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The Power of Negative Thinking in Personal Finance

I attribute much of my financial turnaround to a massive shift in my overall and money mindset. And admittedly, much of that mindset change consisted of harnessing the well-documented power of positive thinking. And I am a true believer in positive thinking. However, I recently came to realize that negative thinking also had a major impact on my personal finance journey.

This may seem completely counter-intuitive. But it really makes sense when you think about it more closely.

And I have to shout out Annie Duke and her book, How to Decide, for this enlightenment.

Why negative thinking doesn’t get much press

Before digging into how we can harness the power of negative thinking in our personal finance journey, let’s talk quickly about why this isn’t talked about more.

negative thinking finance

And the answer in my mind is pretty simple. It isn’t sexy. It’s the same reason that financial pundits on TV don’t talk about index fund investing for the long term. It doesn’t grab attention.

And negative thinking is more than just not sexy. It’s downright cringy and taboo. It’s something most of us actively try to avoid. Because if positive thinking is good, negative thinking is bad.

And that makes intuitive sense. In large part, thinking negatively is a hinderance to your ability to achieve your goals, in finance or otherwise.

However, there is a form of negative thinking that scientifically has been shown to be very beneficial. Especially when it comes to achieving your goals.

Negative thinking and your goals

In beginning to establish this counterintuitive concept, let’s first imagine that we set a goal. Any goal. We use the power of positive thinking to visualize ourselves achieving that goal. We imagine how we are going to take the steps to reach this goal. And then we set along our way.

That’s how most people experience this process.

But now imagine that, when you visualize achieving your goal, you also visualize where and how you may get tripped up along the way. This is negative thinking. When you visualize these trip-ups, you experience a short term “bummer,” for lack of a better term.

But something much more powerful is unlocked.

And that something is the ability to also imagine and prepare for how to overcome those slip-ups when they occur. Because they will always occur. No progress is linear. It’s up and down. We put ourselves in a bad position when we imagine it will be all smooth sailing to our goals. Then, when an inevitable challenge comes up, we get derailed and may never get on track.

Negative thinking prepares you for success. It enhances your grit and steadies you to use it.

And this is where mental contrasting comes in

Mental contrasting is the next extension of this concept of negative thinking in regards to our goals.

Instead of prospectively imaging challenges on the way to your goals, mental contrasting asks us to imagine ourselves in the future on top of the mountain of our goals. From this summit, we retrospectively imagine our path. We materialize the challenges we had on this journey and think about alternative routes we wish we would have taken.

This takes us from an internalized perspective in which we don’t always see things how they really are and puts us in an externalized perspective, where we can see things more clearly.

All of this is very helpful in reaching our goals.

Harnessing the power of negative thinking in personal finance

It is really easy to imagine how helpful this technique can be for any goal or personal endeavor.

For instance, if our goal is to go to the gym more frequently, we all imagine we will just wake up in January 1 ready to hop out of bed and go!

But how often is that the reality. Well…never. But, because we have rosy colored glasses on when we developed the goal, we can get derailed. That’s why >90% of people (myself included) don’t ever achieve their New Year’s resolutions.

But now, let’s shift the focus back to personal finance

Because this is a personal finance blog after all! Despite my penchant to get a little tangential and random on a weekly basis

Again, positive thinking and developing a healthy money mindset has been the #1 factor in improving my financial well-being and advancing on the path to financial freedom. However, a dose of negative thinking when it comes to finance is part of a healthy money mindset in my opinion.

Too often I hear high income-earning physicians tell me that they have a plan to get back on financial track by saving a massive percentage of their income and investing it in low cost, broadly diversified index funds. But then, they find they can’t actually cut back on expenses as much as they thought. Or a sexy investment opportunity – that is best avoided – catches their eye and they cannot resist.

Related Post:
Debunking 7 Financial Myths Overheard in the Doctors’ Lounge

All of a sudden, their foolproof plan goes awry

The same thing goes for doctors interest in real estate investing. They do their research and read the books. And they develop a plan to invest in cash flowing real estate. However, either subconsciously or not, they ignore the challenges and hard work that also come with real estate investing.

Hint: This is exactly why I focus so much on the hard parts, challenging work, and obstacles that arise in real estate investing. It is great and advanced my wealth building immensely! But there still are challenges to overcome!

And then, when the first challenge arises – whether that is raising money, rehabbing a duplex, dealing with tenants, etc. – they bail out or back off.

This is a problem. This seriously impedes one’s ability to advance on the path to financial freedom. Because the formula for success is to create a plan and stick to it. Positive thinking really helps with creating the plan. And also sticking to it. But negative thinking in finance also really helps with the stick-to-it-ness.

So how can we combat this philosophical challenge on our way to financial freedom?

Well…with negative thinking and mental contrasting of course!

Let’s take budgeting for example. It’s easy to sit and create a budget saying that you are going to be uber frugal in every category of needs and wants. But that’s not realistic. It’s better to imagine what potential obstacles to maintaining your budget will be.

That’s why Selenid and I include a “fudge factor” category in our budget. We knew that some months we would want to spend a bit more. And this fudge factor covers it. Then we don’t get discouraged. Our temporary negative thinking keeps us thinking positive in our future actions.

A written financial plan is another great example of mental contrasting. In creating the plan, we always start with our financial goals, placing ourselves at the summit of of ultimate goal of financial freedom.

Related Post:
My Written Financial Plan Update: New Financial Goals and Priorities

Then we look back and describe what we will do and, maybe more importantly, what we won’t do in getting to our goal.

If the stock market falls by 10%, we will not freak out and sell everything. We will not invest for the short term, instead investing for the long term.

You can even extend this into creating a plan for real estate investing like Selenid and I have laid out here.

These are perfect examples of mental contrasting!

Finding the right balance…

Before really thinking about this, I would have said that negative thinking had no place in goal setting, goal planning, personal finance, or financial freedom.

But I was wrong.

There is a place for negative thinking and certainly mental contrasting as we journey towards financial freedom. Practicing these skills I think is beneficial.

However, the balance still tilts heavily towards positive thinking and a positive mindset!

Here are some posts to help you plot your course to your financial goals using the power of positive and negative thinking!

What do you think? Have you ever used negative thinking to your benefit? How about mental contrasting? What is the balance with positive thinking? Let me know in the comments below!

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    Jordan Frey MD, a plastic surgeon in Buffalo, NY, is one of the fastest-growing physician finance bloggers in the world. See how he went from financially clueless to increasing his net worth by $1M in 1 year and how you can do the same! Feel free to send Jordan a message at [email protected].

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