8 Signs You May Have a Scarcity Money Mindset

Let’s face it, most personal finance advice has been centered around shame and scarcity, and while it has worked for some people, it can also do a lot of damage and discourage others. Human-beings have evolved to have a negativity bias, which explains why we are more motivated by negatives than positives. That’s why this blog post might have caught your attention as opposed to a title like “How to create an abundance mindset around money”. While the negativity bias was a helpful trait to have when we were running from tigers in the wild, it can really hold us back in modern life. Scarcity is related to our negativity bias because it is the belief that there aren’t enough resources to go around, money is a struggle to come by and we have to scrimp to conserve and hoard what is ours. And scarcity can make us do irrational things… like creating a non gas shortage into a real gas shortage. 

Here are some common scarcity-based behaviors and beliefs Financial Trainers see in their work with their clients:

You’re in a constant hamster wheel of paying off debt

When you’re operating out of scarcity, it is easy to have tunnel vision for paying off your debts to the point where you might make bigger payments to them than you can realistically afford which just causes you to just have to go back and use your credit card to cover your basic expenses. This is why we advocate for taking a balanced approach to paying off debt AND building up a proper emergency fund at the same time. Having an emergency fund is a way of solving the root cause of having consumer debt in the first place, which is not having enough cash to cover expenses. 

You’re afraid to use your Emergency Fund in true emergencies

If you have gotten yourself to the point where you have money in savings, operating out of scarcity might be the feeling of still wanting to put an emergency expense like a car repair on a credit card as opposed to using the cash in your savings. Scarcity mindset makes us believe that if we spend from our savings, we’ll never be able to replenish it again. A solution to this is to continue saving! If you are always in the habit of spending less than your income and planning for savings, then you can rest assured that there will be more funds to replenish what was depleted. 

You yo-yo budget

Like the term “yo-yo dieting,” yo-yo budgeting is setting too restrictive of a budget and then getting burnt out and overspending or completely abandoning the budget. Scarcity makes us hyper-focused on cutting back our expenses left and right. This can make us feel guilty for spending money on things and experiences we really value and distracted by trying to find good deals on things we don’t need. Yo-yo budgeting also happens because we see failure or setbacks as a sign that we are “bad with money” instead of expecting that there will be setbacks and approaching the budgeting process as an experiment. Just like there isn’t a one-size-fits-all solution for diet and exercise, the same things goes for budgeting and saving money. The best budget is one you can stick to. There are many different budgeting methods, philosophies and tools out there. Don’t be afraid to try a few for a few months before landing on one that will stick. Lastly, one perfectly acceptable conclusion to come to at the end of your experiment is that it costs a certain amount of money to maintain your desired quality of life and it’s time to go out and increase your income so your paycheck can cover the life you want.  

You don’t allow yourself to dream and set audacious goals

Scarcity keeps us in a constant and disempowered state of survival. Our fear of failure, disappointment or what others’ think gets in the way of allowing ourselves to actually consider what it is that we want out of life. Short-term goals are easy when you are in a state of scarcity. Short-term goals are only there to meet immediate needs. Medium and long-term goals are harder to imagine. An antidote to getting out of scarcity is to set goals and do the personal development and spiritual work on yourself to believe that you deserve to have what you want and you have the ability to achieve it for yourself. Some questions to ask yourself if you’re having a hard time coming up with goals is “What would I do with my time if I didn’t have to make money?”  

You constantly feel like you’re behind and need to catch up

It’s difficult when we open our social media feeds each day to find that someone has gotten engaged, bought a house, adopted a dog, had a child, went to Greece, paid off their student loans, or started their own business. What we don’t always realize is that while all of those life milestones are what we’ve been conditioned to want, they all have very real financial implications to them. After working with thousands of clients at the Financial Gym, we can tell you that just because they posted their highlight reels on social media doesn’t mean they were financially prepared for it. They could be just one emergency away from or already in quite a lot of credit card debt. If you have an intense feeling to pay off student loans, buy a house or contribute to your IRA or 401k before establishing a proper financial foundation of spending less than you earn and having an emergency fund, you might be operating out of scarcity.

You’re susceptible to fear-based marketing tactics

Businesses spend billions of dollars on research to understand you better so they can craft marketing messages and sales tactics to get your attention and ultimately persuade you to buy their product. Despite how much marketers like to fancy themselves as authentic storytellers, when it comes down to making the sale, scarcity messaging works. Motivating marketing attaches onto our existential fears of aging, gaining weight, missing out on a good deal, and death. This might manifest itself in innocuous ways like opening and shopping from that “ONE DAY ONLY SALE” email…everyday. This also shows up a lot in the marketing of traditional financial products. Marketers know that you desperately want to get out of credit card debt and pay off your student loans. They could also assume that you don’t really know a lot about how the stock market works and that you don’t feel like you’re saving enough. Next time you find yourself responding to any type of marketing, ask yourself if this is out of scarcity before you buy. 

You let the fear of taxes stop you from investing

We hate paying taxes and the idea of avoiding taxes or getting a huge tax return is so motivating we might lose sight of the trade-offs that might come with that being the central focus of your financial plan. The one tax that is the most misunderstood by the average middle class person is capital gains taxes. Many people could go their whole life without incurring any capital gains taxes because they are exempt from many types of investments like retirement accounts, college savings plans, the sale of your primary home, etc. You will be subject to capital gains taxes if you have a regular brokerage account (not a retirement account) and use it to invest for goals that happen before you’re allowed to tap your retirement funds. A common goal would be a down payment for a house, or some will use their brokerage account to retire early. The truth is that only your investment gains are subject to capital gains taxes are and if you have owned the asset for longer than a year, it is much lower than your regular income tax rate. The United States has the lowest capital gains tax rate in the developed world. This actually plays a role in why billionaires effectively pay LESS taxes than the average person, because once you get to that level of wealth, most of your income comes from your investment portfolio, and not really from a salary. 

How Capital Gains Affect Earnings

Bought 100 shares @ $20 $2,000

Sold 100 shares @ $50 $5,000

Capital gain $3,000

Capital gain taxed @ 15% $450

Profit after tax $2,550

You aren’t generous with yourself or others even after you get financially fit

Scarcity is not mutually exclusive with being poor or being broke. You can absolutely operate out of scarcity and objectively have a lot of money. One might argue that scarcity is the true underlying cause of inequality. If you operate your life with this belief that there are limited resources and you have to fight for your piece of the pie, then no matter how much money, stuff and power you amass, it’ll never be enough. If we all choose to step away from this idea of scarcity and shift into living out of abundance, we can all figure out what is “enough” for ourselves to have our basic needs and desires met so we can begin to share the overflow with each other. This is what will make for a more equal society. One where everyone has enough.

8 Signs You May Have a Scarcity Money Mindset is written by Joy Liu, A Certified Financial Trainer for

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