The Psychology of Money

Doing well with money is not necessarily about what you know, but about how you behave. Is what Morgan Housel explores in his popular book, where he shares 19 stories that explore the behavioral aspects of personal finance.

To Note:

• Financial success is not hard science, it’s a soft skill where how you behave is more important than what you know.
• To grasp why people bury themselves in debt, you need to study the history of greed, insecurity & optimism.
• 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

Spending money to show people how much money you have is the fastest way to have less money.

We tend to judge wealth by what we see because that’s the information we have in front of us. But the truth is that wealth is what you don’t see. Rich is a current income. Nice cars purchased. Diamonds bought. But wealth is hidden. It is an option not yet taken to buy something later. Not knowing the difference is a source of countless poor money decisions. 

Someone driving a $100,000 car might be wealthy. Or he may just be poorer by $100,000.

Avoid taking financial cues from people playing a different game than you are.

Few things matter more with money than understanding your own time horizon and not being persuaded by the actions & behaviors of people playing different games than you are. Go out of your way to identify what game you’re playing and ignore the rest.

• Bubbles happen when long-term investors playing one game start taking their cues from short-term traders playing another game.
• It is hard to grasp that other investors have different goals than u do.
• Rational people can see the world through a different lens than their own.