What if the entire personal finance industry is focussing us on the wrong things?
What if the key to getting rich is not just choosing good investments?…important though that is.
Instead, what if the 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.
Some people have mental models that help them build wealth. Warren Buffett’s partner Charlie Munger is known for a set of mental models that helped him achieve great success.
We use these mental modals to make decisions on autopilot. 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 philosophical debate, best to run the fuck away.
We make most decisions more on our instincts and emotions than we do on logic. Humans make money decisions like we make relationship decisions: using 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 partners? What is the one thing that all those different people have in common? Answer: the person that chose them. Is it possible that the person choosing has a relationship blueprint that is not helping them?
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. Although written in the dialect of self-help, I urge you to focus on the content of this fantastic book. One of its key concepts is Your Money Blueprint.
Eker proposes that everyone has a personal money blueprint and that this, more than anything else, will determine your financial destiny.
Imagine we humans are like PCs. Our bodies are the hardware and our money blueprint is 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 lens 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 sometimes to suit their own agenda.
Unfortunately most people did not have parents who were financially sophisticated. So they get brought up to be financially illiterate. 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 will act in a way that ensures they never have to suffer the burden of being rich. This is self-sabotage. If you’ve been brought up to believe that rich people are greedy and bad, then you’ll find ways to ensure you stay poor. This may help explain why we see so much ridiculous spending all around us.
Eker is one of those 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 (I’m just jealous). He tells folksy 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 Right, I don’t criticise his tan. No, I learn as much as I can from them.
Eker tells us how to think like the rich. To win the money game you need a mixture of offence (earning more, taking intelligent risks) and defence (low spending, wealth preservation). You can’t just penny pinch or just earn your way to being rich.
Not only did Eker make a small fortune in a real business (sports equipment), he then made an even bigger fortune in training, motivational courses and seminars. Eker understands the psychology of how people think about money better than anyone I’ve read before.
My money blueprint was formed growing up in provincial England. My parents both went to university, 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. This experience showed me 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 stockbrokers talking on brick mobile phones and drinking champagne were often on the telly.
Stuck in a comprehensive school in East Anglia, 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 my early years. 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.
We have two ways of reacting to the money blueprint we grew up with. Mostly we absorb it unconsciously and then repeat it. But if it annoys us enough growing up then we react against it and resolve never to live like that again.
Its valuable to look back at your childhood to see where your money blueprint came from. 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.
The money blueprint helps explain why different cultures have different attitudes to money and hence get different results. For example, throughout history and across different countries the Jewish and Chinese cultures have produced people that traded, invested and built wealth.
Similarly, in America immigrants developed a hard working, independent frontier mentality which helped them settle the West. The money blueprint explains why immigrants tend to work harder, spend less and save more (a good thing) but also feel more financial anxiety (not so good).
How many of us had parents that were excellent role models and teachers of the principles of financial independence? 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 without ever even coming across the idea of passive income from businesses or shares.
The money blueprint exists 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.
Every child learns how to think and act in relation to money. But the teaching is usually not explicit. More often, the child picks up ideas on the basis of Monkey See, Monkey Do. We learn from role models by absorption. 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 a mistake; like a farmer who refuses to plant crops because they can’t see the seed grow underground.
A good farmer has a money blueprint that includes hard work, stoicism and an acceptance of the volatility of the weather. The weather or disease can devastate any single crop in any single season. But the farmer realises that over time, if they work hard and plant 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 dealing with the ups and downs of farm life.
The great news is that its never too late to change the money blueprint you inherited. We can do the work to change our mental models and the way we see the world.
What about you? What experiences and beliefs shaped your beliefs about money? What is your money blueprint?