The Psychology Of Money

This is the cover image for Psychology Of Money.


Title: Psychology Of Money
Author: Morgan Housel
Genre: Personal Finance
Publisher: Jaico Books
Pages: 238 pages
Difficulty Level: Easy

Psychology Of Money: Book Review

The Psychology of Money is a well-written gem for the world. The book provides a deep understanding of how you can meet your needs and desires by having a soundproof plan. The author explains the uncertainty in the investing world and lays down some important concepts, like the importance of savings and how compounding works to make better decisions for yourself.

Usually, I expect authors to sell the methods and techniques to gain maximum results, but this is not like any other book. The Psychology of Money clearly states that tips and techniques to earn those extra profits will not work for you. Why? Because everyone’s financial conditions, aspirations, and time horizons are different. Then how can you know whether that technique applies to you?

You have to read it by yourself.

Personally, it is one of my favorite books in the Personal Finance category, and I rightly believe that this book will help billions of people to improve their financial conditions. For a 23-year-old person just starting the foundation of a financial journey, this book will help me make better financial choices and avoid getting into traps that can be dangerous.

The best thing about the Psychology of Money is the overall structure of the book and the topics it includes. I particularly liked his argument of different moments where the psychology of humans intervenes and causes us to make hasty decisions regarding finances which usually result in inevitable losses. The messages have been clearly expressed using case studies which are helpful for the readers. This book is a fantastic guide to bringing your finances in order and living the life you’ve always wanted to. I know this will help me, and I hope the same for you.

What can readers learn from this book:
Psychology of Money is the stepping guide when creating your own financial plan. Investing is a game where people from all horizons compete. Moreover, the readers will understand the purpose of investment and decide the duration they stay invested, thus reducing the risks of unwanted mistakes. You will learn to handle the money the right way.

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The Psychology Of Money: Book Summary in 3 sentences

  1. Everyone must take care of their finances and lay out the goals that they wish to achieve via those investments. Adjust your risks accordingly.
  2. There is no wealth generation without the involvement of saving money. Saving money beyond the basic needs increases your likelihood to come up with quick money in a sudden expense without compromising your investments.
  3. To let your wealth grow, you must give it sufficient time to compound and generate massive wealth.

Who Should Read It?

A no-brainer answer- “Everyone”. Maximum population on this planet fall into the ecosystem of using money as a medium for transactions. Except the monks and other sect who avoid the world of materialism. This book is the best guidance to understand the need of having a solid proof financial plan which can absorb the maximum shocks of uncertainties and yet deliver you your financial goal.

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Top 3 Quotes

  • A genius is the man who can do the average thing when everyone else around him is losing his mind. ~ Napoleon
  • Good investing is not necessarily about making good decisions. It’s about consistently not screwing up.
  • Controlling your time is the highest dividend that money pays.

I’ve compiled notes on some of the key topics in the book which can give you a better overview of the content you’re gonna find in The Psychology of Money.

The Psychology of Money Notes

1. No One’s Crazy 🤪

  • The financial experiences of each individual are different. What may make sense to you, might not seem logical to me. Our approach of seeing money is built different. The person witnessing high stock market growth in his 20s may not invest in bonds at all in his later life due to the perception built within him, but the person may heavily invest in bonds when the stock market was flat during his 20s and 30s.

2. Never Enough 💰

  • For a successful investing journey, you have to conquer your greed. Greed can cause you to become reckless and loose all your money in hopes of more.
  • Develop a sense of having enough. When you realise that your lifestyle is fulfilled by your current investments, you can make less risky bets and savour the fruits of your hard work.
  • Social comparisons are the thieves of joy. When you begin comparing your finances with other persons, you create an unwanted desire to have more and this gives birth to greed.

3. Confounding Compounding 📈

  • To help grow your investments, you have to give your investments time to compound.
  • Compounding is an out of the world concept which many people are unable to understand which reflects in their finances.
  • Without time, your returns do not give you the desired results and are unable to create wealth for you.

4. Getting Wealthy Vs. Staying Wealthy 💎

  • A crucial topic for everyone reading this. Both of the above mentioned things are different and one should make sure to understand them both to have financial literacy.
  • Getting wealthy requires optimism, risk taking characteristics whereas for saving money, you require the opposite. You must understand that whatever you have earned could be taken away with a single mistake thus creating a little bit of pessimism.
  • Have Margin Of Safety in your investments. If you aim for 12% return, do plan what if it is only 8%? Are you able to meet your goals then? If you would plan where everything is required to be fulfilled, then there is high chance that when one of them doesn’t, your plan will shatter to pieces.

5. Tails, You Win 🪙

  • In Investing, you can be wrong half the times and still make a fortune.
  • Investing is not about picking the right stocks every time, it is just not possible and neither it is the business where you need such high accuracy to be rich. Many of your investments will yield low returns because that is just how it is. Some will even loose you money. But a small percentage of your investments will return such humongous amounts that you are able to recoup your losses and generate huge wealth.

6. Freedom ⛱️

  • What is your purpose of investing money? Want to buy big houses, lavish lifestyles and maybe a big yacht. But could it buy you happiness? Money over a certain amount will not create much difference in your life. The real satisfaction and happiness will come by having the freedom and command to do things at your will.
  • Your time, spent according to your desire is the best return on investment for your money. It buys you freedom of not spending another day under a rude boss just for some extra bucks, it can help you take up a smaller paycheck job where the commute is less and you could spend remaining time for your hobbies.

7. Wealth Is What You Don’t See 🕶️

  • How do you differentiate between rich and wealthy? What is your perception about these two characters? This section of The Psychology Of Money will provide the distinction between a wealthy person and a rich person. Do you want to become rich or wealthy?
  • A rich person would have a high paying job which will fulfil his current spending but can you really tell whether he is wealthy? Take away his high paying paycheck, is he still able to afford the same lifestyle? That is the difference between the two. A wealthy person would have his finances in order and the spending is done accordingly to the income of a diversified portfolio
  •  Wealth is hard to determine because it is hidden. You cannot determine the wealth of a person because it is the money not spent. It is the money invested for a better purchase in the future. What you see is the richness.

8. Save Money 💵

  • Saving money is an important element as it increases your efforts to save money for a rainy day. You can get any unexpected emergency which can be expensive sometimes and it would lead you to sell your investments sometimes even at loss. So saving for the sake of saving can generate huge returns for you.
  • Spending beyond a certain point is just ego gratification and nothing else.
  • Extra money provides you flexibility and options to choose what is best for you.

9. Nothing's Free 🆓

  • An important chapter for the aspiring investors. If you would like to make money in the market, you cannot just pick stocks and wait for your money to multiply. You have to pay the fees for it. How you might ask? By keeping put during the downtrends.
  • Money compounds when given sufficient time. Selling them at high and buying them low will not always work in hope to not pay the fees as you might miss some of the biggest rallies with this method. The volatility is the test all investors would have to go through if they want to build everlasting wealth.

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