future vs. living for today.
Financial Example: Compound Interest
It’s tempting to buy into the latest market hype to try and juice our returns. While this has the opportunity to be lucrative, it is also requires constant attention to our current financial situation.
This can become very taxing on our minds.
Instead, let’s put our finances on autopilot, trust the process, and free up our mental energy to focus on the moments that make our lives worth living.
We can do this because of compound interest, or as Einstein calls it, the 8th wonder of the world.
With this time-tested strategy of letting our investments grow slowly and exponentially over time, we do not need to look at our retirement accounts everyday. By implementing a simple dollar cost averaging strategy over the long term, our statistical chances of hitting our long term financial goals are near certain.
Below is a four year snapshot of my portfolio that is starting to see the effects of compound interest:
Pillar 3 – Beginner’s Mind
What is a Beginner’s Mind?
As we go about our lives, we develop expectations for how things should be. These expectations can lead to disappointment because new experiences or new concepts can potentially go against what we already know.
However, adopting a beginner’s mind view of the world can allow us to enjoy our lives as a series of unique moments: each one slightly different then the last.
It’s a tempting trap to believe that we know everything about our finances. As a result, we are quick to disregard a lot of great financial advice that can potentially help us out.
Listening to multiple different perspectives can lead to us gaining a more balanced view of different financial concepts.
Financial Example: Credit Cards
A great example is credit cards.
Some of the most prominent “financial gurus” of the world believe that you should avoid credit cards at all costs.
However, I would argue that credit cards can be an awesome way to reach financial independence quicker.
Having the willingness to listen to all sides of a story can lead to us making better informed decisions.
Pillar 4 – Trust
What is Trust?
Trust is believing in ourselves and the values that guide us.
Developing that self-trust is critical in confidently allowing us to live our lives as we see fit. No one can make the right decision for us, except ourselves.
Financial Example: Spending Habits
Once we understand what our values are, our optimal spending habits will naturally fall into place.
This is one of the hardest pillars of financial mindfulness, because we need to be able to trust that we understand our values and can separate them from the values of those around us.
Are you buying that car because that is truly what you are passionate about and will make you happier? Or are you trying to keep up with the Joneses and impress people?
Trust in yourself to spend your money consistent with your values that will make you (not others) the happiest.
Pillar 5 – Non-Striving
What is Non-Striving?
After developing the foundation of trusting yourself, we can look to Ernest Hemingway to understand what it means to be non-striving:
There is nothing noble in being superior to your fellow man; true nobility lies in being superior to your former self.
Ernest Hemingway
Embrace the person that you are. We don’t need to strive to be anybody else but ourselves
Because as long as we are constantly growing, nothing else matters.
Financial Example: Your Own Financial Journey
Everyone is in a different chapter of their financial lives.
It is a disservice to compare ourselves to others, as this will lead to one of two things:
- Complacency: We are ‘beating’ others in the financial game and subsequently become complacent on prioritizing growth towards our goals because we feel that we are in a great position.
- Discouragement: There is no way that we can beat others, so why try?
Our financial journey should be measured by the progress against our own goals. In the end, if we are making progress towards our financial goals, that is the only thing that matters.
Pillar 6 – Acceptance
What is Acceptance?
The fact is that our lives are full of both positive and negative experiences.
Acceptance means acknowledging that facts are facts. As a result, avoiding the facts we don’t want to experience will actually lead to us feeling even worse.
Financial Example: Emergency Funds
Life doesn’t always go as perfectly as we would like it to.
The broken refrigerator, the shattered glass sliding door, the unexpected medical expenses. As my father once told me, “they are called accidents for a reason, we never to expect them to happen.”
The quicker we accept this fact of life, the sooner we can ensure that we set away the necessary funds for those occasions.
Thankfully I listened to my father because all three of those examples happened to me within the same month. As a result, I was able to cover those unexpected expenses without it having a drastic impact on my finances.
Pillar 7 – Letting Go
What is Letting Go?
With our limited time in this world, we shouldn’t remain fixated on the things that are outside our realm of control.
Once we let go of this notion, we can then pivot our attention to the things that we can actually control.
Financial Example: Stock Market Fluctuations
It is easy to get caught up in the daily fluctuations of the stock market. I mean, this time is different right?
There will be days where our portfolios are doing well and other days where we will want to sell everything to stop the bleeding. We naturally turn to this latter option because it appears the only thing that is within our control right now.
Or is it?
The other option is to let go worrying about the stock market. Historically speaking, the stock market as a whole has always gone up in value over the long term. By letting go and allowing compound interest to do it’s thing, we can benefit from the principle of time in the market vs timing the market.
Final Thoughts
Mindfulness is a great way to better understand ourselves in order to improve our overall mental health.
By practicing financial mindfulness, we can better understand and manage the stress brought about by our own finances.
Which mindfulness pillar do you think would be most effective in managing your financial stress?
Thank you for reading! 🙂
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Full Disclosure: Nothing on this site should ever be considered advice, research or an invitation to buy or sell securities, please see my ‘Terms & Conditions’ page for a full disclaimer.