Decisions can make or break our money results so this post will explore this concept of an “Internal Locus of Control,” and how it contributes towards the art and science of financial independence. This post will describe why having an Internal Locus of Control is a smart thing to have if you want to be successful with money.
Today’s content is inspired by my recent reading of Principles: Life and Work by Ray Dalio. Bill Gates has a great quote on the front of the cover saying, “Ray Dalio has provided me with invaluable guidance and insights that are now available to you in Principles.” Need I say more? Today’s post will dive into some of the guidance and insights found in the book.
Money, Principles by Ray Dalio, and an Internal Locus of Control
A recent podcast episode that went a little more viral than other episodes was on the topic of making strategic decisions when it comes to money.
As with anything, the choices we make ultimately impact the results we experience.
Sadly, many people who never read a financial blog will make countless money decisions without considering input from experts, friends, or family.
Locus of Control is a key concept Ray Dalio hashes out in the book as a prerequisite in order to achieve the results we want in our lives and with our money.
If you’re not familiar with Ray Dalio, then here’s about all you need to know:
- Founder of Bridgewater Associates, the largest hedge fund in the world.
- Ranked Top 100 Most Influential People by Time Magazine.
- Listed on Forbes 100 with an estimated net worth of $17.4 Billion (as of 3/29/17).
So, with the accolades behind us, let’s explore some of the key principles that will help us make better decisions, and lead to a much richer lifestyle:
Internal vs External Locus of Control
Originally made popular back in the 1950’s, the concept of having an Internal Locus of Control tells us that we can control the results in our lives. To contrast, someone with an External Locus of Control would believe themselves a victim of circumstances, or in general, subject to the whims of their environment.
Not everyone is 100% in one camp or the other, and we may find ourselves identifying ourselves as having an internal locus of control in some categories (relationships and finances for example) and having an external locus of control in other categories (weather and politics for example).
To best sum the benefits of an Internal Locus of Control, I’ll provide some concrete money examples in a few key scenarios:
- Knowing we can actually negotiate to get what we want — (Often the first step towards asking for a raise, is knowing that negotiating for what we are worth is possible — even when everyone tells us it can’t be done or that no one does it or even worse, that negotiating will burn bridges.)
- Believing you can actually stick to a budget if you put your mind to it (for those who prefer a budget!). Giving up is easy when we are pursuing something we don’t identify as helping us now or helping us in the future. If we don’t believe a budget will help, then it becomes very easy to give up on trying.
- An external locus of control person may be much more subject to the ups and downs of the market — even as far as selling based on emotional reactions to fear or greed. An external locus of control will also likely be swept up by the current fads in the market and ignore market fundamentals.
- Seeing how each dollar saved will be stowed away, “distilled”, and invested for decades before appreciating in value and growing thanks to compound interest. Knowing a dollar today will be worth $10 in the future will create a moment of pause before we spend it fruitlessly.
- Believing we can control our net worth with a series of smart, consistent decisions on a few key money topics.
- Believing we can actually learn to improve our skills and over time, increase our earning potential.
As we identify as part of the change, then we create an Internal Locus of Control capable of consistent and methodical improvements.
Giving into an External Locus of Control mindset will eliminate the power behind making a decision to improve an area of our lives. Instead of taking action to improve something, we might tend to get lazy or complacent and accept things as they are.
Art and Science of Financial Independence
If all our results stem from our decisions — and we want to experience results with our money better than the average — then we naturally drift into learning more about the Art and Science of Financial Independence.
Life becomes much more thrilling when we link together the dots and see measurable progress, especially in the early days of learning more about money.
On the Podcast, there was a recent two-part special that covered a lot of ground on the Art and Science of FI, which includes plenty of micro decisions on investing, saving and spending:
If you’re looking for a video covering my takeaways from Ray Dalio’s book Principles, then check out one of the latest YouTube videos below:
If you want to submit your own question to be included on our YouTube list of questions, you can submit questions via this link.
My wife and I have been publishing a video each day so be sure to subscribe if you want to see more. We are beyond happy with the response so far on YouTube and look forward to growing the channel even more throughout the year.
Tackling money can be tough enough, so I’m happy to learn an Internal Locus of Control is scientifically proven to be helpful in making better decisions and achieving more optimal results.
Similar to the 4 Phases of Financial Independence, the Internal Locus of Control is another description of the transformation necessary to go from the 1st phase to the 2nd phase. To drive home the point, Ray Dalio quoted Carl Young in the book, “Until you make the unconscious conscious, it will direct your life and you will call it life.”
Are you someone with an Internal Locus of Control or an External Locus of Control? Similar to Locus of Control, what are some of the known principles that guide your life and your money plans? What principles have you actively attempted to cultivate recently?