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

Great book
“The Psychology of Money” by Morgan Housel is a thought-provoking book that explores the complex relationship between money, greed, and happiness. Housel challenges conventional notions about wealth, arguing that it’s not just about smart decisions, but also about behavior and psychology ¹.The book is divided into 20 short chapters, each tackling a different aspect of money psychology. Housel uses engaging storytelling and real-life examples to illustrate his points, making the book an enjoyable read.One of the key takeaways from the book is the importance of understanding your own values and priorities when it comes to money. Housel argues that money is a reflection of our values, and that our financial decisions should align with what’s truly important to us ².The book also delves into the power of compounding, highlighting the benefits of long-term thinking and patient investing. Housel emphasizes that getting wealthy slowly is often a more sustainable and reliable approach than seeking overnight success ².Other notable themes in the book include the role of luck in financial outcomes, the dangers of complexity in financial decision-making, and the impact of stories and narratives on our financial behaviors ².Overall, “The Psychology of Money” is a insightful and accessible book that offers valuable lessons for anyone looking to improve their relationship with money. As one reviewer noted, “This book is the book I wish I had read when I was young” ¹.*Key Takeaways:*- *Money as a Reflection of Values*: Understand your own values and priorities when it comes to money.- *The Power of Compounding*: Long-term thinking and patient investing can lead to significant financial gains.- *The Role of Luck*: Recognize the influence of chance and unforeseen circumstances on financial outcomes.- *Simplicity over Complexity*: Avoid complex financial decisions and focus on simplicity and clarity.- *The Impact of Stories*: Be aware of how narratives and stories shape your financial behaviors and decisions.

Sound Advise and an Enjoyable Read
You’ve got to give the author credit. He’s pretty open, honest and straightforward how things really work. Food for thought and solid suggestions backed with experience and stories. Nobody has all the answers or the big secret. However, this book will get your wheels turning. That’s the real idea.

Lovely book with very well thought-out insights and at the end a confession by the author on how he personnally does it. Will re-read this many times

The Psychology of Money is a fascinating book, although perhaps it’s a bit late in the day for me to take advice around money, but what is fascinating is the authors way of looking at the world and how it’s psychology more than anything else that helps us to keep money and make money and lose money. The book is peppered with fantastic stories and analogies of which I will list a few in the book that really made me think and really helped me understand the ways that we manage to deal with the money that we want to enquire. Some of the key points include the following:- 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 we behave. And behaviours are hard to teach, even to smart people. Financial success is not a hard science but a soft skill where how your behaviours are more important than what you know. Engineers can determine the manner of how a bridge collapses because these will follow the law for physics, it’s not controversial. Finances are different as it’s guided by people’s behaviour. And as Voltaire once observed, “history never repeats itself; man always does.” This applies to behaviour with money also. And people who grew up in poverty think about risks and rewards in ways that the child from a wealthy banker or family no matter how much they tried. So, the challenges for us is it no amount of studying or openness can re-create the power of fear and uncertainty.- An interesting story is how the nephew of a Chinese worker wrote about her aunt who worked several years in what Americans called “sweatshops”. It was hard work with long hours and a “small” wage and “poor” working conditions. However, before her aunt had this work in a factory, she was a prostitute. Americans may feel that a sweatshop is exploitation but people who live in these countries feel that factory work labour could be better but it only when you compare it to American jobs. We tell ourselves stories about what we and others are doing and why they’re doing it, and that story helps shape our own unique experiences. Americans will spend more money on a lottery ticket than on movies, video games, music, sporting events and books combined. And the people who buy lottery tickets are mostly poor people. Money has been around for a long time and at the end of 2018 there were $27 trillion in US retirement accounts making it the main driver of the common investor savings and interest best in decisions. But retirement is very recent and at most two generations old. Before World War II most Americans worked until they died. And that was the expectation and reality. The labour force participation rate of men aged 65 and over with above 50% until the 1940s. Saving for retirement pots is a relatively recent invention. And even widespread use of consumer debt – mortgages, credit cards and car loans – did not take off until after the World War II, when the GI Bill made it easier for millions of Americans to borrow. Dogs were domesticated 10,000 years ago and still retain some behaviours of the wild ancestors. Yet here we are with between 20 and 50 years of experience in modern financial systems, hoping to be perfectly acclimatised. And for a topic that is so influenced by emotion rather than fact, this is a problem. And it helps explain why we don’t always do what we’re supposed to do with money.- There is a lot of luck and risk when it comes to dealing with money. And many people who are born into rich families will never view this has been lucky no matter how much they make, we always say that it is down to them. Donald Trump is a good example of this. We need to recognise that there is a role of luck in success, and the role of risk means we should forgive ourselves for understanding when judging failures. Nothing is as good or as bad as it seems.- I always find it fascinating that many people who can have thousands or millions in a bank account, always seem to seek more. It is almost like an addiction. They need to have more money than they can ever spend.- There are millions of ways to get wealthy and plenty of books on how to do this. But this book argues that the only way to stay wealthy is to have some combination of frugality and paranoia and it is a topic that we don’t discuss enough. It is not important just to make money but it’s also important to know how to keep it and to make it keep growing.- The thing I think most about having read this book with the author talking about the documentary “how to live forever” which asked an innocent question to a centenarian who offers an amazing response to the question “what was the happiest day of your life?” “Armistice day“ was her reply, referring to the 1918 agreement that ended World War I. The interviewer asks why? “Because we knew there would be no more wars ever again,” she says. World War II began 21 years later, killing 75 million people. There are many things in life that we think are true because we desperately want them to be true. And just because we feel something doesn’t make it real.- I really like some of the ideas about what has happened over the last 170 years regarding the US economy. Which includes some of the following:- 1.3 million Americans died while fighting nine major wars. Roughly 99.9% of all companies that were created went out of business. Four U.S. presidents were assassinated. 675,000 Americans died in a single year from a flu pandemic. Thirty separate natural disasters killed at least 400 Americans each. 33 recessions lasted a cumulative 48 years. And the number of forecasters who predicted any of those recessions rounds to zero.- The stock market fell more than 10% from a recent high at least 102 times. Stocks lost a third of their value at least 12 times. Annual inflation exceeded 7% in 20 separate years. The words “economic pessimism” appeared in newspapers at least 29,000 times, according to Google. However, it’s worth remembering the quote above from the woman who was asked what the happiest day of life was with the end of the First World War and who predicted that following that there would never be another war. How wrong she was.- Another insight is that more than the salary you earn or the size of your house or the prestige of your job, control over doing what you want, when you want to, with the people you want to, its these broad lifestyle variable that makes people happy.The United States are the richest nation in the history of the world, but there is little evidence that its citizens are, on average, happier today than they were in the 1950s when wagers were much lower. Even when this is adjusted for inflation. We buy bigger and better stuff, but we’ve simultaneously given up control over our time.- One of the best ideas for accumulating money is to save money, put your income or investments into savings.- 15 billion people were born in the 19th and 20th centuries. But imagine how different the global economy in the whole world would be if just seven of them never existed: Adolf Hitler, Joseph Stalin, mousy Dong, Gavrilo Princip, Thomas Edison, Bill Gates and Martin Luther King. Just 0.00000000004% of people responsible perhaps most of the world direction of the last century. Imagine the world without the great depression, World War II, the Manhattan project, vaccines, antibiotics, September 11 and the fall of the Soviet union. However, it’s important to realise the future might not look anything like the past is a special kind of skill that is not generally looked highly upon by the financial forecasting community. The lesson to learn from surprises is that the world is surprising.- The most important part of every plan is planning on your plan not going according to plan. You must factor uncertainty into everything. A good rule of thumb for a lot of things in life is that everything can break will eventually break. And the biggest single point of failure with money as a soul reliance on a pay check to short term spending needs, with no savings to create a gap between what you think your expenses are and what they might be in the future.- All of us are walking around with an illusion that history, our personal history, has just come to an end, that we have recently become the people we were always meant to be for the rest of our lives. We tend to never learn this lesson. Research shows that people from age 18 to 68 underestimate how much they will change in the future.- The US economy was in better shape in 2009 than it was in 2007 and yet in two years between 2007 – 2009, US household were $16 trillion poorer in 2009 than they were in 2007. And in two years 10 million more Americans became unemployed. And all of this was due to one thing, that house prices kept rising, mortgage default rose and then the banks lost money, then they reduced lending into other businesses, which led to payoffs, which led to less spending, which led to more lay offs and job losses and on and on.- Another interesting story is that of Ali Hajaji whose son was sick. Elders in his Yemeni village proposed a folk remedy: shove the tip of a burning stick through his son’s chest to drain the sickness from his body. After the procedure, Ali Hajaji told the New York Times “when you have no money, and your son is sick, you’ll believe anything”. Appalling fictions that are told by people who are extremely powerful can make you believe just about anything.- Daniel Kahneman once told the author about the stories people tell themselves to make sense of the past. “Hindsight, the ability to explain the past, gives us the illusion that the world is understandable. It gives us the illusion that the world makes sense, even when it doesn’t make sense. that’s the big deal in producing mistakes in many fields.” And most people when confronted with something they don’t understand, do not realise they don’t understand it because they’re able to come up with an explanation that makes sense based on their own unique perspective and experience in the world, no matter how limited these experiences are. We tell ourselves stories to fill in the gaps of what are effectively blind spots. What the stories do to us financially can be both fascinating and terrifying. Blind spots are everywhere. We need to come to terms with how much we don’t know, and this means coming to terms with how much what happens in the world is out of our control. That can be hard to accept.- Between 1993 and 2012, the top 1% saw that incomes grow 86.1% while the bottom 99% just saw 6.6% growth. However, economics is a story of cycles. Things come; things go. The US unemployment rate in the US is the lowest it’s been in decades, wages are now actually growing faster for low-income workers than the rich, college cost stopped growing once grants are factored in. If everyone studied advances in healthcare, communication, transportation and civil rights since the glorious 1950s, most would probably not want to go back to these times. It’s important to see that progress is still occurring – even for the poor.- This is a fascinating book about money but even more fascinating in its way of looking at how people behave with money and trying to make money. I loved it, though I don’t think myself as being rich when compared to others, I know how rich it is just to be alive at this moment.