The Psychology of Money by Morgan Housel
For the past few months, I have shown interest in financial literacy, money management, investing, savings, budgeting, etc. And I searched for articles that recommended books about money, one of the most popular books recommended was “Rich Dad, Poor Dad” by Robert Kiyosaki and Sharon Lechter. That was the first book I listened to, and then I listened to Dave Ramsey’s The Total Money Makeover. One of the articles recommended, “The Richest Engineer” by Abhishek Kumar, and when I went to Barnes and Noble to purchase it wasn’t available; however, I found this gem, “The Psychology of Money” – Timeless Lessons on Wealth, Greed, and Happiness by Morgan Housel.
The book is broken down into 20 chapters, and each chapter has a lesson – so as I was taking notes for this book review, I wrote down what I got from each chapter. So, I will write the title of each chapter and the lesson, but I still highly recommend reading it because each person can get something different from the chapter.
Chapter 1 – No One’s Crazy
Lesson – “Your personal experience with money make up maybe 0.0000001% of what’s happened in the world, but maybe 80% of how you think the world works.”
What I got from the chapter – Everyone’s habit with money has to do with their perception of the world. So, depending on how high or low inflation was when you were born will depend on how much you will invest.
Chapter 2 – Luck & Risk
Lesson – “Nothing is as good or as bad as it seems.”
What I got from the chapter – Be careful who you praise and admire. Be careful who you look down upon and wish to avoid becoming. Therefore, focus less on specific individuals and case studies and more on broad patterns.
Chapter 3 – Never Enough
Lesson – “When rich people do crazy things.”
What I got from the chapter – You have to know when enough is enough because you’ll continue to take risks without fear of consequences.
Chapter 4 – Confounding Compounding
Lesson – “$81.5 billion of Warren Buffett’s $84.5 billion net worth came after his 65th birthday. Our minds are not built to handle such absurdities.”
What I got from the chapter – Good investing is about getting good returns that you can stick with and can be repeated for a longer period of time.
Chapter 5 – Getting Wealthy vs. Staying Wealthy
Lesson – “Good Investing is not necessarily about making good decisions. It’s about consistently not screwing up.”
What I got from the chapter – Getting money and keeping money are two different skills.
Chapter 6 – Tails, You Win
Lesson – “You can be wrong half the time and still make a fortune.”
What I got from the chapter – Tails keeps investing, businesses and companies going. You can be wrong half the time and still make a fortune. The failed ideas and inventions are still part of the story but not the part you usually hear.
Chapter 7 – Freedom
Lesson – “Controlling your time is the highest dividend money pays.”
What I got from the chapter – True freedom is control over your time, which is the key to happiness.
Chapter 8 – Man in the Car Paradox
Lesson – “No one is impressed with your possessions as much as you are.”
What I got from the chapter – People admire the fancy car more than the person driving them. If your goal is to be respected and admired by others, be careful how you seek it. Morgan says humility, kindness, and empathy are the way to go.
Chapter 9 – Wealth is What You Don’t See
Lesson – “Spending money to show people how much money you have is the fastest way to have less money.”
What I got from the chapter – There are many wealthy people who don’t look rich and many poor people who look rich. Spending money isn’t what’s going to make you wealthy.
Chapter 10 – Save money
Lesson – “The only factor you can control generates one of the only things that matters. How wonderful.”
What I got from the chapter – Getting a return from your savings is better than not getting anything at all. The more money you save, the closer you can get to having control over your time.
Chapter 11 – Reasonable > Rational
Lesson – “Aiming to be mostly reasonable works better than trying to be coldly rational.”
What I got from the chapter – Be reasonable, not rational, with money.
Chapter 12 – Surprise!
Lesson – “History is the study of change, ironically used as a map of the future.”
What I got from the chapter – Surprises are what moves the needle. Things we cannot prepare for, unprecedented things. (For example – the pandemic)
Chapter 13 – Room for Error
Lesson – “The most important part of every plan is planning on your plan, not going according to plan.”
What I got from the chapter – You don’t know what your future expenses will be, save for the gap. Know that every plan will not go according to plan.
Chapter 14 – You’ll Change
Lesson – “Long-term planning is harder than it seems because people’s goals and desires change over time.”
What I got from the chapter – You will change. Your goals and desires will change, which sometimes can make financial planning hard, but compound interest needs time to grow, so try not to take out the money.
Chapter 15 – Nothing’s Free
Lesson – “Everything has a price, but not all prices appeal on labels.”
What I got from the chapter – Everything has a price, and nothing is free, but it depends on how much you’re willing to pay for the price of success, and unfortunately, the price tag isn’t visible right away.
Chapter 16 – You & Me
Lesson – “Beware taking financial cues from people playing a different game than you are.”
What I got from the lesson – Everyone’s financial situation is different than yours, invest for you.
Chapter 17 – The Seduction of Pessimism
Lesson – “Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you.
What I got from the chapter – Pessimism is easier.
Chapter 18 – When You’ll Believe Anything
Lesson – “Appealing fictions, and why stories are more powerful than statistics.”
What I got from the chapter – It’s easier to believe tales than the truth.
Chapter 19 – All Together Now
Lesson – “What we’ve learned about the psychology of your own money.”
What I got from the chapter – This chapter recap all the lessons.
Chapter 20 – Confessions
Lesson – “The psychology of my own money.”
What I got from the chapter – Do what works for you. Handle your finances in a way that lets you sleep at night. What works for him and his family is maximizing their savings and living below their means, even when their income increased. The best way to do that is not to keep up with the Joneses.
Morgan provides a bonus chapter talking about the history of the US economy and when the gap between the 1% and the working class widened.
Again, I highly recommend this book to anyone looking to improve their finances. What financial books have you read that you would recommend? Let me know
With Love, Heidy
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