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This is not your father’s to-read list. This list is all about mastering your money mindset.
There are many classic personal finance books that appear on must-read lists. Books like The Millionaire Next Door (1995), The Total Money Makeover (2003), Rich Dad Poor Dad (1997), and Your Money or Your Life (1992) can be found on many top 10 lists, including this one on Rockstar Finance.
But this isn’t 1997, the average original publish date of those top 4 books.
Now I’m not saying those books are not good. They top the list of most popular money books for a reason. They contain timeless pearls of wisdom that do not go out of style. Things like live below your means, don’t try to keep up with the Jones’ (they’re broke), avoid debt at all costs, invest early and often to make your money work for you, and the need to be tracking our spending.
Some of them deal with the mechanics of saving more, climbing out of debt, or growing your wealth. Others ask us to reexamine our values around money and to explore the Why behind improving our financial prospects.
A New Breed of Read – The Money Mindset
In the mid-2000’s there was a spark of thought that began to impact personal finance. Books started to come out with a focus on the emerging field of Behavioral Personal Finance. It was also around this same time that psychology began to formalize the idea of the growth mindset and how this impacted people’s ability to learn and improve their lives.
Since then, there have been a number of awesome personal finance books that have come out that focused on mechanics. Among them are personal favourites of mine like I Will Teach You To Be Rich and Millionaire Teacher.
But a new breed of read has emerged. Some of these aren’t explicitly “about” personal finance, but they all relate to building a solid foundation of financial psychology. These include things like your money mindset and emotions about money.
There are some selections that made the list but aren’t obviously about personal finance. For those books, I’ve added a section for each book detailing what the connection is.
It’s this new wave of books that populate this list.
So brace yourself for an experience of biblical proportions. I’m about to rock your financial world with these 5 books to master your money mindset this year.
Written by the 2017 Nobel Prize winner in Economics, Richard Thaler, this read looks at how our decisions are impacted by “choice architecture”. The way in which questions are framed, and options are presented, can have MASSIVE impacts on outcomes. Questions or options can be crafted in such a ways so as to “nudge” an individual towards making wiser decisions.
One example from the book is how people’s natural tendency towards laziness, described as inertia, can be used to ensure that they make wise decisions with their money. Currently, most companies have an opt-in for automatic retirement savings to be taken off of employees paychecks. Many employees, due to inertia, never fill out the paperwork to opt-in. Nudge suggests, for example, that the default option be the opt-in to take advantage of people’s natural laziness.
Personal Finance connection: Use your laziness to your advantage. Automate your bill payments, savings and investing to prosper from inertia. Your natural tendency is to rarely touch, change, or even pay attention to the finer details of your money.
Use your bank’s automated saving and payment features. I have my retirement savings automatically taken out of my account each month. And I don’t even miss it.
For investing, check out the wide array of robo-advisors.
The book that set off the revolution in growth mindset thinking, author and Stanford psychologist Carol Dweck lays out a compelling view of why we should look differently at failure and learning. The teachings in this book have impacted me deeply, even to the point where I find myself talking differently to my children. In the past, I may have tried to encourage my kids by saying things like, “You’re so smart,” or “You’re very artistic.” Not anymore. Those phrases subtly communicate a fixed mindset; you’re either born with a talent, ability or aptitude, or you’re not. Now, instead of speaking the language of a fixed mindset, I tell my munchkins, “You are such a great learner!” and “I love how creative you’re being.” Small changes, but very important.
Personal Finance Connection: A person with a fixed mindset views financial failure as an endpoint. They’re bad with money. They’re a failure. These individuals may blame others around them for their plight, and develop deep-seated bitterness and resentment towards those who are succeeding with money. And, as a result, they let their fixed mindset prevent them from taking the necessary steps to win with money.
The growth mindset person views failure as one point on the meandering process of learning, filled with both successes and setbacks. Success, they know, never occurs in a straight line. It is filled with ups and downs, forward thrusts and backwards slips. Along the way there will be obstacles. They know there will be things to learn, adapt to, and improve on, in order to be successful.
With our money, we’ve all faced obstacles. Some of you have larger challenges than others. Although some may have been thrust upon you, if we’re honest, many have been self-inflicted, at least to some extent (debt, overspending, lack of self-control, purchasing Caribbean cruises from telemarketers over the phone, etc.).
We can’t change the past. No matter how much we bemoan the facts of our particular dilemma, one thing never changes. The DILEMMA! The only thing we can do is to learn from our past mistakes, and not repeat them in the future.
Dollars and Sense (2017)
This is the newest book to make the list. In it, Duke University Professor of Psychology and Behavioral Economics Dan Ariely manages to do something remarkable that I’ve only ever seen one other personal finance book (I Will Teach You To Be Rich) do. Be funny and instructive at the same time!
Using behavioral economics as the foundation, Dollars and Sense dives deep into the psychological elements of personal finance that hold us back from experiencing freedom with our money. By exploring concepts such as relativity (our tendency to value items by comparing them to similar items), pre-paying for activities and products such as subscriptions (in order to avoid the pain of paying), and loss aversion (our strong desire to avoid losing at all costs), Ariely details our brain’s natural aversion to making wise financial decisions.
Dollars and Sense also pulls back the veil on the psychological tools and techniques that retailers employ to get consumers to part with their hard-earned money.
In the final section of the book, Ariely details strategies that consumers can use to fight back against their own natural tendencies and against retailers.
One note. I would’ve like to have seen a bigger emphasis placed on what consumers could do in order to combat their behaviors and habits. Also, more time could have been given to describing how to resist the psychological ploys employed by retailers. That said, it was an extremely eye-opening read.
Thinking, Fast and Slow (2011)
Written by 2002 Nobel Laureate in Economics Daniel Kahneman, Thinking, Fast and Slow details the two systems that control our thoughts and behaviors. Unoriginally named System 1 and 2, System 1 functions automatically and quickly, and is emotional. There is very little effort involved, and we do not have voluntary control over it. It includes impulses and intuitions.
System 2, on the other hand, is logical, involves mental activities that require effort, such as calculations, and is typically associated with things like making choices, and concentrating on different tasks.
When most people think of “themselves”, they are thinking about System 2. It’s the system that we are most familiar with. But System 1 lurks in the background, and it is powerful. It can influence System 2 and can cause us to do some very foolish, and counterintuitive things.
The book goes on to detail the various interactions of System 1 and 2. It describes how these two functions of the brain can cause us to make some excellent choices, and in other cases, some very curious and stupid ones.
Personal Finance connection – We rely heavily on System 1, often unknowingly. We lean on gut reactions, or impulses when it comes to making decisions about our money.
Since System 1 is impulsive and oftentimes overrides the more rational System 2, we can often make impulsive financial decisions. This can be everything from making impulse purchases when we’re at the mall to selling a stock when we hear on the news that it’s been a bad day/month in the markets.
It can also be one of the reasons why we fail to save for the future. We see our paychecks each month and the thought of taking that money and putting it into a retirement account feels like a loss because we cannot spend that money today.
System 1 impulsively wants to spend the money today. And, although System 2 knows better, it is often powerless to change System 1’s mind.
This book is fascinating and peels back the many layers of how our brains work when it comes to making wise decisions.
Sub-titled “The Power of Passion and Perseverance”, this is recommended reading from Mrs. Method Money, who is currently working on a master’s degree in educational psychology. Author Angela Duckworth leans on her psychology and neuroscience background to shine a light on the fascinating trait that is the secret of success. GRIT!
In seeking to answer the question about what really makes people successful, Duckworth looks at other factors which are more important predictors of success than natural talent. Specifically, she examines how finding our passions and fulfilling our commitments can lead to success.
Throughout the book, she describes her journey in education, business and neuroscience that eventually led to her determining that success is not only a product of talent. Rather, it comes from the intersection of intense passion and determined and persistent perseverance.
Personal Finance connection: Grit is a must read for anyone looking to develop a growth mindset with their finances. There will be times, many times, when things do not go according to plan with our money. These may be something as small as an unexpected repair to a vehicle. Or they can be as devastating as the loss of a loved one. In order to find long lasting, true success, we must passionately connect with what we care deeply about. In this case, WHY are we pursuing financial independence so fiercely? Once we connect to that deeply held why, and tap into the passions they ignite, we can focus on persistent perseverance in the face of financial obstacles. Over the long term of being gritty with our money, we will find that we indeed have become successful.
Read It and Reap
Reading these books will allow you to reap a host of benefits, not the least of which is financial. Each selection on the list will help you crush your money this year by getting a handle on why you behave with money as you do. Yes, the nuts and bolts of how you manage your money, things like budgeting, debt and investing, are important. But if you really want to kill it with your finances, you need to look at the psychology and money mindsets that are driving these behaviours. These books can help you do that, and take your money mindset game to the next level.
Quick Note: How do I have time to read as much as I do? Well, I commute almost an hour a day to and from work. This gives me lots of downtime in the car. I use that time to exercise…my mind. Two great ways you can find awesome books are through Audible and Hoopla. Audible is a paid monthly subscription so you can find TONS of different books.
Hoopla is a free program that I use with my local library and your library may have something similar. Although free, the selection is limited so you may have a hard time finding certain titles (I found Nudge on it). Check them both out as a way to up your reading game!