Level Up Your Finances With a Growth Mindset

Managing finances doesn’t come naturally to a lot of us, even if we know the importance of saving. Just taking things day by day or from paycheck to paycheck is much easier sometimes.

However if we were to do that, it’s probably going to be difficult to achieve our goals and live comfortably.

Hence, managing money is somewhat of a necessary evil, even if it’s hard and sometimes seemingly downright impossible. Think about all the times you’ve gone over your budget, or failed to hit your savings goal yet again.

Yeah. Sucks, doesn’t it?

But failure doesn’t have to be demoralising. Instead, harness failure to be a springboard for managing your money better. All you need is something called a growth mindset.

It’s all in the mind(set)

The idea of a growth mindset has its roots in a Stanford research study conducted by Dr. Carol Dweck, a psychologist and professor at Stanford University.

A fixed mindset (and a growth mindset’s direct opposite) occurs when a person believes that intelligence is static and desires to look smart. They also have the tendency to avoid challenges and give up easily.

On the other hand, a growth mindset is one where a person believes that intelligence can be developed, possesses a desire to learn, and often embraces challenges as part of the path to mastery of any skill or concept.

In essence, a person with a growth mindset would typically do these things:

• Instead of responding negatively to criticism or failure, a person with the growth mindset will see failure as an opportunity to learn and do better.
• Someone with a growth mindset will always constantly desire to learn, and they’re aware that their abilities are not fixed; with hard work over time, they will improve.
• A person with a growth mindset sees another person’s success as inspirational, rather than as a threat or something to be envied.

With an emphasis on learning and striving, at all times, to improve through taking on challenges, it seems like the growth mindset can take a person far in life, whether it’s in their personal life, professional life, or even their financial life.

Finance, after all, undercuts every aspect and area of our lives. Financial setbacks and failures can be tough to deal with, whether it’s being unable to reach a savings goal or calculating your budget wrongly for the month and coming up short.

This is where a growth mindset comes in handy. It’ll help us to reframe our failures as learning opportunities to be better.

Taking pointers from Dr. Carol Dweck’s research, let’s take a look at how we can apply the growth mindset approach to our finances, from saving to investing.

Every day’s a school day, so keep learning

According to a 2015 study in the Journal of International Education Research on the growth mindset’s impact on students, those with the growth mindset “perceive ability as a malleable skill”. On the flipside, those who don’t have a growth mindset believe “intelligence is inherent”, resulting in them “[exerting] less effort to succeed”.

In other words, ability can be developed to a person with a growth mindset. People who don’t have a growth mindset believe that their intelligence level is fixed, and that there’s no room for development.

So, a big part of the growth mindset is accepting that effort is the key to success, not innate talent or knowledge.

Personal finance isn’t just about knowing how to organise your budget or being able to save a consistent amount every month. Those are foundational concepts, but there’s a lot more to learn out there, like what to invest your money in or even how to start investing.

If it sounds intimidating, it’s because it probably is. But that’s only because we don’t yet know enough about the subject.

So, if you don’t know how to start investing, then you’ll want to seek out resources on the subject. Of course, a lot of this information can be overly complicated by technical terms and complicated jargon, which can impede your learning (thanks, Investopedia!).

But that’s no reason to just give up before you’ve even begun, or to assume that you just weren’t born to be good with your money or investments. Just approach it like a new subject you’re taking in school. Instead of believing that you’re bad with numbers and can’t handle money, you’ll be more inclined to tackle it eagerly, with an open mind.

This is the power of a growth mindset, and how it can help you get over yourself.

Start simple: here’s our guide to investing for beginners. And once you’ve gotten the hang of things, start regularly perusing finlit sites (like us!) or even news sites like Bloomberg or Yahoo! Finance.

Turn crisis into opportunity and embrace failure

Oftentimes, we’ll encounter obstacles that slow down our progress. Take, for instance, your savings goal. Saving money is easier said than done, and sometimes you might find yourself getting sidetracked — maybe an emergency expense has come up, or you were just a little too trigger-happy this month with your dinner appointments.

It might be disheartening to see that savings amount going nowhere. You might think, “Well, what’s the point of trying to save? I have all these other things I want to spend on, and it’s much easier if I just indulge.”

According to a local research paper from the National Institute of Education, people with a growth mindset “are likely to learn by a mastery approach … and put in effort to learn”. Setbacks are also perceived as “a necessary part of the learning process”.

So that means we shouldn’t take things personally — especially our failures — and instead approach the issue from a problem-solving perspective. In other words, the growth mindset will prevent you from taking on a defeatist attitude, so that failure becomes a crutch or a convenient excuse for you to not try new things, or take on new challenges in the future.

So, how does this relate to finance?

Instead of going at your savings the same way every month and setting yourself up for failure again and again (and then feeling bad about it), you might want to come up with alternative solutions.

For example, if you’re struggling to save because of your spending habits and tendencies, try automating your savings so you don’t have to think about it. That way, saving will become an effortless habit; you don’t even have to lift a finger!

It could be the same for investing, if you’re struggling to meet your investment goals. Regular savings plans (RSPs) are handy for automating your investments. Other options include using robo-advisors, or setting up automated transfers to your brokerage account every month.

TL;DR: Setbacks are part and parcel of your growth — embrace them, and then work your way around them!

One man’s success story is another man’s blueprint

While a fixed mindset will make a person envy someone else’s success, a growth mindset allows them to see these success stories as inspirational and even aspirational — something to be worked towards.

Not sure where else to look for resources to learn and better yourself, at least with your finances?

Only look to any of the greats like Warren Buffett, Cathie Woods, or even local financial bloggers who’ve made substantial progress in their own investment journeys.

Learn from other people’s successes (and even their failures!), especially if they’ve gotten to a place where you want to be. Take Christopher Ng for example, who achieved FIRE at the age of 39 — if you’re someone who wants to achieve FIRE at a young age, as well, then why not learn from his story, his experiences?

This could also mean you going out of your way to look for someone to mentor or guide you in the area of personal finance or investing. Now the question is, how do you find someone like that?

Well, you could start with your friends or older family members. If not, then personal finance communities are good places to start, too.

ALSO WATCH: Ask The Expert: Is 2021 THE year to start investing? ft. Joe Lin from Golden Equator Wealth

Don’t wait for it – work for it

While the growth mindset concept is a broad, far-reaching thing that extends well beyond the domain of personal finance, it’s still useful to use it as a compass to guide you on what you need to do to better yourself, whether it relates to saving or investing.

The main idea from all of this? Just because you don’t already know how to invest, or aren’t as proficient in it as other people, doesn’t mean you can’t one day be good at it too.

All it takes is effort, time, and discipline — and, of course, knowing what works best for you while learning from other people’s success stories.

But in the end, your journey is ultimately your own. You’re dealing with circumstances and variables that someone else might not. You might be facing a different set of problems in life that no one knows about.

Problems — or crises — are always potential opportunities, as we’ve already covered. What matters most is that you’re willing to put in the effort, reach out for help, and to approach everything with a growth — or learner’s — mindset.

That’s really the best that we can give ourselves, at the end of the day: a fighting chance. Managing your finances might feel like a real struggle right now, but it won’t be like this forever!