Debates about financial independence sometimes seem to involve people talking at cross purposes. Some talk cheerfully about how easy achieving financial independence is. Others emphasise the barriers (e.g. the govt, stockmarket valuations, their boss, spendy other half etc etc).
It’s almost as if they are talking different languages…or looking at the world through a different lens. These alternative perspectives fascinate me and I love it when I find a new book that helps me understand the differences.
I’ve read quite a few new books in the last couple of years. But one of the most useful in understanding the underlying differences between complainers on one hand and people who get stuff done on the other has been Mindset by Carol Dweck.
Why is this? The book is not about financial independence…or personal finance at all. And the writing style is held back by a distinct lack of swearing and politically incorrect gags.
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. And 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 think this way. You are 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 involves avoiding effort and challenge and avoiding failure at all costs. 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 think we’re entitled to. Unfortunately, when you are plonked down by fate on a desert island, those concepts are irrelevant and unhelpful distractions. Life is full of randomness. Let’s be honest, its not fair that in the great genetic lottery of life, there was a mix-up and George Clooney got my face. As a result, I am cruelly forced to struggle through life without my filmstar looks.
We all experience setbacks at some point in life. 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 obvious problem with avoiding failure at all costs is that people (in the fixed mindset) 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 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.
Its a bit of a waste of time to debate whether anyone and everyone can achieve financial independence. I don’t know whether its possible for everyone to reach financial independence. But I think that’s missing the real question.
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) implies its possible for everyone to improve at these. Me included.
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 learning 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 the bad ones take work…good ones even more so.
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. And 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?
Well, its not directly about financial independence. But it clarified important ideas for me. 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.
The bottom line is that anyone can get a huge amount of value from implementing the ideas in this book. I’m thinking of adding it to my list of life changing books…and I’d recommend anyone interested in financial independence put it on their reading list. Or, better still, actually read it!