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A Quick summary of the book:
- ‘The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness is a must-read book on Personal Finance by the award-winning author ‘Morgan Housel.’
- This book offers a wide range of insights into human behavior and psychology regarding money through real-life stories.
- This book will help an Investor to tap into their rich Investor mindset.
- It will help you in understanding how humans behave with money which will assist you in avoiding the potential mistakes you can subconsciously make with money making it a worthy read.
It is not just about wealth creation the book focuses on, as it also firmly emphasizes sustaining the wealth created as a long-term goal.
The explanation of the relation between time and money makes it clear how financial freedom in the end is not about having enough money, but having enough money to do with your time as you please.
And time is an asset one cannot buy, you cannot have enough money even if you keep chasing it. The infinite asset ‘time’ will get wasted chasing the ‘finite’ money is the lesson to be learned.
It has wonderful ideologies up its sleeve to make you live a more conscious and fuller life.
15 Key takeaways from the book:
⦿ Lessons on sustaining wealth:
- 1. Doing well with money has little to do with how smart you are and a lot to do with how you behave.
- 2. Getting money is one thing. Keeping it is another.
⦿ Lessons on Financial Freedom:
- 3. Use the money to gain control over your time.
- 4. Controlling your time is the highest dividend money pays.
- 5. Independence, to me, doesn’t mean you’ll stop working. It means you only do the work you like with people you like at the times you want for as long as you want.
⦿ Lessons on spending habits:
- 6. Spending money to show people how much money you have is the fastest way to have less money.
- 7. You might think you want a fancy car or a nice watch. But what you probably want is respect and admiration.
- 8. Be nicer and less flashy. No one is impressed with your possessions as much as you are.
- 9. Saving is the gap between your ego and your income.
⦿ Lessons on Risk Management:
- 10. Risk is what’s left over when you think you’ve thought of everything.
- 11. Everything has a price, but not all prices appear on labels.
- 12. Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you.
- 13. Progress happens too slowly to notice, but setbacks happen too quickly to ignore.
- 14. Planning is important, but the most important part of every plan is to plan on the plan not going according to plan.
- 15. Plan to survive reality. A future filled with the unknown is everyone’s reality
Insights on the Quotes from “The Psychology of Money”
Let’s decipher some quotes from the Psychology of Money!
i) “The challenge for us is that no amount of studying or open-mindedness can genuinely recreate the power of fear and uncertainty”.
we were protected from childhood by our parents and finally, when we face the world there is fear and uncertainty.
The same reflects when we make our investments, the new world creates a sense of uncertainty in us that no amount of education can prepare us for.
It is just about believing your instincts and jumping into the unknown. If you swim you survive if you drown that’s it. The fear of death instills in you a great drive that makes you swim.
“There is no reason to risk what you have and need for what you don’t have and don’t need. – Warren Buffet
This quote comes from the doyen of investments. It seems opposite to what many stock traders are doing all their life ‘taking risks’.
But, there is a world of difference between taking risks and taking calculated risks.
The former is the one mentioned by warren buffet, risking your valuable things for something which doesn’t add much meaning to your life.
“Why do we do that in the first place? We are forced by society to acquire something which we don’t want.”
There is mass psychology at play, slowly we try to think that the things that did not matter to us matter now because of how others look at those things.
Let’s see Morgan Housel’s two-line summary on the money!
ii) “The ability to do what you want, when you want, with whom you want, for as long as you want, is priceless. It is the highest dividend money pays.”
This is the greatest asset one can acquire. The freedom to do what you want which financial independence gives you.
This also talks more about emotions which are higher than money.
when you take a stand where you put emotional needs first, before money. Then automatically money flows.
iii) “A plan is only useful if it can survive reality. And a future filled with unknowns is everyone’s reality”
This reminds me of the quote by Mike Tyson “Everybody has a plan till they get punched in the face”
Yes! We rehearse a particular situation a thousand times in our head only to finally realize that reality is different from what we already thought.
iv) Your Plan vs The Plan of Fate!
This is the deception of reality, the same also goes for investments when we make plans for the stock market downfall, only to find ourselves miserable when it happens.
But still, even though our instincts take over during a fight or flight situation, the preparedness of the mind plays a major part in how we handle it.
When we are talking about the preparedness of mind I have to mention Robert Kiyosaki here
“ Cashflow can come and go, but net worth lasts. Invest in your net worth, and you’ll build a legacy that transcends temporary financial fluctuations”
– Robert Kiyosaki
Kiyosaki the author of ‘Rich Dad Poor Dad’ argues that people who have a net worth mindset are more likely to be wealthy in the long run. This is because they are focused on building assets that will generate income for them, rather than spending their money on liabilities that will only drain their resources.
You can understand why Robert Kiyosaki emphasizes building net worth. Taking calculated risks is important and it can be achieved by having a solid net worth.
What is the price we pay for successful investing? Morgan Housel has an answer!
v) “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.”
What are you willing to give up to get something? To make money you have to sacrifice something, it can be anything from your sleep to even money itself!
Dealing with loss in real life is hard, what makes it hard is not the impact of the loss itself but the flashbacks of the event which keep instilling in you a sense of fear.
So be cautious and at the same time don’t be afraid. There is a world of difference between the two!
This book is a boon to the ones who want to learn the “psychology of money”.
About The Author
The author of ‘The Psychology of Money: Timeless Lessons on Wealth, greed, and Happiness’
Mr.Morgan Housel is an ‘Economics Major’ from the University of Southern California, Morgan Housel is currently a partner at Collaborative Fund, an early-stage Venture capital firm.
Mr.Morgan Housel has written numerous books on money that decipher the psychological lessons to be learned while handling money. They are considered one of the best books on personal finance and for lessons on money management.
Some of the other books written by the author are ‘Everyone Believes It, Most Will Be Wrong’, Same as Ever: A Guide to What Never Changes, 50 Years in the Making.
‘The Psychology of Money’ is written neatly and crisply by co-relating personal finance and psychology using anecdotes and analogies in a total of 209 pages which also makes it a quick read.
(The Psychology of Money: Lessons on Greed, Wealth, and Happiness that Never Fade (A Concise And Precise Summary) is another book at just 46 pages that will help you grasp the summary.)
Implementing these lessons in your financial life will help you in building financially healthy habits early on in life.
This book will be your helpful guide in letting Financial Freedom be your ultimate goal.
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