Key Lessons from “The Psychology of Money” by Morgan Housel

“The Psychology of Money” by Morgan Housel is one of the best books for investing. This book covers lots of real-life stories to educate the psychology of money to you.

10 Reasons You Should Read The Psychology of Money

  1. To understand why you are always struggling to manage your finances.
  2. To avoid the most common money mistakes and to manage your money better.
  3. Helps you to build a healthy relationship with money.
  4. A complete guide to money mgmt and personal finance.
  5. The book makes you look at money and investing in an entirely new light.
  6. Shows how to avoid falling into the traps of debt and how to generate wealth.
  7. It will teach you to create a long-term money strategy that will allow you to reach your financial freedom faster
  8. Learn the mistakes people make with money and how to avoid them.
  9. Understand the psychology of money and why some people seem to have more money than others.
  10. Discover ways to change your behavior to earn more money.

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10 Timeless Lessons on Wealth, Greed, and Happiness

1. No one’s crazy:

We all make decisions based on our own unique experiences that seem to make sense to us in a given moment.

What seems crazy to you is normal for the other person.

2. Never enough:

You’ll never have enough. So don’t risk what you have and chase what you don’t have and don’t need.

3. Wealth is what you don’t see

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

Wealth is the nice cars not purchased. The diamonds not bought. Wealth is financial assets that haven’t yet been converted into the stuff you see.

4. Save money

Building wealth has little to do with your income or investment returns, and lots to do with your savings rate.

5. You’ll change

It’s hard to make long-term decisions when your view of what you’ll want in the future is likely to shift.

6. Reasonable > Rationale

Reasonable is more realistic and you have a better chance of sticking with it for the long run, which is what matters most when managing money.

7. Nothing’s free

Everything has a price, but not all prices appear on labels.

8. Tails, you win

Longtails – the farthest ends of a distribution of outcomes – have tremendous influence in finance, where a small number of events can account for the majority of outcomes.

9. Getting wealthy vs Staying wealthy

Getting wealthy requires taking risks, being optimistic, and putting yourself out there. But, keeping money requires the opposite of taking risks.

It requires humility, and fear that what you’ve made can be taken away from you just as fast.

10. Luck and Risk

Luck and risk are two sides of the same coin. You can’t believe in one without respecting the other. They are driven by the same thing: You are one person in a game with seven billion other people and infinite moving parts.

“Be careful who you praise and admire. Be careful who you look down upon and wish to avoid becoming.”

The Psychology of Money

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

“Growth is driven by compounding, which always takes time. Destruction is driven by single points of failure, which can happen in seconds, and loss of confidence, which can happen in an instant.”

“Someone driving a $100,000 car might be wealthy. But the only data point you have about their wealth is that they have $100,000 less than they did before they bought the car (or $100,000 more in debt). That’s all you know about them.”

“No one is impressed with your possessions as much as you are. You might think you want a fancy car or a nice watch. But what you probably want is respect and admiration. And you’re more likely to gain those things through kindness and humility than horsepower and chrome.”

“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.”

Bill Gates once said, “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.”

“Beware taking financial cues from people playing a different game than you are.”

“Less ego, more wealth. Saving money is the gap between your ego and your income, and wealth is what you don’t see. So wealth is created by suppressing what you could buy today in order to have more stuff or more options in the future.”

“No matter how much you earn, you will never build wealth unless you can put a lid on how much fun you can have with your money right now, today.”

“Planning is important, but the most important part of every plan is to plan on the plan not going according to plan.”

“Money’s greatest intrinsic value—and this can’t be overstated—is its ability to give you control over your time. Use money to gain control over your time, because not having control of your time is such a powerful and universal drag on happiness.”

“Independence, to me, doesn’t mean you’ll stop working. It means you only do the work you like with people you like at the times you want for as long as you want.”

“Risk is what’s left over when you think you’ve thought of everything.”

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See Also: Lessons from The Compound Effect by Darren Hardy

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