The psychology of poverty: what it is, how to get rid of it and start earning more

CPT therapist, medical psychologist and expert of the online school of psychological professions “Psychodemia”

“How to focus on your well-being, learn how to set goals, strategize, develop financial literacy and take the first steps towards your dreams?”

The topic of financial well-being is one of the most popular topics in psychology over the past few years. People have begun to realize that the level of earnings depends not only on a person’s professionalism. His psychological characteristics are also important.

The development of capitalism in our country has inevitably led to the fact that money has come to mean much more than just a means of existence. For many they are a way to realize and strengthen social status, an attribute of power and even a means of communication.

It has become impossible to deny the importance of finances in the modern world, and we began to wonder why there are people who can easily earn large sums of money, while others have to experience permanent financial difficulties.

Naturally, the type of thinking is not the only criterion for achieving financial and career success. Professional competencies, level of financial literacy, as well as well-developed communication and adaptation skills are also necessary for realization in this direction. However, it is the type of thinking that most often determines a person’s behavior, goal setting and choice of development path.

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Psychology of poverty: how do such people think?

Psychologists distinguish several main factors that characterize this type of thinking.

External locus of control

Attributing responsibility for their victories and failures to the surrounding world, other people and circumstances. This is the external locus of control. In this case, a person does not want to take responsibility for his life and decisions. He relies on something from the outside. This is often one of the main obstacles to achieving goals.

Low self-esteem

A person with low self-esteem is more likely to focus on failure, personality weaknesses and mistakes. Constantly dwelling on the feeling of being wrong and inferior delivers a lot of unpleasant emotions, which subsequently leads to avoidance of activities. A person cannot begin to start moving towards what he or she wants, because he or she is sure of future failure in advance. This is what leads to personal, professional and financial stagnation.

Negative attitudes

The financial sphere is largely built on what attitudes about money a person has. For example, the belief that “big money cannot be earned” or that it “spoils people” often makes financial success simply impossible. This happens because there is a general lack of belief in the mindset that a person can make money. There is also a fear that, having a lot of money, he will lose the values and reference points that are important to him.

The desire to save money on everything

The root of this problem is often hidden in negative attitudes about an unfavorable financial future. A person constantly fears that resources will run out, believes that they should never be spent. This, in turn, leads to the fact that he begins not to earn more, but to suffer from hoarding. A tremendous amount of internal tension grows.

The desire to appear better/richer

This feature most often stems from low self-esteem. There is a desire to put all efforts not to achieve real success, but to obtain the attributes of “success”. This can lead to the fact that a person will rather try to create the illusion of a rich life. He will take loans, microloans. This will only lead to a worsening of the financial situation.

How to get rid of the “psychology of poverty”?

To change the external course of things, you need to start with internal changes. Many people specifically turn to specialists, psychologists or coaches to work through the topic of money and learn how to properly distribute their resources. Let’s consider the main strategies that can lead to sustainable internal changes.

1. Return to Reality

When we move from abstract judgments to concrete ones, we can realistically assess the situation. And it is not so important who is to blame for the “now” point. The main thing is to mark it and analyze the positive and negative sides. Focusing on what we have now is the first step to achieving what we want in the future.

2- Changing the focus

As mentioned earlier, an external locus of control can lead away from the real problem to finding fault. That’s why the second step is to focus on your internal feelings and well-being. It is difficult to succeed when at least basic needs (safety, rest, sleep, etc.) are not being met.

3. monitoring the environment

Speaking about financial well-being, many experts pay special attention to the environment, because very often it is it that forms destructive attitudes about money. It is worth looking at whether there are those around you who are wary of large earnings or believe that it is necessary to save on everything. It is also important whether there are those around you who, on the contrary, move forward and inspire you to new achievements.

4. Work with self-esteem

To achieve high goals, it is necessary to at least allow the idea that it is possible. That is why it is important to work with self-esteem in the first place when working with the topic of finance.

5. Presence of interest and drive

From many experts we can hear that money loves drive. And it is really true. Money is primarily a resource for achieving goals, not the goal itself. To be able to manage it, it is important to find interest in the activity. This will help treat life as an exciting quest, which in turn will raise the level of motivation and energy to fight the fear of failure.

6. Financial Literacy

Of course, positive energy alone is not enough to achieve goals. Here a person risks coming to illusory euphoria and irresponsible spending of money. You can achieve success by working on your own thinking and improving your financial literacy.

How and why set goals?

It may seem that it is not important to set specific goals, because it is already clear when things happen that you like and when they do not. But this is an illusion. Most people mistakenly think that clearly stating and writing down goals is just a waste of time. However, it is often the correct setting and realization of what a person really wants to achieve that leads to success. This is very important.

Properly set goals help to:

break down the comfort zone;
increase self-confidence;
give you a direction;
build the skill of self-reliance and responsibility;
learn to make decisions;
overcome bad habits;
realize dreams.

What should the goal be?

Specialists believe that a competent goal should consist of five criteria, which can be memorized with the help of the abbreviation SMART.

SMART in English means “smart”. Hence, if we talk about goal setting, this technique can be called “smart planning”. SMART is also an abbreviation of English letters, each of which stands for one of the requirements for evaluating a goal.

S (Specific). The goal should be as specific as possible to avoid the frustration of not knowing which direction to take.
M (Measurable). Measurability also helps to avoid frustration and procrastination. It is also important to be clear about the criteria by which the outcome and milestones can be measured.
A (Achievable). One of the most important criteria, because if the desired goal is unattainable, it will turn from a motivating factor into a trigger, which threatens burnout and exhaustion.
R (Relevant). It is also important to consider how relevant the goal is in today’s world. And also – personally to the person. Achieving someone else’s goals does not lead to success and fulfillment.
T (Time / Time Agreed). Before setting a goal, it is important to answer yourself the question “By what time do I want to achieve what I want?”. This will help track momentum and results.

Why develop financial literacy?

It will help to avoid stress both in ordinary life and in crisis situations. It is financial literacy that allows you to rely not on external events, but on your own knowledge and skills that can help you get out of a money crisis.

Financial literacy is a necessary component of conscious behavior, which helps to achieve stability and confidence. Its presence allows you to earn more and spend more profitably, while saving and investing more effectively. It also helps to avoid conflicts about money and its management.

Financial literacy skills can be divided into two categories: soft skills and hard skills.

Soft skills include:

discussing the financial situation with your immediate family;
motivation to work with finances;
critical thinking when assessing the financial situation;
creativity in solving problems and achieving goals.

“Hard” skills include:

budgeting;
setting SMART financial goals;
finding additional sources of income;
asset management (investments, savings, etc.).

In order to manage your money competently and develop financial literacy skills, it is recommended to pay special attention to passive sources of income. Specialists say that ideally it is important to have about six of their options. This gives confidence that in any situation a person will not be left with nothing. It also has a positive effect on the feeling of interest and drive. After all, in a situation where a person is calm about his financial situation, it is easier for him to apply solutions by being creative. He is not so afraid of change and is more willing to take risks when necessary.

Here are some basic practical tips for creating a sustainable favorable financial system.

Forming a financial reserve for at least three months without a basic income.
Developing assets that exceed the amount of debt.
A positive difference between income and expenses.
Regular income from multiple sources.

A personal strategy for success. Where to start.

To achieve financial success and increase income, strategy is important. Experts in finance and psychology emphasize discipline, practice, and strategy, as chaotic actions can only lead to wasted resources.

Let’s look at the basic steps that will help you come to success.

1. Create personal motivation to improve financial literacy

It is important that it is personal motivation. Our brains often resist learning new information. It’s boring, complicated, and incomprehensible. But true motivation that energizes a person will help to overcome the obstacles.

Suppose you do not have enough money to fulfill a dream (it can be your own home or an interesting trip). In this case, the best motivation will be to improve the quality of life and freedom of action.

2. practice-oriented

On different resources you can find a huge amount of information on the topic of finance. Alas, this excess can be simply confusing. Just because one person says it’s important to invest in stocks doesn’t mean it’s the right way to go. Try to research different tools and find the right one for you.

3. Time management

Most often people put off learning new things because of lack of time, but the truth is that free time doesn’t just appear. Therefore, for important goals, you need to schedule regular time slots for studying.

4. Keeping notes

It is impossible to keep everything in your head, especially when it comes to finances. You need to make notes of key points as well as your financial situation.

5. Support from loved ones

The importance of surroundings has already been touched upon above. Indeed, when studying a new sphere, it is important that there are people around who are ready to support you in your new endeavor. This will help you not to stray from the chosen path.

6. Limit the number of sources of information

First, you need to choose which resources you will use to learn information. Courses, books, articles, and instructors. Filter a few sources and follow them. This will help you not get confused and reduce anxiety.

7. Doing practical assignments

You can be a great theorist, but you can’t achieve financial success without practical backing. You should start with simple and straightforward tasks. For example, counting income and expenses, making a small deposit or buying stocks. The first steps are the most difficult, but they are necessary.

In addition to developing practical skills, you should not forget about personal qualities that will help on the thorny path to success. The main ones are: leadership, communication skills, management skills, competent time management.

To develop the above qualities, you can turn to a coach, psychologist or personal growth specialist. But this is not the only way. Today, there are many different resources available. Including actual literature from masters of their craft. There are also many free courses and videos freely available.

It is also worth noting the importance of events where it is real to meet like-minded and successful people with whom you can communicate, get advice and new contacts.

Stereotypically it may seem that for self-development it is already necessary to have a lot of capital, but this is nothing more than a misconception. The first step to self-development is available to everyone.

Having analyzed all aspects of financial well-being, we can say that the key to success is a combination of psychological, personal and financial development. If you pay attention to each of these aspects, well-being and self-realization are inevitable.

We can argue at length about whether there is a “poverty gene”, “psychology of wealth”, etc. But, it is not theory that matters, but practice. The most difficult thing on the road to success is to start.

Psychologists constantly talk about the importance of taking small but regular steps towards your goal.

You shouldn’t plan to do very much next week. Try one small action, but as early as today. You can start forming a goal or find a source that interests you. A small thing today will lead to a big success a year from now.