In this book, Morgen Housel explains the psychology of money. It doesn’t really give investment advice, but very nicely explains the psychology that comes with investing and what to keep in mind when making financial choices.
When it comes to money, many people focus on hard numbers and simple truths, but they ignore one key point, the way you think about money matters.
Financial success is not hard science. It’s a soft skill, where how you behave is more important than what you know. The aim of this book is to use short stories to convince you that soft skills are more important than the technical side of money.
Finance is more than saving and investing; it is predominantly about your psychology and behavior. And the actions you take as a result become the cornerstone to your financial success.
- No One’s Crazy
Everybody has his own view when it comes to money, which is just simply the effect of your personality and your environment.
Your personal experiences with money make up maybe 0.00000001% of what’s happened in the world, but maybe 80% of how you think the world works. No one is crazy, but People do some crazy things with money
- Luck & Risk
A lot of your success depends on luck and risk. Knowing that you might be lucky that you achieved something can make you stay humble and help you to prevent becoming arrogant. The world is too complex to allow 100% of your actions to dictate 100% of your outcomes
- Never Enough
One of the most challenging financial skills in the world is to get the goal post to stop moving; this is evident in our consumer-driven lifestyles. Our Capitalistic system makes it easy to feel good with the latest gadget or item, and you have to keep getting them.
- Confounding Compounding
The effect of compound interest is what Einstein called the eighth wonder of the world. More than 90% of Warren Buffet’s net worth is earned when he was older than 50 years old. The longer you let compounding do its wonders, the more your assets will grow.
- Getting Wealthy vs. Staying Wealthy
There are a million ways to get wealthy but there’s only one way to stay wealthy. Getting wealthy requires you to take risks sometimes, staying wealthy requires you to prevent risk. Just as mentioned in the lesson of never enough, know when you have enough. If you then decide to get more, be smart about it and don’t risk it all.
- Tails, You Win
Longtails, the farthest ends of the distribution of outcomes, have tremendous influence in finance where a small number of events can account for the majority of outcomes. Knowing that in the business of trading stocks or other forms of making money, you are likely to fail a lot of times, but it doesn’t matter, as long as you have these tail events that succeed and make up for it.
- Freedom
The highest form of wealth is the ability to wake up every morning and say, ‘I can do whatever I want today. The ability to do what you want, when you want, with who you want, for as long as you want, is priceless.
If you want to become happy, try to make money a means to an end, not a goal in itself, and use it to be able to spend your time how you like it.
- Man in the Car Paradox
No one is impressed with your possessions as much as you are. Humility, kindness, and empathy will bring you more respect than horsepower ever will. Thinking that you become something when you would own it is the paradox as even you don’t look at people that way.
- Wealth is What You Don’t See
Spending money to show people how much money you have is the fastest way to have less money. The only way to be wealthy is to not spend the money that you do have.
- Save Money
Save money without a goal. As Housel repeatedly says in this book, the economy is always full of surprises. This means that in the long run, you are very likely to encounter moments where you have to spend money on something you could not foresee.
Article Source: https://sokodirectory.com/2022/01/dear-entrepreneur-here-are-top-10-lessons-from-the-book-the-psychology-of-money/
