The Psychology of Money – Morgan Housel

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The Book in 3 Sentences

1. Do not follow advice unless you know the advice-giver has the same goals and is playing the same game you are.
2. Our psychology of how we spend money and what makes us sleep better at night is just as important to understand as following smart financial decisions.
3. Wealth, by definition, is created by how much you save and not how much you make.

Impressions and general feelings about the book

• There was a bit of a scarcity mindset and the author did not believe they could simply make more money.

• A high value was placed on financial freedom and being able to sleep at night.
• It was constantly emphasized how important of a role time plays in investment success. Allowing time to compound your investments will beat almost every other factor.

How the book changed me

• I will be more careful about which/whose advice I follow and make sure that it is aligned with what goal I am pursuing.
• There is never an endpoint or a “once I have X”. The goalposts will continually move and we will typically desire to have more. Instead of waiting for X, enjoy today with what you have and avoid living in a mindset of scarcity.

What I am going to implement immediately in my life

• Adjust my saving and spending habits based on what makes me sleep better at night.
• Use my money to buy more time, more options, and a better everyday life. This has a lifestyle benefit that few luxury goods can compete with.

What I am going to stop doing immediately in my life

• Listening to advice from people that do not have the same goal as me or are not playing the same game I am.
• Assuming that things will be better when I make X amount of money. Instead, I will enjoy now as much as possible.

Top 3 Quotes

Quote 1

There is no universal truth. There’s only what works for you and your family, checking the boxes you want checked in a way that leaves you comfortable and sleeping well at night. There are basic principles that must be adhered to -this is true in finance and in medicine-but important financial decisions are not made in spreadsheets or in textbooks. They are made at the dinner table. They often aren’t made with the intention of maximimizing returns, but minimizing the chance of disappointing a spouse or child. Those kinds of things are difficult to summarize in charts or formulas, and they vary widely from personal to person. What works for one person may not work for another.

Quote 2 

There is no reason to risk what you have and need for what you don’t have and don’t need.

 Quote 3 

Capitalism is hard. But part of the reason this happens is because getting money and keeping money are two different skills. Getting money requires taking risks, being optimistic, and putting yourself out there. But keeping money requires the opposite of taking risk. It requires humility, and fear that what you’ve mad can be taken away from you just as fast. It requires frugality and an acceptance that at least some of what you’ve made is attributable to luck, so past success can’t be relied upon to repeat indefinitely.