A Flexible Mind Is Key to a Healthy Money Mindset

How "mental flexibility" can make us less materialistic and better money managers

Photo by David Hofmann on Unsplash

“Things change. The only thing constant is change. It’s up to you to be adaptable.”

—Anonymous

You can’t be great at managing money without being capable of managing change.

Your income, employment status, debts, investment returns, marital status, and your physical and mental health are all factors with big-time impacts on your money. For most of us, many of these factors are constantly changing.

To make matters worse, changes in these factors are sudden and out of our control.

Recently, Google laid off a married couple—one of whom was on maternity leave with their 4-month-old baby. That family went from a likely upper-class lifestyle to no income overnight and could not prevent the outcome.

One of the most underrated skills in personal finance is adapting to changing circumstances.

In today’s post, I review the research on how “psychological flexibility” is critical to adapting to changing circumstances and how you can begin improving that skill.

What is psychological flexibility?

Here’s a definition from a 2023 study that explored the link between a flexible mind, our attachment to our possessions, and our spending habits.¹

“Psychological flexibility is an individual's ability to respond to challenging events, cognitions, or emotions in a way that alters the consequences of such experiences and improves adaptive functioning.”

Put in non-clinical terms: Psychological flexibility describes your ability to adapt to changing life circumstances—like getting laid off while caring for a newborn.

Long-time readers may think that psychological flexibility sounds like resiliency, which I have written about here. Think of mental flexibility and resiliency as two related but separate issues that work towards the same goal of adapting to changing circumstances.

The research paper referenced above outlined six factors that make up a flexible mind.

1. Being aware of the present moment

2. Low cognitive fusion—People with flexible minds have low cognitive fusion, which means they can better separate themselves from their thoughts than people with higher cognitive fusion—where people are so in their head they “fuse” with their thoughts.

3. Experiential avoidance—People with low experiential avoidance are less likely to avoid and suppress negative feelings, thoughts, and memories.

4. Not equating themselves with their experiences—you are not your mistakes.

5. Clearly identifying their values.

6. Committed action—Taking their values out of their head and into daily behavior.

The researchers explored how psychological flexibility (or inflexibility) impacts materialism which they define as:

“The pursuit of money and possessions are central to one's life, signify personal success, and provide the path to happiness.”

I think it’s important to provide some context here as the above definition makes it sound like the pursuit of money leads to happiness is “materialistic” or a bad thing. To be clear, materialism is not about the pursuit of money; it is specifically about the pursuit of money as a means to acquire possessions.

If having money to buy “stuff” is your primary motivator, you are materialistic— and that’s probably not an optimal motivation to live a happy life. But, if you pursue money and wealth to increase your personal freedom to spend your time how you choose or provide financial stability for your family, these are powerful and positive motivations to pursue wealth.

Materialistic people place an outsized value on their possessions. In a previous post discussing the endowment effect, I outlined how this can negatively impact your spending, investing habits, and career.

Back to the study. The researchers found that people with flexible minds were less materialistic and put more emphasis on experiential spending that aligned with their values. Whereas an inflexible person might prefer receiving jewelry or a new smartwatch as a gift, a less materialistic person may value going out to dinner or on vacation with their loved ones.

The more flexible our minds are, the less materialistic we are likely to be.

The less materialistic we are, the less value we place on our possessions and the less likely we are to fall victim to the endowment effect. Avoiding the endowment effect allows us to better value the things we own (like our house or a stock) based on their true market value and not the sentimental value we place on them.

So, psychological flexibility can help us make better financial decisions. The obvious next question is, how can we make our minds more flexible?

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Mindfulness: an exercise in mental flexibility

The six factors that make up a flexible mind (listed above) provide a solid road map to increasing mental flexibility. There is one thing that jumps out to me that is related to most of these factors, and that is mindfulness.

If you’ve been following my writing for a while, you know I mentioned mindfulness in my articles around increasing optimism, resiliency, and recovering from financial trauma.

The more I research the psychological aspects of managing money, the more I notice mindfulness interventions popping up everywhere. It’s becoming increasingly obvious that mindfulness is a critical tool to manage mental health that none of us can afford to ignore any longer.

Here’s how the Mayo Clinic defines “mindfulness”²

“A type of meditation in which you focus on being intensely aware of what you're sensing and feeling in the moment, without interpretation or judgment.”

In a previous post, I adapted four tips on increasing mindfulness from the Mayo Clinic and adapting them specifically for your financial life. I originally wrote about this in connection with financial optimism, but it could also be very useful in helping to adopt a more flexible money mindset.

1. Pay attention to how financial situations make you feel.

Next time you whip out your credit card to buy something, slow down and notice how you feel. Does spending money make you feel anxious? Do you feel more anxious about buying certain items than you do others? Ask yourself why that might be.

The same goes for your thoughts about money. When you have a thought about money, notice how your body is feeling at that moment. What are you feeling, and where in your body are you feeling it? Be as specific as possible.

2. Don’t judge your money feelings

When you think about a financial situation, try not to judge the situation as either inherently “good” or “bad”. It simply “is.”

Let’s say you have a bill to pay and don’t have the cash to pay it until the next payday. Try not to focus on how difficult the situation is or dwell on the decisions that led you to this moment, and start focusing on the optimal path forward. If you can get to a place where you’re mental energy is focused on solutions to financial issues rather than how they make you feel, you’ll be on your way to more financial optimism and better financial decision-making.

3. Be kind to yourself

Many people are a lot harder on themselves than then they are on their friends.

If you forgot to pay your credit card bill on time, your inner dialogue might be pretty harsh “how could I be so stupid?” But what if your best friend came to you and was beating themselves up over making the same mistake? Would you call your friend an idiot or show them compassion?

Treat yourself the way you would treat your best friend.

4. Focus on your breathing

If you are feeling overwhelmed by negative thoughts or worries about your finances, sit down, close your eyes, and take slow and controlled breaths. Do this for at least 60 seconds—or as long as you need to— when you feel overwhelmed by financial stress.

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Exercise for the mind is no different than exercise for the body; it takes time and consistency before you start to notice results.

I’d love to hear from you in the comments. Do you currently focus on mindfulness exercises? If not, what’s stopping you from doing so?

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This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.

1. Watson, D. C., & Howell, A. J. (2023). Psychological flexibility, non-attachment, and materialism. Personality and Individual Differences, 202, 111965. https://doi.org/10.1016/j.paid.2022.111965

2. Mayo Clinic. (2020, September 15). Mindfulness exercises. Mayo Clinic; Mayo Clinic. https://www.mayoclinic.org/healthy-lifestyle/consumer-health/in-depth/mindfulness-exercises/art-20046356