For an extraordinary high-achiever like NBA legend Michael Jordan, you could reasonably attribute his success to one of many things. His natural athleticism. His high basketball IQ. His shoes. But to His Airness himself, it was the result of a relentless mindset:
"I've missed more than 9,000 shots in my career. I've lost almost 300 games. Twenty-six times, I've been trusted to take the game-winning shot and missed. I've failed over and over and over again in my life. And that is why I succeed."
"If you're trying to achieve, there will be roadblocks. I've had them; everybody has had them. But obstacles don't have to stop you. If you run into a wall, don't turn around and give up. Figure out how to climb it, go through it, or work around it."
When you think about what it takes to become financially successful, what comes to mind? A smart investment strategy? Sure. The discipline to spend less than you earn? Definitely. A high-paying job? Certainly helpful. One thing you may not have thought about, and which is often overlooked, is a Jordan-like mindset. That doesn’t mean the determination to become the greatest investor of all time, but rather, the desire to consistently improve.
Building wealth is comprised of many decisions, so your way of thinking is extremely consequential.
A mindset is the collection of beliefs that shape our perceptions and habits. The work of Stanford psychologist Carol Dweck suggests the leading predictor of success is your mindset and not any kind of natural ability. This includes success in all areas of life, including your job, your relationships and your finances.
So, what does a wealthy mindset look like?
In her bestselling book, Mindset: The New Psychology of Success, Dweck identifies two basic mindsets: fixed and growth. Let’s look at how each mindset can potentially impact your financial life and how mindset can play a role in building wealth.
A fixed mindset is the belief that you are born and raised with a fixed character, intelligence and abilities, and these qualities will not change throughout life. People with a fixed mindset see success as dependent on those inherent qualities.
With a fixed mindset you:
- Focus on proving to others how smart or talented you are
- Consider working on something you’re not naturally good at as a waste of time
- Avoid taking risks or putting forth effort out of fear it will reveal you’re not smart or talented
- View failure as a setback to steer clear of
Meanwhile, those with a growth mindset believe your character and capabilities can be improved over time through effort. Challenges are opportunities, while failure is just a feature of growth, not a limit of your abilities.
With a growth mindset you:
- Focus on consistently developing your abilities
- Desire to learn and try new things
- Embrace challenges and persist in the face of obstacles
- View the process of improving as success in itself
Source: Brain Pickings
Fixed mindset’s effect on wealth
Through the prism of a fixed mindset, everything about your financial situation appears inevitable. Your job and your salary. Your spending habits. Your bank account balance. The financially successful people you know were just born with a high intellect or a wealthy family. This static way of thinking can adversely impact your finances in a variety of ways.
Lower earning potential
If you are not encouraged to take on new challenges and improve your skills, then it follows you are unlikely to advance your career or launch your own business, which effectively caps your earning potential.
Lack of planning
Fear of failure and obstacles could also keep you from taking on foundational wealth building steps like creating a budget or saving and investing for retirement.
If you focus on comparing yourself to others, then you will likely find yourself stuck on the hedonistic treadmill, spending money on things that may not actually improve your life.
Those with a fixed mindset seem to suffer from an acute form of confirmation bias -- the tendency to acknowledge only information that fits your personal views and dismiss any information that conflicts with them. One of Dweck’s studies found that after a series of tests those with a fixed mindset wanted to only hear about what they did right and not what they did wrong, even though that information could improve their test performance.
There are two dangers here. The first danger is that a disregard of useful facts and opinions can result in less-than-optimal investment choices. You may find yourself always chasing the next hot stock, or never taking enough risk to achieve your financial goals.
Avoidance of financial help
The second danger that you may never ask for professional help to manage your finances, be it a financial adviser, tax adviser or estate planner, which could increase the likelihood of costly mistakes.
Growth mindset’s effect on wealth
A growth mindset dismisses the thought of limitations. Financially speaking, with enough hard work, you can always improve in your professional and financial lives. You don’t need a substantial inheritance or million-dollar business idea to build wealth. The effort to take small, consistent financial steps will make a big difference over time.
Consider optimists share many of the same traits attributed to a growth mindset, such as working toward goals and viewing failure as learning opportunities.
A psychological study in Germany extensively interviewed super wealthy individuals, with net worths between $33 million and $1.2 billion, and found the one personality trait most common among nearly all of them was optimism. In another five-year study of self-made millionaires, 67% said optimism was a key contributor to their success.
The fact is a growth mindset can have a very positive impact on your money.
Higher earning potential
An affection for new challenges, building skills and constructive criticism will undoubtedly translate into more career success, elevating your earning potential throughout your working years.
Better financial habits
Someone who is interested in learning and working toward big goals is more likely to adopt effective financial habits, such as sticking to a budget, avoiding debt and saving regularly in a retirement account.
Better investment choices
Those with a growth mindset are more comfortable taking risks and committing to a goal. Investors know risk and return are related, so it could be argued those with a growth mindset are more comfortable taking an appropriate amount of risk and sticking through those inevitable market downturns. Further, someone who judges their investment returns by how close they are to their goals rather than in comparison to the latest hot stock will more likely stay on track.
Acceptance of financial help
Unlike a fixed mindset, the desire for useful information makes those with a growth mindset more likely to ask for help and collaborate with others to improve. A partnership with a financial professional can help someone find financial opportunities and avoid costly mistakes.
Steps to upgrade your mindset
A healthier, more productive grow mindset as it relates to wealth is something you can work toward. Here are steps that can help you develop a wealthy mindset:
Determine your current mindset
To make positive improvements for the future, you must first know where you stand today. One way to uncover your mindset around money is to track your thought process when making financial decisions, from buying a car to saving in a 401(k). An awareness of what beliefs impact your financial decisions will provide opportunity for improvement.
Focus on what you can control
You can control how much of your paycheck you save, how much you spend, how much you pay in investment fees and what investments you buy. To focus only on things under your control is a habit that can consistently improve your financial situation.
Measure your financial success not by account number but by life satisfaction
Instead of comparing your own financial situation to your neighbor or the flavor-of-the-month investor in the news, ask yourself how happy you feel. If you live in a comfortable house, have a steady job, are on track toward retirement and are helping to send a child to college, then you are doing just fine.
Work with a financial advocate
People hire personal trainers to improve their health habits. The financial equivalent can be achieved by working with a financial adviser. As a trained professional, especially a fiduciary, an adviser’s job is to inform you of what decisions are in your best financial interest. Plus, sharing your goals and plan with someone will help keep you accountable.
If you start thinking with a growth mindset, your dreams become something to work toward and not something out of reach except for a lucky few. That goes for someone seeking a comfortable retirement or a world championship.