How do you start making mistakes “effectively” and use your mistakes and failures to your advantage? We’ve all had those moments in life where we make mistakes. But how can making mistakes effectively actually move us closer to our goals?

Ray Dalio, a self-made billionaire, explores how to effectively make mistakes in his book, Principles: Life and Work. 

In this book, Ray Dalio gives readers a framework on how to use their mistakes to make better, more informed decisions in life. He does that by extracting fundamental principles from those mistakes. 

The idea is for you to use the principles to effectively respond to whatever life throws at you so that you don’t make the same mistake again. 

Ray Dalio actually says he owes whatever success he’s had in his life to all the mistakes he’s made throughout his life. And by reflecting on those mistakes, he was able to form a set of principles he lives by and follows consistently. 

He also says that everyone lives by their own principles that they form from their encounters with life. But what’s important is to implement those principles consistently and always strive to improve them.  

Quick-Fixes vs Self-Awareness

Today, it’s so easy for people to blame their family, their partner, society, the economy, and their circumstances for their problems. 

But what Ray Dalio asks people to do is to learn how to think critically.

Whatever it is you want in life, you need to know yourself first and learn how to be self-aware. Because if you’re self-aware, you’ll be able to look within yourself for new ways to solve problems that are thrown at you.

You’ll no longer have to feel the need to look for quick-fixes for your problems. You’ll be able to think critically and make better decisions that’ll guide you closer to your goals or whatever you want in life. 

Today, we’ll be focusing on Ray Dalio’s principles in life and work and how you can apply these same principles in your own life. So let’s get started. 

Life Principle #1: Embrace Reality and Deal with It

In order to create principles that work, one of the things Ray Dalio suggests you do is embrace reality and deal with it.  What does that mean?

It means that if you encounter a problem in your life, don’t just sit and wish it was different. 

Most people will try to find the quickest way to escape when problems come up. And one of the easiest ways to do that is by blaming everyone except themselves.

They’re very quick to complain but they don’t stop and look within themselves for a way to solve their problem. 

You want to focus on how you can make changes by being transparent about your thoughts with other people and open-minded to accept their feedback. The faster you can do that, the faster you can make real changes in your life. 

Ray Dalio also emphasizes that whatever change you want, you’re almost guaranteed to experience painful failures. But that’s not something you should look at face value. 

Because the way you react to your failures could lead you in one of two directions. It could act as fuel to propel you upward towards your goals or propel you downward towards ruin. But the choice is yours to make. 

Life Principle #2: Use the 5-Step Process to Get What You Want Out of Life

To help you get there, he lays out a 5 step process that includes:

  • Setting clear goals
  • Identifying and not tolerating problems
  • Diagnosing problems to get at their root cause
  • Designing a plan to work around those problems
  • And doing whatever it takes to complete those goals

Now, keep in mind, you’re bound to face mistakes along the way. But as Ray Dalio says, it’s important to remember that when you can confront reality, accept the pain of mistakes that come with it, and follow this process you will be on your way to success. 

However, most people are never able to achieve success because they listen to too many bad opinions. These opinions can come from all sorts of people that don’t have the credibility to give them good opinions for success. 

In order to remove bad opinions, the best thing to do is to look down at their situation objectively and weigh the good and bad with the help of other people. Which leads me to the next important principle.

Life Principle #3: Be Radically Open-Minded

If you invite others to help you weigh the good or bad, you need to be radically open-minded. Be willing to set your ego aside and see what others say about you. Be willing to accept that you won’t always have the right answer all the time.

Or according to Ray Dalio, you have to be willing to let go of two barriers – your ego barrier and your blind spot barrier.

Your ego barrier is that inner desire you have to be “right” and be seen as the person who is “right”. And your blind spot barrier is what happens when you only observe and evaluate things from your point of view. 

Everyone has these barriers but what differentiates most people are how they handle those barriers.

If you don’t handle them well then it’ll be harder for you to reach your goals. Why? Because most people are incapable of letting other people help them come up with better solutions for their situation. 

Ray Dalio believes radical open-mindedness is the key to remove both barriers. He says that it’s driven by the genuine worry that you might not see all the best choices you have available to you. 

When you can embrace open-mindedness, it allows other people to see your weaknesses and help you come up with the best decisions for your situation. 

It allows you to see different perspectives and possibilities that you may not have been aware of before. And ultimately, you’ll be able to have a deeper understanding of yourself. 

Life Principle #4: Understand That People Are Wired Very Differently

Ray Dalio mentions that if you want to be radically open-minded it’s important to also understand your own and other people’s strengths and weaknesses. Because everyone’s brain is “wired” differently

Now, what does that mean?

Let’s say you have two people working with you. One is a highly creative person who likes to pursue long-term goals. And the other is very task-oriented and great at paying attention to detail. 

These two people make a great team. However, you shouldn’t expect them to share the same values because their natural ways of thinking are just different.

So don’t expect a creative person to do task-oriented things well. And likewise, don’t expect a task-oriented person to do well on creative projects. 

If you can understand that everyone has different strengths and weaknesses, being open-minded with different people will be more effective because then you can have thoughtful disagreements.

Life Principle #5: Learn How to Make Decisions Effectively

To bring all of Ray Dalio’s life principles together, he describes how to make decisions effectively first by knowing what you want. To know what you want, you have to learn how to be self-aware.

Then, as you pursue your goals you’ll start making mistakes and failing but the important part is to reflect on those failures through radical open-mindedness.

And finally, to take the lessons you’ve learned to propel you forward into someone more capable and less fearful than before. 

How Do Life Principles Apply to Groups of People?

Ray Dalio believes an organization is a machine that’s made up of both great culture and great people.

He outlines the work principles his organization follows to create a great culture where great people can openly bring their problems to the table and solve them.

Let’s take a look at some of his key work principles and how they’ve transformed Bridgewater Associates, Ray Dalio’s company, into the largest hedge fund company in the world. 

How Do You Form A Great Culture?

Ray Dalio is famously known for having a very unique culture at his company. He has even gone to say that Bridgewater’s culture is “like a nudist camp at first: very awkward.” Why? 

The reason lies in his very first work principle. It’s his strong belief in creating an idea meritocracy that consists of radical truth, radical transparency, and believability-weighted decision making. 

Work Principle #1: Trust in Radical Truth and Radical Transparency

What do radical truth and radical transparency actually mean? 

Radical truth means that you are able to speak freely and openly about your thoughts, opinions, and questions without filtering them.

Radical transparency is allowing everyone to see everything. Nothing is hidden. Any problems that come up in the work environment are exposed. 

Ray Dalio believes that without adopting radical truth and transparency in an office, the chances of “harmful office politics and the risks of bad behavior” are more likely to happen. 

Because chances are, most of the time, problems that do come up in an office are the ones that are usually hidden. 

So if you can form an environment where everything is straightforward and laid out for everyone to see, then everyone is forced to separate themselves from their ego. 

When you are separated from your ego, you’ll be able to use logic and see things you didn’t see before.  

Now, I’m not saying that everyone is capable of forcing themselves outside of their comfort zone.

In fact, according to Ray Dalio, some people continue to cling onto their egos until they repeatedly ask themselves these two questions :

  1. “How do you know that you’re not the wrong one?”
  2. “What process would you use to draw upon these different perspectives to make the best decisions?”

When they’re forced to challenge whether their own thoughts are true or not, then they are more open to see other people’s perspectives.

It gives everyone the opportunity to share ideas instead of arguing to come up with the best decision possible.

Work Principle #2: Create a Culture in Which It Is Okay to Make Mistakes and Unacceptable Not to Learn from Them

Making mistakes is painful but it’s one of the most effective ways to learn. If you look at all successful people today, every single one of them has gone through their fair share of mistakes.

But what separates them from unsuccessful people? 

Unsuccessful people don’t learn from their mistakes. They know that making mistakes is painful but they refuse to confront it. Instead, they say, “Oh, I don’t want to deal with this anymore.” And they run away. 

Successful people do the opposite. They know that making mistakes is painful but they treat it as a symptom to be treated. They’ll look for ways to prevent those mistakes from happening again and continue to make progress.

Successful people don’t stop. They make mistakes and keep going anyway. 

Work Principle #3: Believability Weight Your Decision Making

Applying this believability-weighted idea means to give more power to “more capable decision-makers” and less power to “less capable decision-makers.” 

Ray Dalio says you can determine who is more capable or more “believable” by answering two questions:

  1. “Who has repeatedly and successfully accomplished the thing in question?”
  2. “Who has demonstrated that they can logically explain the cause-effect relationships behind their conclusions?”

When this is done right, the process of making good decisions is much more effective because it’s based on a set of criteria that applies to everyone. 

How Do You Form Great People?

To Ray Dalio, the people are even more important than the culture. But still, it’s ideal to have both to work in harmony together.

When the culture is established to attract the right people, it is still up to the people to either make the culture stronger or change it based on their values. 

But the goal here is to have the right people with the right values that work in sync to make the culture stronger.

At Bridgewater, their definition of a strong culture consists of developing meaningful work and meaningful relationships through radical truth and radical transparency. 

Work Principle #4: Remember That the WHO Is More Important than the WHAT

Most people make the mistake of focusing on WHAT tasks need to be done instead of focusing on WHO is responsible for setting those tasks. 

Let’s say you are trying to grow your company. So you hire people to delegate tasks in order to free up some of your time.

If you hire someone to help you handle operational tasks in your business and you’re telling them what tasks they need to complete, then you probably shouldn’t have hired them in the first place. 

Micromanaging does not help you free up time. Consider doing this instead. Hire someone who can manage those tasks better than you can and hold them accountable. 

Work Principle #5: Hire Right, Because the Penalties for Hiring Wrong Are Huge

When it comes to hiring new employees, there’s always that risk of hiring the wrong person.

If hiring is not a process you approach deliberately then you risk wasting a lot of your time, effort, resources, morale, and money to train new employees. 

Initially, when the people at Bridgewater had just started hiring potential employees, they did it based on who they liked and assumed those new hires would do well on the job.

They were evaluating potential employees based on their own biased views. And as you may already know, this method did not work for Bridgewater at all. 

Don’t hire people just to fit the first job they will do; hire people you want to share your life with. - Ray Dalio Click To Tweet

So Ray Dalio established a set of principles the company follows to make the hiring process more efficient and less costly and here are a few of them: 

  • Find out what values, abilities, and skills you are looking for.
  • Look for people who are great critical thinkers with great experience and a great track record.
  • Find people who can understand their weaknesses and successfully improve.
  • Look for people who have great character and great capabilities. 
Remember that in great partnerships, consideration and generosity are more important than money - Ray Dalio Click To Tweet

Work Principle #6: Constantly Train, Test, Evaluate, and Sort People

As I mentioned earlier, Ray Dalio defines an organization as one that combines great culture and great people. But for an organization to grow, you have to make sure the people are growing as well. 

At Bridgewater, it all starts with assessing the person’s strengths and weaknesses. Once they’ve identified what the person’s weaknesses are, they might add more training to transform those weaknesses into strengths. 

Although it’s important for the company to help people learn and grow more, they also have to make sure the person is doing their job correctly. So Bridgewater does this by objectively evaluating the person’s performance. 

And to maintain the culture at Bridgewater, if a person can’t meet certain requirements within a time frame, then that person must leave. 

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Ray Dalio believes that “every leader must decide between 1) getting rid of liked but incapable people to achieve their goals and 2) keeping the nice but incapable people and not achieving their goals.” 

Because making those tough decisions will determine their success or failure as well.

And even though it’s difficult to be in a position where they have to ask someone to leave. At Bridgewater, they have to choose and strive for excellence at all times because ultimately it’s best for everyone. 

Now, even though the people that leave weren’t able to meet the high demands of the company, the skill sets that they’ve gained will stay with them for life. And maybe allow them to perform even better at another company.

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By applying these life and work principles, Ray Dalio has been able to maintain the integrity of his company for many many years.

Now that you’ve learned how he has transformed his mistakes into principles that have guided him towards success in his life. 

Let me ask you a question.

How Will You Transform Your Mistakes into Seeds for Wealth, Success, and Significance?

Like Ray Dalio, I have made my fair share of mistakes throughout my journey in life. And they have helped guide me to where I am today. 

First, from failing at 13 businesses to now a global educator on a mission help men and women from over 150+ countries to develop their high-income skills, scale their businesses, and unlock true financial independence. 

If you’re interested in unlocking the door to reach your full potential, then click here to order my new book, Unlock It.