A large part of our life revolves around money. It influences so many of our decisions, consciously and unconsciously. And we spend so much time and energy accumulating money or thinking about money. It’s inevitable then that “money problems” are the source of much of the suffering in our world.
Given how much impact it has on your life, your relationship with money deserves a deeper analysis. It can give you a lot of insight into your psyche. Also, a healthy relationship with money can make a drastic difference to the quality of your life.
I have some strong opinions on this topic, so please don’t mind if I come off a bit preachy.
Conditioning
As with everything else, your relationship with money is deeply influenced by external conditioning. There are a lot of factors at play. But we are also born with certain universal predispositions, thanks to our evolutionary conditioning.
You see, any peaceful humans who felt content and lived in harmony died ages ago. They were killed or outbred by the ones who were cunning, greedy, and eternally discontent. And you are their progeny. We are wired to chase money. Money represents status. Status ensures survival and reproductive success. It’s an almost unquenchable primal drive, leading to an innate financial insecurity. We’ll circle back to this later when we talk about money and happiness.
The next thing that influences your relationship with money is the country and era you were born into. If you grew up in a first-world country in the 21st century, your relationship with money would obviously be quite different from someone who grew up in a third-world country in the 20th century. Inflation, job market, stock market, property rates, choices — all these things have a lasting influence on how you think about money. And that conditioning stays with you even if the external conditions change later in your life. Look at how conservative most boomers are with their money.
But there’s probably nothing more influential on your relationship with money than childhood conditioning. Your early experiences with money create behavioral patterns that persist into adulthood. Things like your parents not being able to afford something you need or want leaves emotional scars. Poverty can be especially traumatic. In contrast, if you grew up in a house where money was never a problem, your relationship with money would be more easygoing.
But it’s not just about whether you grew up in a poor or middle-class or rich family. It’s more about your parents’ relationship with money. Say, if it’s a big deal for them, if their lives revolve around it, you will likely inherit that attitude. You can also end up internalizing the stress your parents felt about money.
Your social environment plays a big role as well. For instance, if you went to a school where most of the kids came from very well-off families, you’d probably have some internalized shame and insecurities around money.
Beliefs
All that conditioning creates certain implicit beliefs and notions about how the world works, how money is made, what is possible, etc. And our nature is such that we then selectively look for evidence that confirms these beliefs. We also act unconsciously in ways that confirm what we believe to be true.
For example, if you had to experience financial hardships at a young age, you might start looking at money as something that is hard to come by. This will reflect in your values and actions. Financial security would be a high priority for you. And so, you’d take a defensive approach towards making money — a stable job, minimal risks, etc. Your decisions would be oriented towards “avoiding financial disaster” rather than “creating wealth“.
But most of your assumptions about money originate not from what you see out in the world, but from your internal sense of self.
Self-Esteem and Your Relationship with Money
Money is just a medium through which you relate to the world. How you relate to the world mirrors how you relate to yourself. And so, your relationship with money reflects your self-esteem. If you remember, self-esteem has two fundamental components — self-efficacy and self-respect. Let’s look at how each of them influences how you think about money.
Relevant Plug: Self-Esteem — The Foundation of Your Life
Self-efficacy is about confidence in the functioning of your mind — in your ability to think, understand, learn and make decisions. A common sign of low self-efficacy is anxiety around the topic of money. If the task of managing your money or conversations about money makes you uncomfortable, you’ve got things to process. (In general, when you examine any strong emotion associated with money — fear, jealousy, anger, desire — you’ll discover underlying insecurities)
Self-efficacy is foundational to what you think you are capable of. The world could put forward the most amazing opportunities in front of you (and it does) — business ideas, investment opportunities, career shifts — but if you don’t trust the processes of your mind, if you don’t trust yourself to figure things out in the face of uncertainty, you will inevitably be averse to risk and let those opportunities go. Not only that, but you’ll probably also rationalize your decision as the “right” thing to do.
On the other hand, people with high levels of self-efficacy are able to bet big on themselves and successfully take advantage of opportunities in the world. Knowing that they can always get back up if they fall down, their self-trust also allows them to not be afraid of losing. This mentality also lets them adopt what is called the “abundance mindset” — life is not a zero-sum game, there will always be opportunities as long as you are willing to bet on yourself. And so, you don’t have to cling on to your job or hoard your money like it’s the last thing in the world (scarcity mindset).
“Oh but everyone has different risk appetite blah blah” — Sure, some people have responsibilities and stuff. But the major reason everyone has a different risk appetite is that, to a varying degree, people don’t trust their own thinking abilities. As humans, we anyway err to the side of caution and overestimate risks because of our innate loss aversion. Most of us are far away from the “reckless” risk threshold.
But why is this a rare thing, why are so few people able to trust their minds? Look at our education system! Creativity, curiosity, and free thoughts are shot down. Same outdated and templated ways of rote learning for everyone. Thinking is turned into an unpleasant chore. “Sit down, shut up, don’t move” — drilled into young minds over and over again for twelve years. Kids who don’t conform are humiliated publicly. No wonder most people lose confidence in their thinking. Fucking schools, man. Anyway, I digress.
Self-respect — the second component of self-esteem — is the conviction that your life and well-being are worth acting to support, protect and nurture. It is foundational to what you think you deserve in life. When you think highly of yourself, it reflects in your financial dealings. It makes all the difference when applying for jobs, asking for a raise or promotion, setting your rates, and negotiating in general. Self-respect also gives you the courage to walk away from unfair deals.
A sense of deservedness is essential for having a good relationship with money. If you feel you’re not good enough or unworthy, you’ll settle for less than you deserve or unconsciously engage in self-sabotaging behaviors. One example of such behavior is the cope that “money is evil “, it’s classic projection. There is nothing inherently evil about money. How you feel about people who make a lot of money is a good litmus test for your own self-worth.
Speaking of self-worth, a classic trap people fall into is that of tying their self-worth to money. This then leads to an incessant need to play status games — people trying to fill the gaping hole in their sense of self with material possessions.
Status Games
As we discussed earlier, us humans are wired to be perennially dissatisfied. No matter what or how much we accomplish and accumulate, our minds get habituated to the new setting and expectations get quickly readjusted. This is an adaptive behavior that ensures we are constantly motivated to climb the social ladder — increasing the likelihood of mating and survival.
Recognize the trap here. We are now living in a world of abundance. But we are running old programs that are designed to keep us chasing more. We go collecting experiences and material possessions to signal status. We make decisions assuming that more income, comfort, and achievements will make us happier, failing to recognize that hedonic adaptation (and social comparison) will come into play, changing our aspirations and leaving us feeling no happier than before.
Relevant Plug: Hedonic Adaptation — On Optimizing the Pursuit of Happiness
This is not to say that setting goals or material pursuits are pointless. I believe becoming wealthy is a worthy goal. And everyone should strive for it because it enables freedom, which is priceless. But once you stop playing status games, you don’t need much “wealth” for financial freedom.
Spending Habits and Your Relationship with Money
The simplest way to investigate your relationship with money is to look at what you’re doing with it. Not what you think, not what you say, but how and where the money goes out your wallet. Look at what you compulsively buy (is it something you were denied in the past?). Or look at the risk profile of the investments you make (playing it safe?).
We all fall somewhere between the two extremes — spending recklessly or hoarding it all up. Both extremes originate from a place of insecurity. The former is universally considered “bad behavior” but the latter is rarely criticized. As is always the case, the wise thing to do is to take the middle path.
Sure, saving money is important. But I believe we should be actively using money to make our lives better. If not happiness, at the very least, money can buy time. You can outsource a lot of stupid shit that takes up your time. But most people give away their precious time to save or make a little more money. I think money can even buy happiness. It just requires skill and good judgment.
For every problem in your life, there’s someone out there who has spent thousands of hours developing deep expertise in solving that very problem. Even if you don’t have any glaring problems, you can substantially improve the quality of your life by working with an expert to hit the next level in your health (physical and mental), skills, thinking, relationships, etc. And a lot of these experts are undervalued because there’s not much demand for what they offer. The reality is that people would rather spend their money on new clothes instead of getting a solution to the problem that’s causing them suffering. (The catch is that you need to be good at identifying who knows their shit and who is full of bullshit. But from my experience, more often than not, you’ll get more than your money’s worth.)
As they say, investing in yourself is the best investment you will ever make. Right? Everyone agrees when they hear that, but very few people put their money where their mouth is. Reality check — over the last twelve months, how much money have you spent towards your personal growth? Is it even close to 10% of what you made?
Closing Thoughts
Remember that money is a means to an end, not an end in itself. Most people pedestalize money — they chase it, treat it as a sacred thing, cling on to it. It’s a relationship of fear. This prevents them from playing games with money, which is what money really is for. Find out what kind of games you enjoy and then use money to make those games more fun.
A metaphor I really like is that of looking at money as energy, as opposed to looking at it as a “thing” to be accumulated. The way to lose that energy is by allowing it to stagnate, instead of letting it flow. Think of what difference you can make, to your life and of those around you, by channeling that energy (this is how you create wealth). A lot of fun things start to happen once you get a hang of this game.
If you haven’t already, I would highly recommend reading / listening to Naval’s stuff on the topic of wealth. Fundamentally changed my perspective on how to play the money game.
Thank you for reading. Most of the content on this website has emerged from conversations with readers like you. Every Sunday, I send out an email dissecting some aspect of the human mind.
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