Financial Beliefs: Wealth Builders or Hidden Drags?

Recently, I came across a compelling video featuring Alex Hormozi discussing an experience from a speaking engagement he participated in. During the event, the presenter boldly inscribed $1,000,000 on a massive whiteboard. Next, the speaker inquired of an audience member about their annual earnings, and the individual responded with '$50,000 per year.' The speaker then added $50,000 beneath the million-dollar figure and placed a minus sign in front of it. The speaker followed up with this striking question:

Did you realize that the cost of not knowing how to earn $1,000,000 annually is a whopping $950,000 each year?

The core message here drives home that our biggest financial expense isn't rent, groceries, medical bills, or any other typical outflow—it's our own lack of knowledge about generating higher income.

As an advocate for prioritizing income growth over mere expense reduction when it comes to accumulating wealth, I wholeheartedly endorse this perspective. Increasing your earnings stands out as the most dependable strategy for securing greater financial prosperity down the line. This conclusion aligns with every body of data I've examined on the subject.

That said, before diving into strategies for boosting income, we must first cultivate the conviction that such growth is achievable. I generally steer clear of delving into topics like personal beliefs and mental frameworks because quantifying their impact—proving that one mindset reliably outperforms another—proves exceptionally challenging.

Nevertheless, my own life experiences underscore the profound influence of beliefs. A significant portion of my achievements as an author stems from a pivotal conviction I adopted back in early 2017: I am capable of producing one blog post each week. I've adhered to this principle consistently for more than 492 consecutive weeks, and it has utterly transformed my trajectory.

This realization resurfaced for me while immersing myself in Nir Eyal's newest publication, Beyond Belief. Eyal posits that our beliefs are not immutable facts etched in stone but flexible instruments we can harness to advance our goals. He proposes a simple yet powerful evaluation method: interrogate each belief by asking, 'Does this belief empower me, or do I find myself enslaved to it?'

I found this concept profoundly resonant because it illuminated how numerous convictions we hold about money function either as valuable assets or burdensome liabilities in our financial lives. They either propel us toward riches or anchor us in stagnation. The key question remains: how can we discern the difference?

Identifying Liability Beliefs in Finance

Beliefs classified as liabilities actively sabotage our progress or block us from realizing our full capabilities. Examples include notions like 'If I persist with gambling, a massive win is inevitable' or 'Earning $100,000 annually is utterly beyond my reach.' Embracing such ideas risks devastating one's economic stability.

Recognizing Asset Beliefs for Financial Success

In contrast, asset beliefs empower us to evolve into our optimal versions. Consider affirmations such as 'The ideal moment to begin investing is right now' or 'No financial obstacle is insurmountable for me.' Internalizing these propels steady improvements in our monetary affairs over time.

This framework isn't mere speculation; rigorous scholarly investigations back it up. Researchers from Avantis Investors, in their insightful article on the subject, delved into 'financial self-efficacy'—essentially, the confidence that one's choices can shape future outcomes. Their findings revealed it as a robust indicator of economic steadiness. The study highlights:

Our analysis reveals a potent inverse relationship between self-efficacy levels and experiences of financial hardship. People exhibiting strong self-efficacy early on show markedly lower tendencies to default on debts or miss bill payments compared to those with weaker self-assurance.

Here we have a textbook case of a belief operating as a true asset. Individuals confident in their ability to enhance their fiscal standing consistently deliver superior results relative to their more doubtful counterparts.

Nuanced Beliefs: Assets in Disguise or Hidden Traps?

Yet, not every belief slots neatly into these categories. Certain ones pose as helpful assets while functioning as liabilities in reality. Take, for instance, the widespread conviction that 'The stock market invariably trends upward.' This outlook generates substantial profits amid bullish phases, but it can backfire spectacularly in downturns. Clinging to the idea that equities never decline might trigger panic selling at market lows, causing you to forgo the rebounds that always follow.

On the flip side, beliefs appearing as liabilities can prove to be hidden gems. Ponder the statement, 'I'm not clever enough to outperform the market.' At first glance, it sounds pessimistic and self-defeating. However, data-savvy observers recognize it as a strategic advantage. Acknowledging the impossibility of surpassing the aggregated insights of millions of market participants increases the odds of superior performance over those deluded by their own superiority.

Importantly, a belief's truthfulness isn't the deciding factor for its value as an asset. The crucial element is whether it inspires beneficial behaviors. Believing you can't beat the market might not be literally accurate, yet it liberates mental energy to pursue income expansion or other high-yield endeavors.

This explains the outsized importance of our convictions. They color our worldview and dictate our decisions, which in turn dictate our achievements. To alter outcomes, initiate change at the belief level. Echoing the wisdom of Confucius:

Whether a person declares they can succeed or insists they cannot, they are correct in either case.

Auditing Your Own Financial Convictions

With this lens in mind, conduct a personal inventory: 'Among my financial beliefs, which qualify as assets, and which drag me down as liabilities?' I've applied this exercise to several of my own core financial tenets, sorting them as follows:

Asset Beliefs

Income growth forms the bedrock for the majority of sustained wealth accumulation.
Broad market indices reliably produce long-term prosperity.
Steadfast consistency trumps perfect asset allocation or market timing every time.

Liability Beliefs

Over-diversification carries no such risk as excess.
Reaching Level 5 wealth ($10M-$100M) demands a complete overhaul of my lifestyle.
The returns from illiquid investments fail to justify the trade-offs.

These asset-oriented beliefs fuel my long-term wealth-building efforts—through career advancement, persistent investing, and unrelenting discipline.

Why don't all my financial convictions earn asset status? Simply put, some stem from personal inclinations rather than pure optimization for maximum riches. I might amass even greater fortune by dialing back diversification, embracing illiquidity, or adopting a bolder career stance.

Preferences vary widely among individuals, and that's perfectly acceptable. Plenty of folks opt to accelerate mortgage payoffs despite minimal interest rates—a choice I wouldn't make, but one that suits others splendidly.

After all, the adage rings true: 'Personal finance remains profoundly personal.' Certain beliefs supercharge my journey while others offer more modest support. I'm not entirely certain about every categorization, but these represent my informed hypotheses.

Wishing you prosperous investing, and thanks for taking the time to explore these ideas!