What if the key to getting rich is not just increasing earnings and choosing good investments (important though those things are)?
Instead, what if the underlying key to getting rich lies in how we think about money and wealth?
Mental models are ways of looking at the world. They are like maps: simplified versions of reality which help us navigate a complex world.
I’ve noticed that some people have mental models that are powerful for building wealth. Warren Buffett’s partner Charlie Munger is known for a set of mental models that helped him achieve great success.
We use mental shortcuts because they allow us to make quick decisions and, in our evolutionary history, quick decisions would have been needed to survive. When you see a shadow the shape of the sabre-tooth tiger, best not start a philosophy class, best run the fuck away.
We make most decisions more on our instincts, emotions and pre-conceptions than we do on logic. How else can we account for the wealth management industry in it’s current form with its ridiculous fees?
Once you accept that saving hard, investing rationally and reducing investing costs matter hugely, the victory is largely won. This big picture psychology is way more important than agonising over which fund or ETF to buy….yet its the detailed mechanics of investing that get almost all the attention.
This is a fucked up state of affairs and the fault lies mostly inside ourselves. The answer is to focus more on our inner game.
Humans make money decisions much like we make relationship decisions, through a complex mix of conscious and sub-conscious thought processes driven by emotions and programming in ways we don’t really understand.
For example, have you ever heard someone complain about all their past boyfriends being bastards? (please feel free to change the sex and character flaw yourself here). But what is the one thing that all these past boyfriends have in common? The person that chose them. Is it possible that the person choosing has a relationship blueprint that is unhelpful?
Similarly, is it possible that we all have money blueprints that determine our financial results? For good or bad.
I’ve been reading Secrets of the Millionaire Mind by T Harv Eker. The prose is never going to win any literary awards; its written in the dialect of self-help. But I urge you to focus on the content of this fantastic book. One of its key concepts is the money blueprint.
Eker argues convincingly that everyone has a personal money blueprint and that this blueprint, more than anything else, will determine our financial destiny.
To use an analogy, imagine we humans are like PCs. Our bodies are the hardware and our money blueprint is like the operating software that’s been programmed into us. We emerge from the “factory” of childhood into adult life with our money blueprint installed. This then forms the prism through which we see the world.
Our blueprint comes from sources of authority growing up including parents, other family, teachers, the media, churches etc. All of these try to influence us, mostly for our own good but often to suit their pre-conceptions or agenda.
Unfortunately most people are brought up on half truths. They may have been told that all rich people are greedy…or that you can have money or happiness but not both. They may have been told that you can’t take it with you and you only live once etc.
Someone who has internalised these mantras may self-sabotage and live in a way that ensures they never have to suffer the burden of being rich. If you’ve been brought up to believe that rich people are greedy and that being greedy is bad, then if you want to be a good person, sub-consciously you can never be rich. This may help explain why we see so much ridiculous spending all around us.
Eker is one of those annoying inspirational gurus that strides around a stage in front of thousands of people with a headset microphone, a tan and suspiciously good hair for a man of his age*. He tells anecdotes and shouts out things like REPEAT AFTER ME, I HAVE A MILLIONAIRE MIND! and the audience shout it right back like lemmings would if they could shout. So we can ignore him right?
We should not ignore Eker for one good reason…he is Right. When The Escape Artist finds a guru that is objectively correct, I don’t focus on his tan. No, I bow the fuck down and absorb as much as this guru can teach me as possible.
Eker focusses on how to think like the rich. He recognises that to win the money game you need a mixture of offence (earning more, taking intelligent risks) and defence (wealth preservation and low spending). Most of us are not going to be able to just penny pinch or just earn our way to being rich.
Not only did Eker make a couple of fortunes in real businesses, he then dove deep into human psychology and used that knowledge to make an even bigger fortune in training, motivational courses and seminars. Eker understands the human psychology of wealth better than anyone I’ve previously read.
My money blueprint was formed growing up in provincial England in the early 1980s. My parents both went to college, worked hard and stretched themselves to buy their house and move up the property ladder. This worked out well for them but there were some nasty moments along the way. In 1981 we moved house and my heavily mortgaged parents watched as interest rates went to 17%. Belts were tightened. The newspaper was cancelled. Beer was brewed at home etc etc
We never had to eat roadkill but to the young Escape Artist it seemed touch and go for a while. This experience provided me with an salient example of how it was possible to cut spending when push came to shove.
My parents kept their heads down at work and things improved. The early 80s were the era of privatisation and my parents made money on shares…not much in the bigger scheme of things but enough to spark my interest. Wall Street was in cinemas, Margaret Thatcher was in Downing Street and pictures of annoying stockbrokers talking on brick mobile phones and drinking champagne were often on the telly.
Stuck in a comprehensive school in provincial England, going to work in the City seemed impossibly glamorous. I wanted money and never to worry about it again. I didn’t know my Krug from my Kestrel but I could learn that stuff later right?
I could go on but you get the picture. My attitudes to money were formed in those years. During my adult life, I repeated some of the patterns (good and bad) I’d absorbed during that time. For example, when it came time to buy a house, I duly borrowed every penny that the bank would lend a young idiot in the mid 1990s. I then went on to repeat my parents example of occasionally panicking about money and going on cost-cutting binges.
My parents were brought up in post war Britain with food rationing, where social mobility was still limited and most people did as they were told. Doing as you are told is something I rebelled against. We have two ways of reacting to the blueprint we inherit. Mostly we absorb it unconsciously but if it annoys us enough growing up then we focus on it and resolve never to live like that again.
Overall, I got a good money blueprint from my parents. But regardless, blaming anyone else for your current situation is worse than useless. We are where we are and we are in charge. But its valuable to look back at your childhood to see where your money blueprint came from.
The idea of a money blueprint helps explain why some cultures have different attitudes to money and hence results than others. For example, throughout history and across different countries the Jewish and Chinese cultures often produced people that traded, invested and built wealth. Similarly the American settlers developed a hard working, independent frontier mentality which helped them conquer the West.
The idea of a money blueprint helps explain why financial independence is such a rare and misunderstood notion, particularly here in the UK. How many of us had parents that were financially independent and both at home while we were growing up? Not many, I’d guess.
We may have asked our parents for money and been told to go and get a job…or that money doesn’t grow on trees….or that we’d have to work for it. No one ever told us to go out and get some sources of passive income…so we didn’t. Many grow up with the idea of passive income from businesses or financial assets never even contemplated.
The money blueprint exists only in our minds. On its own, it can’t drive the results we get in life. There has to be a transmission mechanism. Eker’s transmission mechanism is:
Thoughts lead to Feelings. Feelings lead to Actions. Actions lead to Results.
Eker explains that every child is taught how to think and act in relation to money. But the teaching is usually not explicit. More often, the child picks up notions on the basis of Monkey See, Monkey Do. This is how we get programmed. Our programming then shapes our thoughts, which shape our feelings, which direct our actions, which lead to our results.
Results have many causes. Our results (in investing, at work) are also influenced by luck. So the transmission mechanism often seems indirect, even invisable.
This is why people often get discouraged from building wealth. Sometimes the fruits of our labours seem too far away in time, too prone to luck to justify doing the work. But this is like a farmer refusing to plant crops because they can’t see the seed grow underground.
The farmer has a money blueprint that includes hard work, stoicism and an acceptance of the volatility of the weather. The weather or disease can have devastating effects on any single crop in any single season. But the farmer realises that over time, if they work hard and plants the right seeds, they will succeed. Interestingly, most farmers come from farming families so they will have grown up on the farm seeing their parents work hard and deal with farm life.
We can change the money blueprint we inherited. We have free choice and can change the way we see the world. But most people don’t bother because it takes work and self-evaluation.
But change can be hugely beneficial. Over the past year I’ve changed my money blueprint to focus much less on the fear of losing what I have and more on gratitude, spending less and finding new opportunities. I also help other people with this process through coaching.
What about you? What experiences and beliefs shaped your beliefs about money? What is your money blueprint?
*I’m just jealous
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