Mental Models for Clearer Thinking
Financial Independence is about so much more than the nuts and bolts of money. It’s about building an empowering mindset that helps you thrive no matter what the world throws at you.
And 2020 has sure thrown a lot at us.
One of the best ways to be prepared mentally is to upgrade your mental toolbox, so you can work through problems clearly and rationally, even when faced with something new and unexpected.
I was first introduced to the concept of ‘mental models’ in Charlie Munger’s “Poor Charlie’s Almanack,” and it has formed the foundation for how I approach problem-solving.
Similar to the ‘talent stack’ concept, building mental models starts with having a basic understanding of a diverse set of disciplines, from cognitive biases to economics, to physics, chemistry, and biology to probabilistic thinking and beyond.
As Shane Parrish, host of ‘The Knowledge Project’ podcast, wrote in his book The Great Mental Models Vol. 1:
“Not having the ability to shift perspective by applying knowledge from multiple disciplines makes us vulnerable. Mistakes can become catastrophes whose effects keep compounding, creating stress and limiting our choices. Multidisciplinary thinking, learning these mental models and applying them across our lives, creates less stress and more freedom. The more we can draw on the diverse knowledge contained in these models, the more solutions will present themselves…Using the lenses of our mental models helps us illuminate these interconnections. The more lenses used on a given problem, the more of reality reveals itself. The more of reality we see, the more we understand. The more we understand, the more we know what to do.”
This is so critical that I want to leave you with ONE simple action step today: Read this article on Shane’s blog, Farnam Street (a nod to Buffett and Munger’s HQ address of Berkshire Hathaway) about mental models and start upgrading your own understanding of the world:
ChooseFI Community Taking Action this Week
- Seyda said, “This month I decided to switch my phone carrier from Sprint to Mint Mobile! What I normally pay for 1-month service with Sprint, I got 3 months with Mint Mobile. Oh and I got three extra months for free, so what I pay for one month with Sprint, I will be getting the first six 6 months of cell service for the same cost with Mint Mobile!
- Jeremy said, “I paid off my 20% interest credit card today. I still have other consumer debt (student loans and a car), but this was the smallest principal and highest interest account. Small wins!”
- Amy said, “I used a ‘pay it forward’ page for my local area on Facebook. I donated clothes that my son does not fit in anymore, and got some clothes for him that do fit, for free. Good for the environment and the pocket.”
- Lisa said, “My win of the week was hitting one year of living expenses in my Emergency Fund. At the beginning of 2020 I had six months and was super proud of that. Once COVID hit I realized as a self-employed single mom maybe I should have a year to be safe. I took on additional clients and was able to meet my goal three months early.”
- Jenna said, “Recently purchased my first home. The ‘pre-FI-informed me’ would have probably bought a townhome at the top of my price range, based upon my income, in the high COL area I lived in most of my life. Instead, I took advantage of my remote work situation and geo-arbitraged my way to a much lower COL area 750 miles away and negotiated a seller-financed deal with a killer rate on a 1/2commercial 1/2 residential property well below my target price range. For several reasons, the property qualifies for some awesome tax credits, and my boyfriend and I are considering using the commercial space to exercise our entrepreneurial interests…. either that, or we’ll rent it out to ‘house hack’ our way through the pay-off for a more hands-off approach. One of the best parts of all of this is that the building was in disrepair- so, we get to learn ALL about the renovation process, from start to finish, while we truly make it our own. We’re trying to do as much of the work ourselves as possible.”