How To Let Go Of The Scarcity Mindset On Your Journey To FIRE

You can have a great salary, awesome savings but still feel that scarcity mindset of the way to financial independence and early retirement (FIRE). You might feel that it’s difficult to put a finger on what drives your scarcity mindset and even more difficult to overcome it. You may have grown up poor, with little financial literacy or simply spent most of your working life only just getting by. Even without this background the path to early retirement can drive many of us to frugal extremes.

The desperate dream to quit the rat race and achieve financial freedom can push you into a constant state of scarcity.However, this penny pinching mindset is probably testing your sanity if you’ve been doing it for a while. Trying to constantly endure a state of cheapness is miserable and it can invoke feelings of guilt or anxiety around spending.

The Scarcity Mindset Doesn’t Work

Trying to save more money to get out of the scarcity mindset doesn’t work, it’s a vicious cycle. It takes a mindset shift. This is why we need to look at FIRE not just as an end goal but more holistically. When you see FIRE through the perspective of a continuous lifestyle change, it can change everything.

The good news is that the scarcity has less to do with your absolute situation relating to resources (e.g. money). The scarcity mindset is relative, so as a result we can adjust our perspective accordingly. It’s also important to remember that the scarcity mindset is not just about money but time too, as time is also a resource. We can work towards feeling like both our time and money is a less scarce resource.

I have personally experienced these feelings so I know exactly how you feel! I once felt completely desperate to accomplish FIRE to the point I would really neglect my own needs and wants. However, through this process I found some specific steps you can take to liberate yourself from this scarcity mindset.

What Exactly Is The Scarcity Mindset?

Web MD describes the scarcity mindset as “when you are so obsessed with a lack of something — usually time or money — that you can’t seem to focus on anything else, no matter how hard you try.” According to the Behavioural Insights Unit (NSW) when people feel that they don’t have enough resources to cover their needs, they use a significant amount of mental energy making trade-offs. The catch, people only have so much mental energy to use. When you mental bandwidth is taxed in this way is can cause you to:

• make errors, often falling back on intuitive, automatic or biased thinking
• borrow resources from the future (e.g. taking high-interest loan or procrastinating)
• perform comparatively worse on cognitive tasks
• ‘tunnel’, i.e. focus on present issues and neglect long-term issues or opportunities.

When it comes to FIRE I feel that you can apply all of these to how we might behave whilst trying to achieve FIRE.

“borrow resources from the future… “procrastinating” – We borrow money and energy from our current selves to invest for our future self, neglecting the present. We procrastinate by simply waiting for our retire early date.

“perform comparatively worse on cognitive tasks” – We often get demotivated from our jobs as it’s simply a means to an end (RE) and stop thinking creatively about problem solving.

“‘Tunnel’ – I actually think that this tunnelling aspect can also be applied in a slightly different way to the above. FIRE is often seen as the light at the end of the tunnel, as a result of this tunnel vision we ignore all of the opportunities in the present moment.

The Neurocience Of The Scarcity Mindset…

When you are trying to overcome your scarcity mindset, you are trying to overcome some very deep rooted emotional responses to scarcity. There are some very strong neural underpinnings relating to scarcity, which influence your cognitive and emotional decision making. For example, when you are deciding to make a purchase, brain regions related to emotion (e.g. amygdala) are more active. The Amygdala is also a part of the brain that is associated with our fear response. However, once you understand more about what’s happening in your brain and combine that with some hard experience, you find some very strong solutions.

How Do I Let Go Of The Scarcity Mindset On My Way To FIRE?

You may have got to the point where you feel like you need a sanity check! Attempting to FIRE is no easy feat and if you approach it with the wrong mindset then you will soon struggle. Coming from a very working class background, both my parents have lived with debt. When combined with 3 years of student living and scrappy part time jobs, it’s no surprise I developed a scarcity mindset! However, I’m glad to say I found a way to overcome this mentality and start enjoying life a little more on my journey to FIRE. Here are the 10 ways I think you can let go of the scarcity mindset on your journey to FIRE.

#1 Build Creative Projects To Tame Your Restless Mind

One of the biggest discoveries was that If I channelled my ‘FIRE Itch’ into something creative and productive. As soon as I started this blog, I wasn’t as consumed by FIRE and the scarcity mindset didn’t creep in as much. This change in mindset has only grown over time as I have grown more entrepreneurial.

The restless itch of waiting for FIRE seems to consume all your patience and this makes you look for things you can cut back on. Any money you spend that delays this goal negatively impacts your psychological well being.

At the end of the day, you need to distract yourself. What better a distraction than something that can also potentially speed up your journey to FIRE. You’re obviously very interested and dedicated to the topic of FIRE, so why not start a blog, podcast or Youtube channel?

• Earn ad revenue from your platform.
• Build and sell courses or coaching services.
• Write a book and get royalties.
• Sell products on Merch By Amazon.
• Create your own products on Etsy.
• Earn affiliate commission from services and products (e.g. Awin).

Focus that energy on building new income streams. You also don’t want to be 100% reliant on a stock portfolio anyway so work towards those other income streams now. This way it feels like you’re actively doing something rather than just waiting.

There is also some science behind this. This research found – the greater the number of days from your last pay day, the greater the influence on your cognitive abilities. In essence you will feel the scarcity mindset to a greater extent. Therefore, if you build up multiple sources of income and you feel like you are earning all the time or reduced intervals, you will push away that scarcity mindset.

#2 Can You Do It In 6 Months? – Asking The Crazy Question

Realistically, probably not!

However, this question is more about testing your thinking when it comes to FIRE. We have this belief that we need to invest and then sit and wait until our early retirement date. If you’re like me then waiting 15+ years for your life to start is not a good idea. It will only push you even more into a scarcity mindset and you try to financially bring forward your retirement early date.

In reality, there are many career and lifestyle changes we can make right now that can lead to us being more content in the present. What is it that you really want when it comes to the FIRE lifestyle? Do you want to be nomadic, work less or more autonomously?

These are all things that can actually be negotiated or derived from a career break or change. The following jobs all offer a high level of freedom when it comes to work and lifestyle.

• Content Writers.
• Copywriters.
• Website Designers.

The skills required for these roles can be learned by anyone who is willing to put the time in. What is it that you want to be doing when you FIRE? Do it now. You might be chasing the FIRE dream on the promise of ‘time as an infinite resource’. Time, freedom and mobility are the perfect trio, so why not try to achieve them now?

#3 Take A Step Back – Ask If Your FIRE Plan Is Too Extreme?

There is often the temptation with FIRE to set the most extreme trajectory you can. Whilst this is good in the sense that it may push you to overachieve it can drive the scarcity mindset. By actually limiting the amount of funds you have available to spend on your lifestyle (i.e. accommodation, food), you actually contribute to the perception that resources are scarce.

Remember that scarcity can also be a relative term and the scarcity mindset is caused by ‘having less than you feel you need.’ This ultimately causes you to frame your decisions in a completely different way. Take a step back and soften your focus. Set a monthly investment target that you are happier with. Slow it down a little and put less pressure on yourself to achieve a high financial goal.

As a result you will feel like you have more resources and the scarcity mindset will lift. This will prevent you feeling like you are always on the verge of failing financially against your monthly savings targets. Setting a more achievable savings rate or monthly target, allows you to think about what else you can use your money for to enrich your current lifestyle.

#4 Have You Tried A Different Type Of Budget?

FIRE can be an all consuming goal. As a result you may be trying to save as much as possible without accounting for your needs or wants. Psychologically if the money you save and invest for FIRE comes from the same pool of money that you use for your needs and wants then this may drive you to a scarcity mindset.

If you are using something like a zero based budget then it may also be the case that you have not ring fenced any money to enjoy your pre-FIRE days with. By allocating a purpose to every penny may also be putting yourself in a scarcity mindset where every pound counts!

According to Cannon, Goldsmith and Roux, The scarcity mindset stems from “sensing or observing a discrepancy between one’s current level of resources and a higher, more desirable reference point.” Therefore, if you change your reference point you may reduce your scarcity mindset.

How Budgeting Can Reduce Feelings Of Scarcity (If Used Correctly)

In order to step away from this and have a little more fun, it’s probably worth checking out the 80/20 budget, the 50/30/20 budget. You can also use my budget quiz, to find out why budget would work best for you.

These allow you to ring fence money for ‘fun spending’ this can result you may feel less guilty or anxious about spending money. This is because this money is not intended to help you reach FIRE, so as a result it cannot detract from that goal.

Building up money pots and money funds can be incredibly useful and there are some great Fintech companies which can facilitate this. For example Monese allows you to create up to 10 money pots, so you could have a restaurant fund, a holiday fund, a gadgets fund and so on. You can download Monese’s app on either Google Play and Apple Store.

#5 Focus On Value Based Spending – What Makes You Tick?

Discovering what it is that makes you happy or doesn’t add value to your life is crucial. Rather than trying to cut everything, you simply need to avoid non-value adding activities. It helps to track your spending using fintech and evaluate where you want to spend or avoid saving money. Having a realistic understanding of where you are actually spending your money is essential.

When I started a new job I realised that my colleagues all enjoyed lunching out and evening drinks on Friday. At first I happily went along with this but I realised that this was costing on average about £35 a week. This would have cost around £1,820 a year, if I’d have continued.

Although I like to be social, doing this every week wasn’t something that compounded into extra happiness so I stopped doing it. Instead I went home, clear headed and enjoyed extra quality time with my girlfriend. Sometimes I exercised or put the time into writing for my blog – all activities I enjoy.

By contrast, in recent months I’ve been on two staycations (Wales, Northumberland), and just the week of writing this article I purchased a £350 coffee machine). Which hopefully shows you that it’s not just a cost saving evaluation of behaviour.

The point of this is not to simply point out an area of money saving. The point is to identify how I identified an area or risk (to FIRE) vs reward. Defining clearer boundaries of where you want to save or spend money can stop the scarcity mindset from creeping into every aspect of life.

#6 Look At FIRE As Starting Now – Not In A Decades Time

One of the things that helped me to drop out of the scarcity mindset was to consider my time now as preparation for the FIRE lifestyle. Rather than rushing to achieve FIRE as soon as possible, I look for habits and systems that I can build now that will put me in a good place when I do achieve financial independence.

You have to ask yourself if you FIRE’d today what would you do for the next 6 months to a year, or even 5 years. I know I want to keep my mind active and always want a form of work, so I build this blog, write and intend to build up my freelance portfolio. These are activities I can do right now.

I have ready a number of articles where early retirees have become incredibly bored of life. Imagine spending years waiting for FIRE only to be bored and dissatisfied with the end result. Therefore, I think it’s important to build up as much structure outside the 9-5 that can not only help you build life satisfaction now but later in life.

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#7 Consider The Worst Case Scenario?

The scarcity mindset also causes us to agonise over the smallest financial decisions. Even the decision to buy a coffee can feel like a ginormous decision. We threaten that spending that money will have a knock on impact on the amount we can later save and invest.

You need to take a deep breath and expand your thinking here.

If you mis-spend can you get it back on track? Do you have to make it back the same way?

What would happen if you overindulge and spend too much? What’s going to happen?

Probably nothing. It’s our habits and consistent spending behaviours that direct our financial journeys. So until you find yourself buying a coffee or 3 coffees a day, it’s probably not an issue.

Again, it’s all about changing that reference point for financial failure vs success. This will help to alleviate your scarcity mindset. Fear setting is actually a process which you can apply to all walks of life and I’d recommend you watch Tim Ferriss’s Ted Talk on why you should ‘define your fears not your goals’.

#9 Pareto’s Law – Will It Move The Dial?

Our financial journey really comes down to are the major financial costs in our life. 80% of your spending probably comes down to where you live, what car you drive and how big your recurring household bills are. 20% is the stuff that you constantly and consciously fret about.

The standard pricing of a Sky TV package is £111 (£1332 p/y). That’s going to make a dent in your budget. By contrast spending 5.99 a month (£72 p/y) on Netflix probably isn’t going to massively change your trajectory. So reducing your rent or energy bills are going to make an impact on your ability to save, not the nominal expenses you are probably worrying about.

Rather than living in the scarcity mindset, where you can’t treat yourself to a coffee it’s better to find ways to cut the 5 things that account for 80% of your budget, or build an income stream that can give you an extra £500 a month to spend or save. Cutting your expenses is a limited activity. Trying to increase your income is limitless.

#10 Kill Cheap, Embrace Frugal

At the end of the day, if you buy cheap you buy twice. So understanding the difference between cheap and frugal is massively important. This is because the more you push yourself into the bandwidth poverty associated with the scarcity mindset, the more stressed you become.

Convincing yourself you are time or money poor results in a constant cognitive tax. This is going to push you into making bad financial and lifestyle decisions. All of which will make you feel like you need to achieve FIRE even more, which then feeds into the vicious cycle of cheapness.

You need to reduce the cognitive tax you are paying for every decision you make relating to your finances. This needs a shift from cheapness to frugality and evaluating spending decisions based on merit and not cost.

Cheap means only caring about price and this means you won’t buy something even if it’s neccesary. This pulls your perspective away from adding value and makes you save money for money’s sake. This causes not only detriment to you, but your relationships with other people.

Therefore in order to avoid the scarcity mindset, always focus on buying value and quantity at a reasonable price. Always focus on saving money for what you care about. The things you care about when you are FIRE are the same things you should care about now.

Understanding your ‘money type’ can be a very important step in understanding your perception of money. So take my free quiz and find out your money type.

In Conclusion…It’s Time To Remove Those Psychological Barriers

Thomson and Stone researched perceived barriers that can impact our physical performance by studying professional cyclists. The cyclists were instructed to pedal a stationary bike at their top speed while watching a computer-generated recording of their previous test.

As the avatar moved around the virtual track, the cyclists were able to keep pace with their previous time, despite the fact that the “recording” they were seeing had been artificially sped up.

The moral of the story here is that limited thinking can often shrink our mindset of what is possible. This has both physical and psychological implications. Often It is not the actual lack of resources but our mindset that pushes us into a state of prolonged percieved scarcity.

Once you push past the mental barriers (e.g. cutting your spending), and work towards actively excelling in all asepcts of life (including your your income), you find yourself on an accelerated path to FIRE. Maybe you won’t even care about FIRE at all?

What Can You Do Today To Escape The Scarcity Mindset?

Overcoming the scarcity mindset requires you to take action. Starting this blog was probably the milestone that redirected me away from the scarcity mindset. It shifted my focus away from trying to cut my expenses and more towards devoting time and energy to more positive and enriching pursuits.

This was the first step in taking actions that have really started to influence not just my lifestyle but financial direction too. Therefore I can’t recommend enough that you should start building your own platform today. You could even have one in less than 20 minutes! Just follow these simple instructions.

In fact I have a whole bunch of articles from which resources and tools I’ve found useful to monetizing my site. And…

If you like this post, then you might enjoy some of the following articles:

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