by Aaron Cirksena, Founder & CEO – MDRN Capital
Financial literacy is a critical component of financial success. Knowing how to plan, manage risk, and avoid pitfalls are all skills that equip you to reach your financial goals.
But it takes more than knowledge to get there. After all, knowing what to do with your money doesn’t guarantee you’ll follow through. Emotions and other personal factors can get in the way of making the type of financial decisions that lead to growth, peace, and prosperity.
Financial mindfulness is the key to understanding how your personal beliefs, emotions, and patterns affect your financial behavior. When combined with literacy, mindfulness provides an understanding of what drives your financial decisions and ensures those decisions are intentional and fulfilling.
For startup founders and other entrepreneurs, developing a deeper understanding of financial mindfulness can help improve decision-making in both the personal and professional arenas. When put in practice, it can help reduce the stress and anxiety that often accompany an entrepreneur’s financial journey.
Key aspects of financial mindfulness
Mindfulness starts with awareness. To stay in control of your finances, you need to be aware of your financial situation and how your emotions impact your behavior.
Financial awareness involves a clear understanding of the key aspects of your financial landscape. Having a clear handle on your income, expenses, assets, and liabilities gives you a big picture perspective on your finances, which empowers better decision-making.
Statistics show that avoidance, rather than awareness, is typical behavior for Americans regarding their finances. For example, a recent study found that approximately 25 percent of consumers don’t know how much credit card debt they have, and over 47 percent don’t know what annual percentage rate their credit card companies are charging them.
Emotional awareness provides an understanding of the feelings that are driving financial decisions. Exploring how money and emotions intersect is critical for staying in control of your finances. Stress, boredom, and other emotions can derail financial strategies if their impact on finances isn’t understood and addressed.
Acceptance is the other key to mindfulness, as every financial strategy must be built upon reality. Ignoring your financial situation or pretending it is something it’s not won’t provide the foundation needed for effective planning and decision-making.
Steps to embracing financial mindfulness
Setting financial goals, both short-term and long-term, can be very helpful for increasing your level of financial mindfulness. Goals help you evaluate financial decisions by providing a predefined target, allowing you to identify financial activity as either contributing to your goals or standing in the way of achieving them.
Retirement planning is a type of goal setting that can benefit greatly from financial mindfulness. Putting money aside for retirement when you are in your 20s can seem like a low priority, especially when you are facing urgent financial demands. However, by bringing a higher level of mindfulness to retirement planning, you can better appreciate the value of starting early, leveraging compound interest, and setting the stage for a fulfilling retirement.
Tracking your spending is another excellent way to improve mindfulness because it slows you down, forcing you to acknowledge your spending patterns and see their impact. It reveals the financial path you are taking so that you can determine if you approve of where it is leading.
Slowing down the purchasing process also increases your mindfulness. Pause before every purchase to assess what is driving it. Revisiting your goals can help you identify if you are engaging in emotion-driven spending that will put you off track.
The benefits of financial mindfulness
The top benefit of financial mindfulness is intentionality. Through awareness and acceptance, those practicing financial mindfulness can stay in control of their financial activity, rather than being driven by emotion, confusion, or carelessness.
Today’s economic landscape is causing many people to be worried about their finances. A recent survey showed that 77 percent of Americans are anxious about their financial situation, with 58 percent feeling that finances control their lives.
Financial mindfulness provides the antidote to financial anxiety. It allows you to take control of your finances, proactively directing your spending in a way that empowers you to pursue your personal goals. Mindfulness lets you recalibrate your financial habits, leveraging them to achieve better overall well-being.
Aaron Cirksena, Founder and CEO of MDRN Capital, has devoted his entire career to financial planning, distribution planning, and managing client money. He first worked with multiple $1 billion teams at Morgan Stanley and independent firms, and eventually created his own independent services firm in MDRN Capital, which is revolutionizing retirement planning by offering a comprehensive range of services, including income planning, investment management, tax planning, healthcare, and estate planning, all with a greater degree of effectiveness compared to traditional providers.