Imagine a world where there was a recipe you could follow to get rich. What ingredients do you think would feature in it? A high-paying job? A diversified investment portfolio? Disciplined saving?
No arguments there! Each of those elements can undoubtedly play a role in the bid for financial success. But something else is even more fundamental: something you might not expect to be as pivotal as it is – your mindset.
Or, to be more specific, having what the psychologist Dr. Carol Dweck calls a growth mindset.
While you’ll never be able to think your way to a million bucks, your beliefs about what it takes to succeed, combined with the way you approach problems and make sense of the world, can profoundly impact your bank balance.
We’re going to break down how these two things are related by defining what a growth mindset is, outlining its importance in personal finance, and offering some advice on leveraging its money-making potential. Let’s dive in!
Introduction to Growth Mindset
Why are some of us crippled by failure when others take it in their stride? Why do so many people struggle with minor setbacks when others rebound quickly from the direst of straits? And why do some people settle for mediocrity when others can’t accept anything less than perfection?
A few decades ago, Dr. Dweck and her colleagues answered those questions. This research led her to a conclusion that’s now seeped into the popular consciousness, public school curriculum and came to inform societal understanding of success. Dweck found that people fall into 1 of 2 camps regarding our underlying beliefs about learning and knowledge.
We either have a fixed mindset or a growth mindset.
What Is the Difference Between Growth and Fixed Mindsets?
With a fixed mindset, you believe your talents, skills, abilities, intelligence, and character are fixed. You think they don’t change throughout your life and thus perceive talent (i.e., what you’re born with) as the key to achievement. As a result, if you can’t do something, there’s little point in trying. In essence, you’re resigned to your fate.
A growth mindset is the opposite. You believe everything from your intelligence and capabilities to your overall lot in life is subject to change. With time and effort, anything’s possible; it’s up to you to make it happen. Furthermore, failure’s an opportunity to learn and grow rather than a sure-fire sign you aren’t cut out for the task.
Why Is Mindset Important in Developing Positive Habits? One Tale
On May 6th, 1954, Roger Bannister ran a mile in 3 minutes and 59.4 seconds.
He broke a record that had stood since the dawn of time and achieved a feat contemporary experts said was impossible. It was thought the human body couldn’t move fast enough to run a mile in under 4 minutes until Bannister came along and proved everyone wrong.
But that’s not the most remarkable part of this story. It is even more noteworthy that 1000+ runners have broken the 4-minute mile since then (one of them did it just 46 days after Bannister). Nowadays, even high school students do it.
The lesson? Firstly, everything’s impossible until somebody does it. And second, you have to believe something’s possible to make it happen. As Shiv Khera once said, “If you can see the invisible, you can achieve the impossible.”
Bannister saw the invisible. And, as soon as other people realized a sub-4-minute mile was an option, they could see (and do) it too. Think about this concerning having a fixed versus growth mindset. Would Bannister have been able to break that record without believing it was doable?
The same is true for any positive habit, whether you want to quit smoking, eat a healthier diet, or get better with money. To see any point in trying, you must first believe the outcome is attainable. You have to think your effort will yield results, that the sacrifices will be worth it, and that dedication and hard work will take you where you want to go. In other words, you need a growth mindset.
Embracing the Growth Mindset in 4 Steps
That begs the question: how do you develop a growth mindset around money if you’ve spent forever thinking your skills and abilities stay fixed throughout life? When you shy away from challenges because a) you’re afraid of failure and b) making an attempt seems pointless in the first place? Here are four strategies to get started.
1. The Power of Yet
“I can’t invest; I don’t know how.” “I don’t know how to get out of debt.” “Budgeting doesn’t make sense to me.” “I don’t understand how to save money each month.”
Do any of those thoughts sound familiar? A simple and powerful way to shift your perspective is to put “yet” at the end of each sentence. For example, if you’ve thrown in the money towel because you’re “just not good with money,” tell yourself you’re “just not good with money yet.” Likewise, it’s not that you don’t know how to invest; you don’t know how to invest yet.
Suddenly, there’s hope! The power of yet leaves open the door to positive change and reframes feelings around money.
2. Replace the Word Failing With Learning
Failure’s a dirty word when you have a fixed mindset. However, not only is failure a natural part of life, but it’s also (from the perspective of a growth mindset) a cornerstone of progress. As Dweck says, “In one world, effort is a bad thing. It, like a failure, means you’re not smart or talented. If you were, you wouldn’t need effort. In the other world, the effort is what makes you smart or talented.”
Nobody who succeeds in life does so without their share of failure. Why? Because it teaches you what you need to do differently next time! No failure, no lesson. So, don’t say, “I’m failing at this.” Instead, say, “I’m learning.” It’ll shift your perspective on making mistakes and motivate you to keep trying.
3. Acknowledge and Embrace Your Weaknesses
It’s always tempting to hide from our failings and imperfections. However, no good ever comes from burying our heads in the sand. Instead, acknowledging, confronting, and embracing our issues and weaknesses is key to overcoming them.
Remember, nobody’s perfect! If your current financial situation leaves something to be desired, then you’re certainly not alone. Just like a recovering addict, though, the first step to turning it around is acknowledging there’s a problem. If you recognize that you need a tool that invests your money on auto-pilot instead of remembering to do it, that’s pretty easy to set up and get started.
4. Remember Your Brain Is Plastic
Never forget that our brains can change throughout life too. A rapidly growing body of research shows they’re amazingly malleable- a trait allows us to recover from brain injuries, grow new brain cells, forge and strengthen neurological pathways, and learn new skills.
That is called neuroplasticity, and it’s a compelling argument against the idea that our skills and abilities are fixed! On the contrary, your brain can and will change for the better (which lends extra credence to the power of yet).
5 Ways to Use the Growth Mindset to Grow Your Money
That’s all well and good. But how can you harness a growth mindset to bolster your bank balance? Here are five suggestions to get you started.
1. Action over Avoidance
Conduct an audit of your current finances and consider what you could be doing differently. Whether you’ve been struggling to pay off your credit card debt, save for retirement, or are unable to summon the courage to ask for a raise, a growth mindset should make it easier to acknowledge the problem and take the first steps to address it.
2. Celebrate the Struggle
Building wealth doesn’t happen overnight. You have to be committed, resilient, and patient while working toward the goal! Use your growth mindset to reframe matters. Remember: you don’t have financial freedom yet. Not only is the potential for success exciting, but you’re also happy to embrace the challenge, build the necessary skills, and tackle whatever obstacles arise along the way.
3. Continue Learning
A growth mindset goes hand in hand with the willingness to learn. So, let those thoughts of failure fall away and set your mind to learning, adapting, and mastering better financial habits instead. Whether that’s how to budget effectively, streamline your savings process, use debt wisely, or invest in real estate, you’ll soon have the skills required to elevate your net worth.
4. Seek Support
People with a growth mindset are always looking for new tools and tactics to help them reach their ambitions more efficiently. That’s why you shouldn’t hesitate to hire professionals for help. With support from accountants, tax advisors, and financial advisors, you’ll access essential information to lever yourself into a stronger financial position and avoid expensive mistakes.
5. Take Risks
All failures are learning opportunities for people with a growth mindset, so taking financial risks becomes less daunting. Whether you ditch your 9 to 5 to pursue a business idea or implement a riskier investment strategy, you’ll pave the way to greater monetary rewards in the process
Danny Newman is currently writing and traveling his way around the world in a bid to figure out exactly what he’s doing with his life. He’d love you to follow along with his journey over at What’s Danny Doing.