Common Money Problems and How to Solve Them

Some of the most common financial problems are driven by the belief that you need more money. In this guide I dispel that myth and offer five ways to tackle money issues by changing the way you think. 

For a long time my relationship with money has been the source of a nagging fear, despite being in the financial position to fund my needs, desires, and interests.

I felt enslaved by money, and I struggled with the belief that I couldn't be the person I wanted to be, or live the life I wanted to live, without it.

Up until now, income generation has been my most significant professional and personal focus. Though important, I've had to move beyond the notion that the acquisition of more is the sole solution to my fears.

I've started the process of trying to eliminate this belief system by adopting new ways of thinking in order to reduce my dependence on money.

Using my personal experience as an example, in this guide I share five ways to address common money dilemmas.

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STEP 1: GET OUT OF THE SCARCITY MINDSET

A scarcity mindset, as I discuss in “How to Overcome Scarcity Thinking”, is the belief that all resources are limited which perpetuates living in fear that there’s never enough.

Princeton psychologist Sharif Sendhik and Harvard economist Mullainathan Eldar popularized the term with their book “Scarcity: The New Science of Having Less and How It Defines Our Lives.

In it they analyze the self-imposed burden we put on ourselves because of our limited thinking, and provide some insight into how we might better manage scarce resources and increase our happiness in the process.

Understanding this was a breakthrough for me. I had an internal conflict about money that needed to be reconciled. On one hand, I like to spend freely, give generously, and handle money as if there’s an abundant supply. On the other hand some of my deepest fears have been linked to the irrational belief that there is not enough.

It’s important to establish a sense of security by recognizing that you have an unlimited supply of resources (internal tools like intelligence, resourcefulness, and imagination) that, with proper use, increases the likelihood that you can survive and thrive.

STEP 2: UNDERSTAND WHAT MONEY IS AND IS NOT

In his essay “How to Make Wealth,” venture capitalist Paul Graham makes an insightful distinction between money and wealth:

If you want to create wealth, it will help to understand what it is. Wealth is not the same thing as money ... Wealth is stuff we want: food, clothes, houses, cars, gadgets, travel to interesting places, and so on ... But if wealth is the important thing, why does everyone talk about making money? It is a kind of shorthand: money is a way of moving wealth, and in practice they are usually interchangeable. But they are not the same thing, and unless you plan to get rich by counterfeiting, talking about making money can make it harder to understand how to make money.

What Graham is getting at is that the dollar has no worth of its own. It is nothing more than a piece of paper that acts as a medium of exchange.

Instead of linking your self worth to how many dollars you can accumulate, realize that nothing can be had in life without a cost — though that cost isn’t money but the value it stands for.

You can accomplish this by shifting your focus on wealth building vs. money making. Wealth comes by continuously creating things that are of high value to someone else and exchanging it for something that is of high value to you.

Instead of focusing on accumulating money, try to focus on ways to build wealth through value-adding activities. If you think of ways to use your skills to create valuable products or services, you can exchange them in return for the things you want or need.

This is not an easy mindset shift but it is a critical takeaway: your livelihood is not dependent on money but on the quality of your ideas.

STEP 3: AUTOMATE EXPENSES AND KEEP THEM LOW

If there is one area to master when it comes to money matters that’s to eliminate as many recurring bills as possible and automate payment of the ones that must remain. This is an effective step in tackling your money woes because of the powerful psychology behind it:

Decision Fatigue

In the Paradox of Choice, author Barry Schwartz presents research that shows how having too many choices to make can be draining and even debilitating. Scaling back on the number of bills you have is a great way to simplify your finances because it cuts down on money-related tasks and decisions.

Anticipation Anxiety 

Psychology Today discusses how negative projection, or assuming the worse about an unknown outcome, leads to unnecessary suffering. By automating your bills you eliminate anxiety by exerting full control over the process, then removing bills from your daily list of concerns once the process is set up.

Anticipation anxiety was particularly challenging for me and is ultimately what spurred me to incorporate the eliminate and automate process. I dreaded going to the mailbox and would cringe each time I'd get an invoice in the mail. Just the thought of someone demanding something from me caused undue stress.

First, I automated payment of all my bills so I wouldn't get anxious about paper statements. Then, I started identifying and aggressively eliminating things I simply did not need (car, cable, and credit cards to name a few).

Fast forward to my current state and my recurring expenses are sparse: only rent, a handful of basic utilities, and health insurance (and most of these I automatically pay annually in full).

I can't stress the feeling of freedom this particular step will yield. Eliminating bill clutter will work wonders on your emotional relationship with money giving you the energy to tackle the more complex areas in your finances.

STEP 4: GO WHERE YOU CAN LIVE WELL

In the last six years I've lived in half a dozen different cities and most of them have been expensive metropolitans. Now I still live in a major city but it happens to be a relatively poor one (Berlin), so my U.S. generated income goes very far relative to the local average.

Of course this practice isn't new and there are broader implications to be mindful of (such as the risk of gentrification when many people of wealth have the same bright idea), but the concept is still an interesting one to consider.

The practical reasons for making this move are clear, but it also results in a happiness trick you may not be aware of. Social Comparison Theory, originally proposed by psychologist Leon Festinger in 1954, suggests we feel bad when comparing ourselves to people better off than us and happier when we perceive ourselves to be better off relative to others.

For example, my peer group (friends and acquaintances of similar age) are individuals of outstanding accomplishment and, as a result, great wealth. If I were to constantly compare myself to them I would always find a shortcoming. It is simply too extreme of a cohort and living in places like New York and San Francisco Bay was a constant reminder of this.

Instead, I made a decision that I wouldn't try to keep up with the Joneses. Being in a city where the majority of people are surviving off only a fraction of what I earn is not an ego booster but a more realistic view of where I stand in comparison to most people.

Even if you can’t pick up and move it’s worth considering different ways this mental trick can be employed particularly as it pertains to your finances. Quartz’s article “The best strategies for self-assessment, according to Buddhist and Stoic philosophy,” is a useful resource.

Don’t make unrealistic self-assessments by upward comparison. Using this happiness hack will force you to appreciate the progress you’ve made in life and continue to prioritize what matters, instead of constantly trying to play catch up.

STEP 5: DISTINGUISH MONEY FEARS FROM MONEY PROBLEMS

In the quest to alleviate money problems don’t get confused about the battle you’re fighting. The key to clarity is to separate out irrational fears from actual problems.

Money problems are real life threats (losing your job) that will have a detrimental impact on your financial state (not being able to pay rent) if you can't find a viable solution to it (getting a new job).

Money fears are things that you continually tell yourself (I'm a failure because I don't make over $100,000 dollars) that are often untrue and only lead to a perpetual state of useless worrying.

Sort out the difference between the problems and the fears. Once you have them properly bucketed come up with a distinct set of tactics to address them.

Since money problems also add to money fears, it's important to address those first. Try to put yourself in a balanced financial state by tackling the things you should be worried about (like living below your means, getting rid of debt, setting up an emergency fund). Then move on to eliminating the self-deprecating thoughts that keep you from fully realizing your potential.

I appreciate some of the insights garnered from the book "How to Worry Less About Money" by John Armstrong. It was a starting point for formulating my personal approach to loosening the stronghold that money had on me.

One of the many useful quotes Armstrong curates in his book was the following:

Now the last swallows are departing, and the first gales of winter shake your roof, now is the time for sorting through your bank statements and receipts. On your way home from work look in at a junk shop and buy two wooden boxes large enough to hold A4 sheets of paper. And take yourself also, as the sun is setting, to a stationery supplier and get yourself a quantity of manila folders, the colour of hope. Dine early and lay all the pieces of paper before you on the carpet. Divide them, as the Gods divide the just from the unjust, into two piles. Arrange them by date. Work slowly. And when you are done, pour a libation to Apollo, who loves clarity and order. On the second night, consecrate your mind to calculation. On the third, devote yourself to the filling of forms. In this way you spread your work evenly across the season. — Virgil

Virgil, an ancient Roman poet, is illustrating the key to establishing a healthy relationship with money: mindfulness. Virgil advises us to approach matters of money with great care and detail. It shouldn't be an afterthought but worthy of our utmost attention.

Worrying about money won’t get you far. It is only after elevating your mindset, and converting that negative energy into a thoughtful process for understanding your financial state, that you will see progress.

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