The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness by Morgan Housel


 I couldn’t ignore The Psychology of Money any longer. It seems like everyone is talking about it And Amazon supports the hype.


'The Psychology of Money' is an essential read for anyone interested in being better with money. Fast-paced and engaging, this book will help you refine your thoughts towards money.


Summary

As the name suggests the book is all about personal and business finance, investing and how personal finance and psychology are explicitly linked.

KEY LEARNINGS

  • Theory isn’t reality

"The challenge for us is that no amount of studying or open-mindedness can genuinely recreate the power of fear and uncertainty."  

Every decision people make with money is justified by taking the information they have at the moment and plugging it into their unique mental model of how the world works.
“Few people make financial decisions purely with a spreadsheet. They make them at the dinner table, or in a company meeting. Places where personal history, your own unique view of the world, ego, pride, marketing, and odd incentives are scrambled together into a narrative that works for you.”
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The Psychology of Money

  • LUCK AND RISK
Sometimes you make bad decisions with good financial outcomes and sometimes good decisions may lead tom bad financial outcomes.

“The line between ‘inspiringly bold’ and ‘foolishly reckless’ can be a millimeter thick and only visible with hindsight. Risk and luck are doppelgangers.” 

“Be careful who you praise and admire. Be careful who you look down upon and wish to avoid becoming. Or, just be careful when assuming that 100% of outcomes can be attributed to effort and decisions.”

  • Lessons from Buffet

“There is no reason to risk what you have and need for what you don’t have and don’t need. – Warren Buffet 

When it comes to money, someone will always have more of it than you. That’s okay. It’s fine to pursue more money, but don’t start making risky bets that put what you have at risk for something that you don’t need.

  • The difficulty of long-term financial planning
As humans, we tend to underestimate how much our personality and goals will change with time. This makes long-term financial planning hard. 

  • The price of investing

    “Like everything else worthwhile, successful investing demands a price. But its currency is not dollars and cents. It’s volatility, fear, doubt, uncertainty, and regret – all of which are easy to overlook until you’re dealing with them in real time.”

    If you choose to invest and try to compound your wealth, there is a price. And that price is often hidden – it’s the ups and downs of Mr. Market that take you on a ride. It’s the uncertainty and fear that pop into your mind from time to time, as market conditions and your personal conditions change. You have to be willing to pay that price if you want to invest, especially if you’re very active with your strategy.
    The only way to deal with this market fee is to accept that it exists and to be willing to pay the price. You need to be prepared to deal with the volatility and uncertainty. It’s a part of the game you’re playing.

Click here to read 18 LESSONS from "Psychology of Money"


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