How a Scarcity Mindset May Be Hurting Your Finances

Some habits are really hard to kick.

Even as I've grown older, and seemingly more practical, it's been really tough to part with a deeply ingrained scarcity mindset.

Where does it stem from? Possibly from losing my first job or burning out in my previous career. Either way, this fear-based way of thinking can be stifling.

What is a Scarcity Mindset?

Living with a scarcity mindset means constantly being afraid there isn't enough. It's always worrying that time, money, or success are limited. Moving through life with this type of burden is more common, and more damaging than you might think.

Numerous studies have shown how poverty can be taxing on the mind. But what about the effects of a scarcity mindset?

Harvard University economics professor Sendhil Mullainathan and Princeton University psychology and public-policy professor Eldar Shafir's book, “Scarcity: Why Having Too Little Means So Much,” makes a few important points on scarcity.

One of them relates to our mental bandwidth, and how we perform worse on cognitive tasks when we're distracted by things like a lack of sleep, family problems, or financial issues. When our brains are overloaded with worry, it's easier for us to make poor decisions.

Does a scarcity mindset sound familiar to you?

Here's how it may be affecting your money.

Stop Obsessing Over the Latte Factor

Living below your means is an excellent way to widen the gap between your income and personal savings rate. But tracking every single penny may be expelling too much of one of your most valuable and finite resources—your level of energy.

Obsessing over frugality may be distracting from your bigger financial picture. For example, updating a spreadsheet of hourly expenditures rather than conserving precious brain power to discover creative ways to invest in your future. It's a short-term trade off for a long-term financial win.

J.D. Roth put it succinctly in his most recent blog post,

“It’s easy to fall into what I call ‘the optimization trap', to believe that tiny tweaks will make more of a difference than they actually do.”

Once I stopped trying to channel Extreme Cheapskates, I found the energy to invest in blogging, freelance writing, and social media consulting. The extra income has not only exceeded what I had previously been squirreling away, but it's also helped strengthen my skill set.

Learn to Say ‘No'

Do you struggle with saying ‘no?'

When I first started freelancing, I was quick to accept the majority of opportunities being pitched my way. But I've since realized my reaction was out of fear. Because I had recently changed careers, I loved the added layer of security with my additional streams of income.

Accepting on all of these gigs may have temporarily padded my bank account, but they weren't necessarily serving the greater, more important goal—advancing my career.

When you’re offered a new side project, networking event, or volunteer gig, be sure it truly aligns with your long-term goals before saying ‘yes.' Declining the stuff you're less interested in frees up your time and energy for better opportunities down the road.

Support Those Around You

Do you ever catch yourself feeling resentful of other people's successes?

It's normal to feel a little jealous sometimes, but it's important not to waste too much energy on these types of unproductive feelings.

Try and find ways to be genuinely happy for and supportive of them. Use their success as a way to fuel inspiration in your own work.

Don't hoard your knowledge and skills. Being protective of your talents in one of the biggest mistakes you can make. Instead, use them to lift those around you. There's more than enough success to go around.

Practice Gratitude

Are you constantly focused on the things you don't have?

The scarcity mindset creeps in by reminding us of the fancy car we'd rather be driving or the designer handbag we wish we could tote to our next client meeting.

Fixating on all the things we don't have, rather than appreciating everything we do, can lead to reckless and emotional spending.

The truth is, whatever we've recently splurged on probably isn't the key to our long-term happiness. No matter how much we think we “deserve it.” And having less money will only add to our cycle of dissatisfaction.

Living with a Scarcity Mindset

A scarcity mindset isn't always a bad thing. It's healthy to prioritize what's most important when it comes to where we spend our time and money. But when we allow fear to dominate our decisions, we may find ourselves trading small wins for long-term financial victories.

Readers: Have you struggled with a scarcity mindset?

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Discussions — 30 Responses

  • NZ Muse May 25, 2016 on 5:46 am

    Oh definitely. Even now I’m more stable, I still am driven by an underlying sense of fear.

    And I still feel it when I go to donate to charity – I can afford to but I still pause and I revert to a younger me when donating $10 was significant.

    Reply
    • Kate Dore NZ Muse June 18, 2016 on 12:21 pm

      I’m with you! Sometimes the smallest financial decisions can trigger memories of being unemployed or barely earning enough to cover the basics.

      Reply
  • Jim Wang May 25, 2016 on 6:20 am

    When I first heard about the whole “practice gratitude” idea, I thought it was hokey. I am generally a thankful person, I appreciate the things around me and what has happened in my life, but I didn’t practice it in the active sense. I thought the whole idea was silly.

    The act of practicing gratitude changes your entire mindset in a way that can be very subtle. I’ve found that it’s “slowed me down” in terms of my emotional response to various stressors. Instead of viewing a lot of things as competition (which is why I think people get road rage), I’m able to be more introspective and realize it’s not a competition, it’s not a big deal, and I should be thankful I have a car that runs reliably and doesn’t need gas in 5 miles.

    It sounds silly silly but folks shouldn’t overlook practicing gratitude, you’re able to see more good than bad in the world.

    Reply
    • Kate Dore Jim Wang June 18, 2016 on 12:22 pm

      Wow, thank you for sharing this perspective, Jim. You’ve definitely inspired me to slow down and be more grateful throughout my day.

      Reply
  • Tonya@Budget and the Beach May 25, 2016 on 8:51 am

    great post! This is a loaded question for me though. I’ve been trying to live with an “false economic sense of scarcity” since I started my full time job and have that extra income. I just don’t want to slip into old habits. The thing is I know things aren’t scarce, so it doesn’t really have an effect on my “true mindset.” I have, however, experienced true scarcity when I was freelancing. It’s a terrible feeling. I think now if I was working full time and was truly feeling the scarcity, I would be using up ALL my free time to freelance, and right now my free time is everything! I still love though cutting little corners to save money, but I would certainly have a lattte if it meant meeting up with a friend and having a good long conversation. Sorry, this comment was all over the place. lol!

    Reply
    • Kate Dore Tonya@Budget and the Beach June 18, 2016 on 12:24 pm

      No, your comment makes a lot of sense to me, Tonya! I’ve experienced these same feelings. It sounds like you’re making the right choices with your time!

      Reply
  • Latoya @ Life and a Budget May 25, 2016 on 11:30 am

    This used to play a big factor into my money mindset especially when I was focused on “saving” through couponing. I was the one in the store with the coupon binder, going to all the stores trying to save a few cents. I was even going as far as trying to get my hands on multiple computers so I could print more coupons. Back then I had no savings, I was just trying to squeeze blood out of a turnip (excuse me, I’m country). When I stopped focusing on couponing, that’s when I was actually able to increase my savings because I sat myself down and made a budget and started thinking long-term instead of in the moment. I also used to be bad about focusing on what others were doing and figuring out how I could get ahead instead of celebrating others and measuring my progress against myself and not others. Once I got over those mental blocks, my financial situation has taken a healthy and more positive term. It definitely does not pay off to have a scarce mindset when it comes to finances. There is enough for everyone to win!

    Reply
    • Kate Dore Latoya @ Life and a Budget June 18, 2016 on 12:27 pm

      I love this, Latoya! Thanks for sharing these details about your journey to financial wellness. It’s really inspiring for others to hear! 🙂

      Reply
  • Brian @ Debt Discipline May 25, 2016 on 2:29 pm

    The old is this glass half full or half empty question. I think we all have those feeling of jealous creeping in sometimes, its how with deal with it that’s important. Do we over react or catch ourselves and be reminded of the great things we already have.

    I try and not let things outside of my control affect me, or people who are not important to me control or have an affect on me. Why waste energy on these things.

    Reply
    • Kate Dore Brian @ Debt Discipline June 18, 2016 on 12:29 pm

      That’s a great attitude to have, Brian. You’re totally right about ignoring the things out of our control.

      Reply
  • Linda @Brooklyn Bread May 26, 2016 on 10:47 am

    Very nice post. I don’t have that fear, but the jealousy is something I try to actively stay on top of. I am a regular person renter surrounded by skyrocketing property values and millionaires from around the world. I work very hard not to allow myself to be bitter about it, even as they has evicted good friends and neighbors around me. I remind myself that I still live on the street that I love for a lot less money than they do, thanks to a landlord who has treated me well for more than a decade. Having more money would not make it any sweeter and though I worry what will happen when my landlord finally decides to cash in and sell our building, I’m trying to just let myself enjoy watching out kids play outside on the block and enjoying beers with neighbors on the stoop. Money can’t buy those things either.

    Reply
    • Kate Dore Linda @Brooklyn Bread June 18, 2016 on 12:35 pm

      Thanks so much for sharing, Linda! I can’t image how tough it must be to afford to live in New York City. Growing up in the Boston area, I always assumed I’d “graduate” to the big city after college. But living in Nashville for the past 10 years has been a lot easier. Especially when I was earning a really low salary in the music business. It sounds like you’ve got a great deal on housing for now! Fingers crossed it lasts a long time.

      Reply
  • Jane May 27, 2016 on 9:42 pm

    Loved this, Kate! It’s true – I am constantly fighting my tendency to see situations from a scarcity mindset. No need to see everything as half empty, when it puts you in a more productive creative headspace to see how the glass is half full. Thanks for the important reminder.

    Reply
    • Kate Dore Jane June 18, 2016 on 12:38 pm

      Thanks for reading and commenting, Jane! I need this reminder almost every day.

      Reply
  • Broke Millennial May 28, 2016 on 1:42 am

    You’re speaking to my heart right now, Kate! Saying no and thus over-extending myself is an on-going battle right now and it’s really hard to fight the urge to accept everything just in case. I also love reading about someone else that’s a money nerd but doesn’t track every penny. It is indeed time consuming, especially when you already have a solid handle on your finances. It makes sense for those trying to get overspending in check, but eh, I’m good with my method.

    Reply
    • Kate Dore Broke Millennial June 18, 2016 on 12:39 pm

      Yup, I was tracking every cent back when I was trying to build up my emergency fund a few years ago. But now, I definitely feel like the energy is better spent in other areas!

      Reply
  • Catherine Alford May 28, 2016 on 11:19 am

    It’s so hard to say no to work sometimes, but I just recently did it and it felt great to know that I could turn down work and still be okay financially.

    Reply
    • Kate Dore Catherine Alford June 18, 2016 on 12:40 pm

      That’s awesome, Cat! It must feel amazing to have reached that place in your career. 🙂

      Reply
  • Stefanie O'Connell May 31, 2016 on 9:43 am

    I’m with you. The moment I stopped buying into this idea that I was a “starving artist” and all I could do was cut back more and more, I started thinking about ways to increase my earning potential, which completely changed my life – for the better!

    Reply
    • Kate Dore Stefanie O'Connell June 18, 2016 on 12:41 pm

      That’s amazing, Stefanie. You’ve been really killing it over the past couple of years. I have no doubt your success will only continue to grow now that you’ve shifted your mindset.

      Reply
  • Abigail @ipickuppennies June 8, 2016 on 10:49 am

    My mom, frugal maven that she is, was great at frugal hacks. But didn’t compare insurance rates for years. She was appalled when she finally did.

    I’m trying to stop living in the scarcity mindset because it takes such a physical toll. Maybe it’ll be easier once this stupid oral surgery is done and paid for.

    Reply
    • Kate Dore Abigail @ipickuppennies June 18, 2016 on 12:42 pm

      Ugh, that stuff is so expensive! I don’t blame you for being frustrated. I’ve been putting off a minor dental surgery that’s not covered by insurance.

      Reply
  • Financial Samurai July 7, 2016 on 3:32 am

    I’m a total believer in the abundance mindset. It was my dad who asked me when I first graduated, “There are CEOs who burn their companies to the ground and get multi-million dollar exit packages. You deserve as much as them if not more for doing good work.”

    There’s more than enough to go around for everyone!

    Sam

    Reply
    • Kate Dore Financial Samurai July 9, 2016 on 8:46 pm

      I love that, Sam! Your dad is totally right. Clearly, he’s pointed you in the right direction!

      Reply
  • The Thing About Money July 16, 2016 on 1:45 pm

    Like you say, we have to focus on what’s important when budgeting or deciding what to save for. But focusing on the important things can’t become focusing on what you don’t have – that’s such a dangerous trap. It gets hard to feel like there’s a lot going for me when most of my extra dollars go to paying down student loans, but there’s no alternative unless I just want to be bitter and depressed. I have to constantly remind myself that I have family, friends, a car, an education, and for the moment, a good job. For me, one passage from Marcus Aurelius’ Meditations has been helpful in keeping that abundance mindset. Basically he says that there is beauty to be found in the most simple stuff, even the cracks on the top of a loaf of bread. I figure that if you can find beauty in a loaf of bread, its easy to convince yourself that life is abundant!

    Reply
    • Kate Dore The Thing About Money July 17, 2016 on 9:14 am

      Great insight! It sounds like you’re working on keeping the right attitude. Some days will be easier than others. As long as you’re consistently moving forward, you’ll eventually reach your goal. Best of luck paying off your loans!

      Reply
  • Designing A Frugal Life September 18, 2016 on 8:49 am

    Great post! Yes, I have definitely dealt with a scaricity mindset. The Great Recession started my freshman year of college. I was SO broke for those years. I took any free thing someone gave me. It took a few years of my spouse and I both earning a solid income, but I no longer hold on to stuff “just in case” knowing full well I’ll never need items X, Y, & Z.

    Reply
  • Designing A Frugal Life September 18, 2016 on 8:49 am

    Great post! Yes, I have definitely dealt with a scaricity mindset. The Great Recession started my freshman year of college. I was SO broke for those years. I took any free thing someone gave me. It took a few years of my spouse and I both earning a solid income, but I no longer hold on to stuff “just in case” knowing full well I’ll never need items X, Y, & Z.

    Reply
  • Dee @ One Income October 23, 2016 on 12:48 pm

    I can sometimes be guilty of falling into the scarcity frame of mind and trying too hard to be frugal (though right now I am on a 6-month shopping ban, so that’s part of it). But I have to remind myself that I should spend more energy and time on things that will have a larger impact on my bottom line such as learning the nuts and bolts of investing or marketing my freelance writing business. Those are better ways to spend my time than, say, coupon clipping.

    Reply
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