The Psychology of Money (Part 1)

Photo by Christine Roy on Unsplash

Money is a delicate topic and one has to treat it as such. The history of money dates back thousands of years because it served as a means of exchange. Throughout history, we have had people become very successful, very successful and later lost it all. And many others were able to keep the riches flowing to other generations.

I recently read the book, The psychology of Money by Morgan Housel . It was a brilliant read. Below are live lessons from the book.

1. The premise of this book is that doing well with money has a little to do with how smart you are and a lot to do with how you behave. And behavior is hard to teach, even to really smart people.
2. Financial success is not a hard science. It’s a soft skill, where how you behave is more important than what you know.
3. Studying history makes you feel like you understand something. But until you’ve lived through it and personally felt its consequences, you may not understand it enough to change your behavior.
4. Studying history makes you feel like you understand something. But until you’ve lived through it and personally felt its consequences, you may not understand it enough to change your behavior.
5. Nothing is as good or as bad as it seems.
6. Luck and risk are both the reality that every outcome in life is guided by forces other than individual effort.
7. Everything worth pursuing has less than 100% odds of succeeding, and risk is just what happens when you end up on the unfortunate side of that equation.
8. The cover of Forbes magazine does not celebrate poor investors who made good decisions but happened to experience the unfortunate side of risk. But it almost certainly celebrates rich investors who made OK or even reckless decisions and happened to get lucky. Both flipped the same coin that happened to land on a different side.
9. Be careful who you praise and admire. Be careful who you look down upon and wish to avoid becoming.
10. Some people are born into families that encourage education; others are against it. Some are born into flourishing economies encouraging of entrepreneurship; others are born into war and destitution. I want you to be successful, and I want you to earn it. But realize that not all success is due to hard work, and not all poverty is due to laziness. Keep this in mind when judging people, including yourself.
11. When things are going extremely well, realize it’s not as good as you think. You are not invincible, and if you acknowledge that luck brought you success then you have to believe in luck’s cousin, risk, which can turn your story around just as quickly.
12. Enough. I was stunned by the simple eloquence of that word — stunned for two reasons: first, because I have been given so much in my own life and, second, because Joseph Heller couldn’t have been more accurate.
13. To make money they didn’t have and didn’t need, they risked what they did have and did need. And that’s foolish. It is just plain foolish. If you risk something that is important to you for something that is unimportant to you, it just does not make any sense.
14. But it’s one of the most important. If expectations rise with results there is no logic in striving for more because you’ll feel the same after putting in extra effort. It gets dangerous when the taste of having more — more money, more power, more prestige — increases ambition faster than satisfaction. In that case one step forward pushes the goalpost two steps ahead. You feel as if you’re falling behind, and the only way to catch up is to take greater and greater amounts of risk.
15. The hardest financial skill is getting the goalpost to stop moving.

I’ll stop here today. Read and digest. The points above are quite powerful that one needs to constantly expose ones self to it.

What new insights did you learn? Feel free to leave a comment. Thank you.