The Importance of Mindset

Discussions about money often involve people talking at cross purposes.

Some talk cheerfully about how achieving financial independence is possible…even simple. Others emphasise the barriers (e.g. high taxes, low incomes, stockmarket volatility, unhelpful government etc etc).

It’s like they’re talking different languages…or looking at the world through a different lens.  These different perspectives fascinate me and I love it when I find a book that helps me understand the differences.

I’ve read quite a few books in the last couple of years. But one of the most useful in understanding the differences between complainers and people who get stuff done has been Mindset by Carol Dweck.

Why is this? The book is not about personal finance.  The reason its interesting is that the concept underlying the book is incredibly powerful and yet ridiculously simple.  So simple that my first reaction was to wonder: why have I never thought of all this myself?  And does this really require a whole book (246 pages) to explain?

The book is about 2 opposite ways of thinking: what Dweck calls the fixed mindset and the growth mindset.

The growth mindset is basically the idea that whatever your situation in life, you can always do something to improve it.  Like I said, ridiculously simple. And yet, thanks to The Aggregation of Marginal Gains, incredibly powerful if you keep following through with action.

Over time, our actions become our habits. With the right habits, getting rich becomes almost inevitable.


What does the growth mindset look like?  Well, do you remember the film Castaway? (see my review here) where Tom Hanks is in a plane crash and gets marooned on a desert island.  This is shitty luck and he’s basically imprisoned in solitary confinement in a tropical prison.

Before crashing on a desert island Hanks had never caught fish with a spear or built a boat or performed DIY dentistry.  But he’s willing to experiment and to learn. In the growth mindset, skills result from hard work and can always be learned and improved.

The film shows Hanks playing the hand that he’s dealt.  He uses all the resources that are available to him.  Nothing is wasted. He puts in the work and is not put off by setbacks. He goes from nothing to making a fire, gathering food, finding shelter and eventually building a boat to escape the island.  I’m sure there’s a financial independence metaphor in there somewhere…


Or if you want something more recent, Matt Damon plays out almost the identical plot in The Martian…just swap the planet Mars for the desert island and its basically the same film.

Isn’t it a statement of the bleedin’ obvious that effort, flexibility and perseverance are important? And that we should be learning all through life, not stopping when we leave school / college? Well, yes it is. Which is why its odd that most people seem to exhibit a fixed mindset in life and stop learning new things as they get older.

A fixed mindset is the belief that your position in life (e.g. where you live, your job etc) your skills and resources (including your money) are all largely the result of fate or circumstance and there’s little that we can do to improve them.  The fixed mindset complainypants blames other people.

Remember this: The Man may well be trying to keep us down…but he can’t do that without us playing along.

The good news is that you don’t need to be marooned on a desert island or on Mars to develop a growth mindset. You’re also allowed to try hard and learn new skills in everyday life.  Alone on a desert island, complacency is not an option for Hanks.  But for most of us in the affluent West, complacency is an option…and its a trap.

Its easy for people to get a job in which they plod along, avoiding challenge or new experiences.   Just as its possible to go through life without riding a bike, running or lifting weights.  This is the road to slow death via atrophy….physically or mentally.

The fixed mindset avoids effort and challenge. Its not only possible to exist like this, its commonplace.  A quick walk round any shopping centre reveals that they’re rammed with The Walking Dead. Remember, God gave us the internet so we wouldn’t have to go to those places.

The fixed mindset focusses on what we are used to and what we think we’re entitled to.  Unfortunately, the universe doesn’t care about our sense of entitlement so its an irrelevant and unhelpful distraction.

Life is full of randomness.  It’s not fair (never was) and we all experience setbacks at some point.  In the growth mindset, failure may hurt but its not the end of the story.  Challenges are reframed as an opportunity to grow. They’re something to be embraced and they’re a clue that we need to try harder or try a different approach.

People in the Growth Mindset don’t expect good things to always be easy…effort is not just essential to achieving the goal or destination….its a big part of what makes the journey meaningful. The Obstacle is The Way.

But in the fixed mindset, failure is transformed from something specific that happened (e.g. I failed my driving test, lost a job) to a matter of identity (e.g. I am a failure).  After failure people in the fixed mindset beat themselves up, sulk (give up), blame others or leave angry complaints all over the internet.

The problem in the fixed mindset with avoiding failure at all costs is that people then avoid new challenges.  So they don’t experiment, they miss opportunities and don’t chase big goals like financial independence.

It seems to me that what Dweck calls a fixed mindset translates into what others sometimes call a “scarcity mindset” in personal finance.   For example, someone that assumes that earnings are fixed or capped at their current salary is showing a fixed or scarcity mindset.  They may then focus exclusively on extreme frugality.

Frugality is really important on the path to financial independence but the trick is to work both sides of the equation and try to get income up at the same time as optimising (ie intelligently reducing) spending.

There is no upper boundary on earning but you can only ever reduce your spending by so much.  That isn’t to say that its always easy to get a pay rise or another job or start a side hustle.  But if you believe those things are impossible, you’re screwed before you even start.

In the growth mindset, you can always use creativity and effort both to increase your income and to reduce your spending compared to your current position.

The real question is: is it possible for everyone to manage their money better? Is it possible for everyone to spend less of their money on shit that will soon be landfill?  Is it possible for everyone to be more creative? The growth mindset (plus common sense) says yes.

One of the interesting sections of the book is the advice for parents.  Dweck recommends a growth mindset in parenting (surprise!).  She suggests avoiding labelling children as gifted or slow…that’s too focused on the outcome.

Better to focus on the process and give praise for genuine effort, dedication and growth…regardless of the outcome. So if your child tries their best but loses a football game or chess match, you’d praise them. So far, so obvious. But you’d challenge (not praise) the child that didn’t bother trying yet still manages to pass an exam or win their game.

Another interesting area of potential application is in the field of relationships. The fixed mindset says you can’t change and your other half can’t change. Naive romantics think that relationships are either “good” or “bad” and that in a good relationship no effort should be required.  The truth is that relationships take work.

The fixed vs growth mindset is not binary, not like pregnant v. non-pregnant.  None of us fit neatly into either category.  It’s more like a spectrum with fixed at one end and growth at the other.

Someone could be growth mindset at work (open to feedback, hardworking etc) and yet fixed mindset (thin-skinned, defensive and lazy) at home in their relationship.  Or they could be growth mindset when relaxed and yet fixed mindset when stressed with money problems. The idea is that we can all change the way we think and move along the spectrum a bit closer to the growth end.

Should you read the book?

I’m a yes on that.  The advantage of reading the whole book is that you “marinade” in those ideas and absorb them more fully. It may all be common sense but common sense ain’t that common. Anyone can get a huge amount of value from implementing the ideas in this book.

So I’ve added it to my list of life changing books.

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  1. I wouldn’t say gender was binary either

  2. Carrie Willard · · Reply

    I enjoyed this book and find myself calling people out on false choices/ dichotomies all the time. I also try to apply it in my parenting. I remind my kids frequently that struggle is good because it makes you grow.

  3. John of Hampton · · Reply

    This is a really interesting post, and raises the question, for me, of how evenly distributed the fixed vs growth mindsets are. I seem to know mainly “fixed mindset” people, and have recently been asked by two of them “When ARE you going to retire?” This is because I ceased to be employed in February 2015, when I got to 60, and have since been doing a variety of exciting things connected with my profession as a scientist. In the last 3 months, for example, I have given 6 invited lectures, been to two international conferences, and earned well over £1000 in freelance fees to augment my already generous pension. But they don’t like it. Apparently, I am not supposed to challenge myself to do good work any more; I am supposed to potter round the garden and occasionally visit the local day centre.
    Fortunately, my wife has a similar mindset to me. She works hard at a variety of local community activities, including being an elected ward councillor and political activist. A lot of this necessitates facing challenges, learning new things and mastering new skills, so we are both pursuing this style of life in our respective spheres.
    But no-one in our social circle gets it, and mostly they think we have got it wrong. Are we unlucky in those we know, or are us growth-mindset people in a very small minority?

  4. The fixed mindset sometimes appears as a growth mindset.

    i.e. When/if I achieve X or Y, own my house, find a mate, have a child, win the lottery, get a promotion, drive a Ferrari… or when I have enough money to retire and be fully financially independent… things will be somehow better.

    The rub is the means are more important than the ends.

    Pursuing FI because you dislike your job/ commute/ boss is not as beneficial as pursuing it for a challenge or because you want to save the environment or help others but if you can stick it out (easier when motivated by positive intent) it will change you.

    Similarly, staying in your job because you feel trapped, are crap with money and don’t care about improving is torture for suckas but continuing to work after FI because you enjoy the challenge of building habitable space ships, sharing your knowledge, stretching your personal resources/skills is the stuff of champions.

    Thank you for another thought-provoking article.

  5. Reading ‘The Art of Thinking Clearly’… I always had the idea that my mind is pretty thick and slow. Reading helps change my dimensions if only a little opening up the possibilities.

    The idea is that we can all change the way we think and move along the spectrum a bit closer to the growth end.

    I like stories and I learn from all stories, fiction or non-fiction. I think I there’s always something to learn from someone, whether it’s about life or finance or examples for motivation. Growth is slow but in retrospect, you can definitely see the progress!

    1. Thanks, this reminds me of an interesting idea from the book…

      Dweck proposes that functional intelligence is not fixed. The implication of her book is that its not helpful / relevant to think about IQ as a single number which is fixed through your life.

      She suggests that useful, practical intelligence is something that can be increased by your thoughts/ beliefs / experiences / efforts.

      You could think of this as having 2 IQ scores. One is your potential and the other is the part of your potential that you are capable of deploying…

  6. My better half sacked off her teaching job after her second maternity as she just couldn’t face going back. She didn’t want to stop work, far from it. So she set up her own business (in education), hopefully perhaps inspired a little by me as she’s been with me all the way on my self-employed journey for the last 13 years.

    Definitely a growth mindset!

    Whilst being a wee bit excited with her news, she did have quite a bit of trepidation at the thought of telling her Dad.

    When the moment arrived, his response was rather predictable “you stupid girl! You’ve thrown it all away, what about your pension, you could have made it into management” – not once did he ask her what she wanted.

    What we have come to terms with is the fact that his response (er, obviously fixed mindset) was in line with his life experiences, choices etc

    It was entirely predictable.

    We still put up with him, after all, he’s family 🙂

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