Success is normally great, but sometimes it comes with feelings of guilt.
In other cases, someone works hard and achieves success, but then feels like they didn’t really earn it.
Impostor syndrome can arise in many contexts. But there is a similar kind as well – financial impostor syndrome – which affects many people who have improved their financial situation.
Financial impostor syndrome can come from finding success after a period of financial struggle. You’re so used to not having money, and watching it carefully, that when you finally do find yourself in a position where you have a surplus, old habits die hard and you hang onto it in fear you’ll run out again.
While this may sound like a good way to stay frugal and keep saving, it can also have negative effects on your mental health. Plus, hoarding your money and not using it to invest in your future or emergency fund can mean you are leaving serious money on the table.
What is financial impostor syndrome?
Impostor syndrome describes a feeling of inadequacy that arises when you don’t think you’ve earned your place among your colleagues or current social circles.
It’s something that often comes when you’ve gotten your seat at the table, but feel like you don’t belong. Specifically, it’s the feeling that you’re a fraud and don’t deserve that seat.
Regular impostor syndrome is fairly well-understood. Its triggers are any event that brings attention to your success. This can include a new job, a promotion, an award, or more.
Financial impostor syndrome isn’t a separate issue, but rather it’s the same phenomenon applied to finances.
Examples of financial impostor syndrome
When you don’t have much money, you develop habits that reflect that fact.
You’re resourceful and frugal, always asking whether you can justify each expense. These habits can stick; one example of financial impostor syndrome is being very frugal even after receiving a significant raise. In this way, it is almost the opposite of lifestyle inflation.
Let’s say that you lacked money for a long time and had to ask yourself questions like:
- Do I NEED to replace these worn-out shoes TODAY?
- Do I NEED an oil change now, even though there’s a strange smell and exhaust smoke?
- SHOULD I buy a car now, even though I’ve been taking the subway for years?
If you suddenly start making a higher income, how do your habits adjust?
There are a few problems that some people face in this situation. It can look like a spectrum, with lifestyle inflation at one end and impostor syndrome at the other.
Some people make more money, then feel like they should live in a house, drive a car, and eat the kind of food that reflects that new income.
Others will maintain their old habits because living frugally is more familiar to them. The reality of the increased income may not be accepted so quickly.
In some cases, this can be healthy for the person who is suddenly making more money. But it can be problematic as well.
In the end, the reason for any example of financial impostor syndrome is that knowing what you can afford is difficult and takes time and practice, and one that no one probably taught you how to do.
Is financial impostor syndrome costing you money?
It seems backwards to think about this.
If financial impostor syndrome exists at the other end of the spectrum from lifestyle inflation, where you keep spending more as you make more and can’t seem to get ahead, then how can it be costing you money if you’re loathe to let go of it?
We all know our friend, compound interest. When you are using it to save money, it can exponentially help you over time.
The Rule of 72 alone gives us pause when we think about how quickly we could double our investments if they stay locked in for longer periods of time. If you’re hoarding your money because you are afraid you are going to run out, or are holding onto old habits of not spending at all, you are likely leaving money on the table.
Not saving for your retirement, emergency savings or even for ‘good debts’ such as your own business or house down payment, etc. could really hurt you down the road.
This could be a good practice to help you work your way out of it though.
After all, saving for an emergency fund can allay the same fears you have about running out of money, or what to do if the unexpected pops up. On top of creating a new budget for your new income/salary/lifestyle change, start socking away a portion of it for the rainy days that are sure to come.
When you panic, or have a bad feeling, you can look at your account and see that little nest egg growing.
What’s the Rule of 72 & Can it Help You Achieve Your Investment Goals?→
Is impostor syndrome due to low self-esteem?
Impostor syndrome can often be attributed, at least in part, to low self-esteem.
However, this is likely to be more connected to your past experiences and the expectations you’ve set as a result.
Another major contributor to financial impostor syndrome is uncertainty.
Past experiences can make individuals fear that they may suddenly not have the money they need. In these cases, self-esteem is less of an issue, and it may just take time and considerate budgeting to become accustomed to a higher income.
Think about it. If you’ve been used to living paycheck to paycheck, where every penny counts, of course you’re going to have to make tough decisions on where those precious dollars go!
When you’re here, an emergency situation isn’t even that your car broke down, because you may not have one. It could be that you lost your bus pass, or some of your carefully chosen groceries went bad before you could eat them.
You’re used to being worried about money – and that if one little thing goes wrong, you are in trouble. That’s going to take time to recover from.
Do successful people suffer from financial impostor syndrome?
Yes.
In fact, successful people are often the most susceptible. There has long been debate about the Dunning-Kruger Effect, the tendency for the unskilled and ignorant to be more confident, while the skilled and knowledgeable often second-guess themselves.
As Darwin put it “Ignorance more frequently begets confidence than does knowledge”.
When it comes to finances, most people love to make more money, but second-guessing your current financial situation is normal.
It’s hard to imagine that the most successful people suffer from this (although we can’t say for sure). But all forms of impostor syndrome follow some kind of success.
Financial Impostor Syndrome: Conclusions
The core of the problem of financial impostor syndrome is that habits are, by definition, hard to change. This is combined with the fact that managing money also takes practice, and sudden changes in income may be shocking at first.
There’s nothing wrong with holding onto frugal habits – it can actually be very helpful!
The answer to the challenge includes one or both of:
- Mental health awareness
- Budgeting
Budgeting is the answer to a wide range of financial challenges. But you must also be aware of your mental health and seek help if you need it. In the meantime, it can help to simply set a new budget that adjusts for your current income.
