What role does mindset play in acquiring wealth? How can you overcome your self-sabotaging beliefs about money?
According to MJ DeMarco, the state of your finances is determined by the mindset you hold about money. According to him, beliefs about money tend to fall into one of three financial mindsets—consumer, employee, and entrepreneurial.
Let’s explore each of DeMarco’s three mindsets in detail.
Mindset #1: Consumer
According to DeMarco, having the financial mindset of a consumer means believing that it’s more important to present the appearance of wealth than it is to actually acquire wealth. As a result, you mismanage your money, spend more than you earn, and create debts that prevent you from accumulating wealth. DeMarco argues that buying things you can’t afford without considering the impact it has on your financial security always leads to poverty.
(Shortform note: According to Jonathan Haidt (The Happiness Hypothesis), people are motivated to look wealthy because they assume it will make them happy. However, the desire to project wealth limits your ability to feel intrinsically happy because it leads to an endless competitive cycle. You feel happy when you buy something that projects wealth. But, when someone else buys something more expensive, it devalues your purchase and leaves you dissatisfied. The only way you can maintain happiness is to continue purchasing increasingly expensive things so no one outdoes you.)
Mindset #2: Employee
DeMarco claims that having an employee mindset means believing that you should sacrifice pleasures now so that you can acquire wealth in the future. As a result, you work for others for restricted income, budget every cent, and funnel all surplus money toward pensions, investments, and savings accounts. But, according to DeMarco, working for others and living frugally doesn’t help you acquire wealth now nor guarantee that you’ll be wealthy in the future.
(Shortform note: DeMarco’s conclusion about this mindset has three limitations. First, no mindset can guarantee a wealthy future because you simply can’t predict the future. Second, though being an employee restricts income to a predefined salary, it also involves fewer costs and financial risks than entrepreneurship. Third, he doesn’t acknowledge how this mindset can improve the quality of your life here and now: People who delay gratification in favor of saving for the future tend to enjoy more happiness and satisfaction than those who don’t—taking proactive steps to secure your financial security increases your peace of mind and decreases feelings of anxiety about what may happen in the future.)
Mindset #3: Entrepreneurial
DeMarco argues that having an entrepreneurial mindset means believing that you’re both accountable for and capable of creating massive wealth. As a result, you work for yourself and create unrestricted income—by developing recurrent passive income streams that maximize your income and net worth. DeMarco insists that generating recurrent streams of income guarantees that you’ll achieve financial success in the short term and enjoy wealth in the long term.
(Shortform note: While passive income has the potential to increase your income, it’s also at the mercy of various uncontrollable factors that may impede your plans to accumulate wealth. For example, at the age of 34, one entrepreneur had a net worth of $3 million and an annual passive income of $80,000. However, by the age of 42, he was again seeking the security of a job due to declining interest rates, rising health insurance premiums, and unexpected childcare costs. Arguably, unpredictable lifestyle changes and market fluctuations make it difficult to guarantee both short-term and long-term financial success no matter how much passive income you generate.)
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Here's what you'll find in our full Unscripted summary:
- Why the only way to achieve financial success is to adopt an entrepreneurial mindset
- Eight beliefs about money that prevent you from achieving wealth
- Actionable ways to adopt an entrepreneurial mindset