This is one of three articles I am writing to provide an overview of how the 4 Domains in the Wheel of Competency apply to the 3 axes of life. Here, I will be addressing the axis of wealth and finances. This is intended to be appropriate to read in one sitting, under 15 minutes, so its mission is only to impress upon you the validity of my claim that for this axis, you must master the same four domains of competency as for the other two (Health & Wellness and Relationships & Parenting). So let’s dig in.
Let’s face it. Everyone wants more money. Or more specifically, everyone wants the freedom and lifestyle that’s only possible when you have enough money.
There are a million places to go to teach you about how you can become a millionaire starting a business, or freelancing, or copywriting, or any infinite other ways that suit you. And most of them are right–full of solid info. And a sincere hat tip to those who share hard-learned wisdom for those who desire to rise up.
I’m not going to do that.
As to methods there may be a million and then some, but principles are few. The man who grasps principles can successfully select his own methods. the man who tries methods, ignoring principles, is sure to have trouble.” — Ralph Waldo Emerson
What I talk about is the blueprint that will help you execute whichever path you choose. Wealth and finances are governed by the same core set of rules and principles as everything else. I believe that once you realize that the principles determining whether you succeed or fail in the monetary aspect of your life are the SAME principles that apply to how to get more fit, and how to have more healthy relationships, you will be inspired and everything will make more sense.
Why inspired? Because you don’t have to memorize a particular trick or approach or secret. You will be able to pursue knowledge about investing or starting a business, and filter it through the prism of what you know to be true.
If you choose to spend time reading my articles, you will gain a deep understanding of how and why all the dimensions of life are tied together. In doing so, you will acquire a deep understanding that will allow you naturally to make your own decisions in a cohesive context that will allow for consistent execution.
The 4 Competency Domains that determine whether you become an Outlier in life are:
- Mental Models
- Sales
- Leadership
- Emotional Intelligence
I will now briefly explore how each of these domains applies to the axis of Wealth & Finances. Read on if you have a desire for understanding.
1. Mental Models
Mental models are explanations and frameworks for how the real world works.
For example: compounding. I promise you that you don’t truly comprehend compounding. And I can say that because no one is able to. Like the concept of infinity, we can memorize the math, but it is literally impossible for the human mind to comprehend exponentiality.
Let’s try it out and see.
If I were to ask you to chose whether I give you $1 million today, or I give you one cent today, but I would double it each day for a month, 30 days,…which would you pick?
I’ll even give you a hint: at day 15, half-way through, I would hand you just $163.84 giving you a total to that point of only $327.67.
$1 million looks like the clear winner, doesn’t it?
But of course you understand the purpose of this example is to make a point, so you’ve already anticipated which choice will end up with more at the end of the month. But ask yourself this: how much will I hand you on day 30? And how much will you have total at the end of 30 days?
Take a guess so you don’t pretend later that you were close. The answer is at end of this article so your eyes don’t cheat. After you’ve made your guess, take a peek*.
Now that you’ve seen those numbers, calculate on your own what they’d be if I had picked a 31-day month!
“Compounding is the most powerful force in the universe.” –Albert Einstein
But this is more than a parlor trick. It is a model. A mental model that we can use to realize that the mathematical law of compounding is a requirement to making and sustaining wealth. The application of this model is limitless, which is why this way of thinking is so powerful. (sneak peak: start to imagine how I’m going to apply the law of compounding to the other two axes!)
Yield, cost of capital, risk-free rate, and other terms are important to be an Outlier in the realm of wealth & finances. Those concepts can and should be learned. But for them to make sense to you, you must understand WHY they are important. The mental model of compounding is one of many useful Mental Models that allows the specific concepts to hold more purchase.
Here’s another model: “There ain’t no such thing as a free lunch.” Austrian economists have long been fond of TANSTAAFL. It’s a cute, memorable way of pointing out the Law of Scarcity.
The number of people being fleeced right now with all the cryptocurrency shitcoins is demoralizing. I feel bad for them, but they are the mediocre masses. No one with an understanding of scarcity would do this. Presumably you are reading this because you don’t want to be like them.
The mediocre masses do not employ mental models. As a result, they think putting their money in some dog token because a celebrity tweeted about it will make them rich. What explanation or framework of how the real world works was used in that decision?
Sure, you could go to Vegas and put $100 on black, hit it 12 times in a row and walk away with about $409,500 (remember compounding!), but is that your strategy to become an Outlier?
Outliers are not get-rich-quick people. GRQ scams are for losers who have no idea how the world works and are desperately flailing about hoping to get something they didn’t earn.
Mental Models can be broken down into categories:
- Decision making models
- Natural laws
- Analogies
- First principles
Many other articles will address specific mental models and specific areas of wealth and finances in depth.
2. Sales
No, I’m not saying you need to have a career in sales to become an Outlier. While sales is a great way to make a living, it is the skills and tradecraft of sales to which I’m referring.
Sales is the ability to help other people get something they desire for a fair exchange of value. To accomplish this, you must posses competency with:
- Social skills
- Attitude
- Persuasion
A first principle (one of the types of mental models) is that in the real world, there are only people and the actions they take. There are no such things as companies, or departments, or clubs, or teams, or the like. Those words are just abstractions that we use for verbal convenience. When you say, “I don’t like that restaurant,” what you’re really saying is that you didn’t like the choices the owner made for the decor, or the seating arrangement. Or you didn’t like the way the chef cooked the food. Or you didn’t like the service from the wait staff. Or the hostess was rude. Or the manager keeps it too cold.
You get the point. There is no “restaurant.” There are only people and the actions they take.
Based on this, if you guessed that social skills, attitude, and persuasion might just be slightly important, you’d be wrong. They’re absolutely critical! They are non-optional. If you ignore them, you cannot become an Outlier because you will not be able successfully to navigate a world of people.
Attitude is a way of labeling the concept that selling is not really selling. In other words, successful salespeople understand that selling is not about getting someone to buy. The key is to reorient your attitude away from trying to get someone to buy toward trying to help someone obtain something they desire.
Whatever avenue(s) you choose to pursue toward improving your wealth and finances, approaching your pursuits this way will make a remarkable difference. If you’re a web designer, you’re not designing a web page, you’re helping an entrepreneur fulfill a dream. If you mow lawns, you’re giving your client time to spend with his children, or maybe you’re giving him prestige, but you most certainly are not just cutting his grass.
Further, this idea of having an attitude of “doing well by doing good” is sincere. It is not an act you put on. Insincerity is quite easy to spot. You cannot have sustained success if you are trying to fake it. Cultivate a sincere sense of service to your clients and the law of attraction (another mental model!) will take over from there.
So how do you know what it is exactly that you’re helping someone with? That’s where social skills comes into play. Social skills are often referred to as “soft skills.” This is because they are hard to identify explicitly, but mastering behaviors like body language and situational awareness are the core tenets.
Due to the massive dominance of our visual cortex, humans receive the vast majority of sensory impact through their eyes. What you “say” with your face and body drowns out your words. Even worse, your ears can literally “hear” different words based on what your eyes see.
Doubt me? Check it out: Green Needle vs Brainstorm
Probably the easiest area of the sales competency domain to understand is persuasion so I won’t belabor it here. But I do want to point out that persuasion is not a dirty word. It is not sleazy or underhanded in any way. Persuasion is the ability to induce beliefs and values in other people by influencing their perspectives. I suppose, like a hammer, persuasion is a tool that can both build and destroy. but just because a hammer can kill does not make hammers evil.
Skills like building rapport, earning trust, and communicating effectively are all aspects of persuasion. In the pursuit of financial freedom in a world made of people, these skills are priceless.
3. Leadership
Like sales, the inclusion of leadership as a core competency does not imply you have to manage a large organization. You can do that and do well. But it can also be a miserable existence if you value freedom. You don’t need to be in charge of others to be a leader. The concept of leadership applies to leading ourselves as well. I’ll explain.
There are four dimensions of leadership:
- Persuasion
- Vision
- Growth (of others)
- Decision Making
These dimensions are universal in their applicability. I wrote above about the skills of persuasion being critical to the competency of sales. Persuasion clearly bleeds over and affects leadership as well. So I don’t need to elaborate on that here.
Vision means establishing a destination and executing in a way that gets you there. This applies to wealth and finances because while understanding your goals and objectives is necessary, it is not sufficient. Only human actions will determine whether those objectives are met.
You must be able to lead yourself by understanding what financial independence means to you, and then establishing a set of actions that will get you there.
But it doesn’t stop there. Leading means recognizing that actions are just beliefs put into motion. If you show me someone’s actions I will tell you their beliefs. As a result, you cannot just point to an outcome and say “I want that.” And it is insufficient just to say “I will do these things to get there.”
The reason so many people make a plan and then quit is a lack of belief. You can read motivational tweets all day long, but until you address your core beliefs, you will not be able to sustain the necessary behaviors you know you must take.
So what beliefs do you need to hold in order to take the actions you determined will get you to your objectives? Answering this must be a priority. If you’re starting a business, but don’t believe you’re good enough, what are the odds you will succeed? If you’re trying for a promotion but believe you don’t really deserve it, how can you expect to get it?
A leadership mindset, and the skills associated with identifying and improving the causal chain of beliefs–>behaviors–>outcomes will contribute to your financial success.
4. Emotional Intelligence
Emotional Intelligence (EQ) is the single biggest predictor of general success. I suspect this is not surprising to most of my readers so I won’t belabor the point here.
Consider concepts like:
- Social skills (body language, situational awareness)
- Affinity
- Self awareness
- Self regulation
- Identity
All of these are components of EQ.
For example, with investments, people lose huge amounts of their savings due to emotional reactions, violating the golden rule: never panic buy or panic sell.
Need funding for a start-up business? EQ skills are what will help you secure that.
Deciding what to pursue and where to start? Focusing on developing your self awareness and sense of identity are critical to helping you choose a good path.
Summary
The Wheel of Competency is simple at its core, but expands with a myriad of facets. Examining each facet in isolation can be confusing and daunting. By organizing them into this framework, you can begin to understand that every axes of your life is governed by the same rules.