I have been following Morgan Housel’s writing for many years now. Last year he came out with his first book. The idea for the book The Psychology of Money came from his long article by the same name. He likes to keep his writing concise but it packs a punch. The best part of his writing is that he takes the lessons from history, finance, psychology, etc. and applies it to everyday personal finance. He has this uncanny ability to look at something as everyone else and see something different in it. This book can be read very quickly, but the whole point of reading it is to stop and think about how these stories apply to our own behavior. He makes us think about our relationship with money. Our behavior impacts our financial success, more than intelligence or anything else. Wealth is not really about what others think about us, it’s more about using our money to control how we spend our time and live our lives. Investing isn’t a race to be won; it’s a more of a test of our character. He examines personal finance through the lens of human behavior.
Financial success is quite personal and entirely achievable for those who have patience. Both luck and risk are hard to measure, so give yourself a chance to win and take advantage of long tails. Compounding only works if you give it the time to grow not for a few years but for many years. Know what game you are playing, and avoid taking financial cues from people playing a different game. It is easier to be reasonable rather than rational. He says to always plan for something to go wrong, and also for some large, unexpected expense. We have to remember that stories are a very powerful force in our life, beware the stories you tell yourself.
His writing is so fluid and clear that it does not needs many explanations. Here are some of my favorite quotes from the book which are self-explanatory:
· “How you behave is more important than what you know about money.”
· “Manage your money in a way that helps you sleep at night.”
· “Time is the most powerful force in investing.”
· “A small minority of things account for the majority of outcomes.”
· “There is no single right answer; just the answer that works for you.”
· “No one is impressed with your possessions as much as you are.”
· “Savings that aren’t earmarked for anything in particular is a hedge against life’s inevitable ability to surprise the hell out of you at the worst possible moment.”
· “Endurance is what makes compounding magic over time.”
· "The highest form of wealth is the ability to wake up every morning and say, “I can do whatever I want today.”
· “The more you want something to be true, the more likely you are to believe a story that overestimates the odds of it being true.”
· “Money’s greatest intrinsic value—and this can’t be overstated—is its ability to give you control over your time.”
· "Wealth is what you don’t see."
· "What we can’t measure we tend to overlook."
· "Avoid the extreme ends of financial decisions."
· “Things that have never happened before happen all the time.” – Scott Sagan
· "You have to survive to succeed."
· "Everything has a price, but not all prices appear on labels."
· "The illusion of control is more persuasive than the reality of uncertainty."
· “The ability to do what you want, when you want, with who you want, for as long as you want, is priceless.”
· "We focus on what we know and neglect what we do not know, which makes us overly confident in our beliefs."
· "Expectations always move slower than facts."
· “The hardest financial skill is getting the goalpost to stop moving.”
· “To grasp why people bury themselves in debt you don’t need to study interest rates; you need to study the history of greed, insecurity, and optimism.”
· "Using your money to buy time and options has a lifestyle benefit few luxury goods can compete with.”
· “There is no reason to risk what you have and need for what you don’t have and don’t need.” – Warren Buffett
· “Investing is not necessarily about making good decisions, it’s about consistently not screwing up.”
· "When planning we focus on what we want to do and can do, neglecting the plans and skills of others whose decisions might affect our outcomes."
· "The first idea—simple, but easy to overlook—is that building wealth has little to do with your income or investment returns, and lots to do with your savings rate."
The Psychology of Money is an essential read for anyone interested in learning to be better with their money. The main idea of this book is that – succeeding with money has a little to do with how smart you are and a lot to do with how you behave. Spending money to show people how much money you have is the fastest way to have less money. If you want to remember only three things from this book, they are: saving money is a skill, wealth is about survival and the goal is to have enough.