People sometimes say there aren’t any secrets to financial independence: it’s just:
i) Earning more
ii) Spending less
iii) Investing the difference wisely
iv) Knowing how much is enough
Well yes, but…and its a big but…its not easy.
The devil is in the details. There are a huge number of new ideas, mental models and techniques to learn during your journey. If you don’t know these (and action them) then they might as well be secrets.
So I think its important to understand the elements that go into achieving high performance. I’ll illustrate with investing examples. But these principles can be applied to any area of your life (including your career, your fitness and your relationships).
Tony Robbins talks about three elements of peak performance elements: 1) Story 2) Strategy and 3) State. You can say that’s a simplification…but the whole point of mental models is to simplify reality. A map that included everything wouldn’t be useful and wouldn’t be a map. The map is not the territory.
Let’s dive in to each one in turn:
Story is the way you see the world. Its the story (actually multiple stories) you tell yourself about how the world works. In Secrets of The Millionaire Mind, T Harv Eker talks about this as your money blueprint.
How can stories in our head lead to real world results? On its own, your money blueprint can’t drive the results you get in life. There has to be a transmission mechanism:
Thoughts lead to Feelings. Feelings lead to Actions. Actions lead to Results.
Remember the 2 types of reality:
i. Objective reality
This reality is independent of what we think. It is the objective truth sought by scientists and engineers. An example would be the laws of physics…like if you jump out of a plane without a parachute, gravity pulls you downwards at a velocity increasing by 9.80665 metres per second per second. It doesn’t matter what you think.
ii. Subjective reality
Subjective reality, on the other hand, is shaped by what’s in our minds: our beliefs, expectations and perceptions.
This is the version of reality that operates in most of our life…anywhere where the human factor is at play. Crucially, it’s subjective reality that applies in personal finance.
A classic example of a story that holds people back from investing would be the (incorrect) idea that the stockmarket is a giant casino or scam. If you believe that, you won’t invest…you’ll huddle in cash, with the value of your money slowly melting away like an ice sculpture at a party. And that would be a shame because the stockmarket has been the best place for building wealth for the last couple of hundred years.
If you still doubt that your mental stories matter, consider this classic Morgan Housel quote:
The best investors in the world have more of an edge in psychology than in finance
Other than in maths textbooks, there are few absolute truths. We’re all mortals struggling to live in an infinitely complex universe that we can’t fully understand. But we have to believe in something otherwise we’d never get anything done. Here’s Eker again:
If you’re like most people, you’re going to believe something, so you might as well adopt beliefs that support you, rich beliefs. Remember, thoughts lead to feelings, which lead to actions, which lead to results. You can choose to think and act like rich people do and therefore create the results that rich people create
Here are some useful stories to tell yourself:
- most people are fundamentally decent
- the harder you work, the more likely you are to get ahead
- its not hard to be better than average
- life is not fair but I’ll deal with whatever comes
- what doesn’t kill you makes you stronger
- karma is a thing: you get out what you put in
The point is not whether those stories are 100% objectively “true”. The point is that they are useful beliefs that will help you play the hand you’re dealt.
The better the stories in your head, the better your outcomes with other people and with money are likely to be.
Strategy is the most obvious element of the three. Its pretty obvious that if you want to get something done, you need some sort of strategy. Strategy is your plan for how you will achieve whatever it is that you want.
An example of strategy from World War 2 was the Allied plan to invade Normandy on D-day. As well as strategy, we needed a powerful story; a powerful “why” (e.g. stop the Nazis, survive, save the world). And we needed to hold on to that story even through the darkest hours when our emotional state was despair.
Back to investing. There are more than one investing strategies that can work, including:
- Index tracking (passive equity investing)
- Stockpicking (active equity investing)
- Property / Real estate
Of the 3 elements, strategy is the one that normally gets all the attention. But that doesn’t makes much sense because investing strategy can be made super-simple. So the main purpose of this article is to shine a light on the other 2 elements.
When I talk about your state, I mean your physiological and emotional state.
The state we are aiming for here is focused, confident, calm and above all else EFFECTIVE.
An easy way to visualise state is the difference between how your experience your life…how you feel…when you’re hungover versus when you’re feeling fresh after a good night’s sleep. You’re the same person in both scenarios. The fundamental realities of your life are exactly the same in both scenarios – you have the same advantages and disadvantages, the same opportunities and threats. But your reality feels very different.
Fear and anxiety are dangerous and often ineffective states. The extreme form of fear is panic and the problem with panic is that its an ineffective state for anything other than freeze, fight or flight.
The power of State is under-estimated by almost everyone but particularly by logical people. Their logic tells them that because they feel depressed, the world must be a depressing place.
The good news is that you can learn to manage your emotional state for greater effectiveness. If you are feeling low / stuck, its often far more effective to change your state before trying to figure out a logical answer to the problem.
The good news is that it’s easier to change your state than it is to change the world. The quickest way to improve your state is exercise. Just about any exercise has a positive effect on your State: walking, running, cycling and HIT can all improve your state.
I think lifting weights might be the most effective way to improve your state over time. It improves body composition (more muscle, less fat), improves your posture and your hormonal balance. Weight training has changed me physically. What’s more surprising is how it makes life just feel better.
A word on time horizon: weight training takes years to achieve best results in terms of body composition. But the boost to your morale and to your state (and therefore to your effectiveness) from sprinting or a work out is immediate.
If you are worried about your finances and are trying to use logic to eliminate anxiety, you may be looking in the wrong place.
Get off your screens, get outdoors and get active!
The Escape Manual is explained * here *