10 financial lessons from the book "The Psychology of Money" by @morganhousel
Recently the book has crossed 1 million in sales, globally.
And really a worthy achievement. So, without any further delay, let's dive into a few of its key lessons:
Recently the book has crossed 1 million in sales, globally.
And really a worthy achievement. So, without any further delay, let's dive into a few of its key lessons:
1// No One’s Crazy
Here’s the thing: Different people experience different things about money. Hence, the lessons they learned also vary.
So the investment that makes sense to one might not seem logical to another one.
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Here’s the thing: Different people experience different things about money. Hence, the lessons they learned also vary.
So the investment that makes sense to one might not seem logical to another one.
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People’s lifetime investment decisions are heavily anchored to the experiences those investors had in their own generation—especially experiences early in their adult life.
This concludes, no one’s crazy. It is just different thought processes.
People’s lifetime investment decisions are heavily anchored to the experiences those investors had in their own generation—especially experiences early in their adult life.
This concludes, no one’s crazy. It is just different thought processes.
2// Luck & Risk
Luck & risk are both the reality that every outcome is guided by forces other than individual effort.
Morgan says, "Just be careful when assuming that 100% of outcomes can be attributed to effort and decisions."
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Luck & risk are both the reality that every outcome is guided by forces other than individual effort.
Morgan says, "Just be careful when assuming that 100% of outcomes can be attributed to effort and decisions."
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Focus less on specific individuals & case studies and more on broad patterns.
You should like risk because it pays off over time. But you should be paranoid of ruinous risk because it prevents you from taking future risks that will pay off over time.
Focus less on specific individuals & case studies and more on broad patterns.
You should like risk because it pays off over time. But you should be paranoid of ruinous risk because it prevents you from taking future risks that will pay off over time.
3// Never Enough
It gets dangerous when the taste of having more—more money, more power, more prestige—increases ambition faster than satisfaction.
The hardest financial skill is getting the goalpost to stop moving.
It gets dangerous when the taste of having more—more money, more power, more prestige—increases ambition faster than satisfaction.
The hardest financial skill is getting the goalpost to stop moving.
4// Confounding Compounding
Good investing isn’t necessarily about earning the highest returns. It’s about earning pretty good returns that you can stick with and which can be repeated for the longest period of time. That’s when compounding runs wild.
Good investing isn’t necessarily about earning the highest returns. It’s about earning pretty good returns that you can stick with and which can be repeated for the longest period of time. That’s when compounding runs wild.
5// Getting Wealthy vs. Staying Wealthy
The ability to stick around for a long time, without wiping out or being forced to give up, is what makes the biggest difference. This should be the cornerstone of your strategy.
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The ability to stick around for a long time, without wiping out or being forced to give up, is what makes the biggest difference. This should be the cornerstone of your strategy.
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Becoming financially unbreakable > big returns.
Because then we'll stick around long enough for compounding to work wonders.
Becoming financially unbreakable > big returns.
Because then we'll stick around long enough for compounding to work wonders.
6// Freedom
The highest form of wealth is the ability to wake up every morning and say, ‘I can do whatever I want today.’
Money’s greatest intrinsic value is its ability to give you control over your time.
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The highest form of wealth is the ability to wake up every morning and say, ‘I can do whatever I want today.’
Money’s greatest intrinsic value is its ability to give you control over your time.
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Aligning money towards a life that lets you do what you want, when you want, with who you want, where you want, for as long as you want, has incredible returns.
Aligning money towards a life that lets you do what you want, when you want, with who you want, where you want, for as long as you want, has incredible returns.
7// Wealth is What You Don’t See
Spending money to show people how much money you have is the fastest way to have less money.
The truth is that wealth is what you don’t see. Wealth is financial assets that haven’t yet been converted into the stuff you see.
Spending money to show people how much money you have is the fastest way to have less money.
The truth is that wealth is what you don’t see. Wealth is financial assets that haven’t yet been converted into the stuff you see.
8// Save Money
Building wealth has little to do with your income or returns, and lots to do with your savings rate.
Savings can be created by spending less. You can spend less if you desire less. And you will desire less if you care less about what others think of you.
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Building wealth has little to do with your income or returns, and lots to do with your savings rate.
Savings can be created by spending less. You can spend less if you desire less. And you will desire less if you care less about what others think of you.
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That means — less ego, more wealth.
The intangible benefits of money can be far more valuable and capable of increasing your happiness than the tangible things that are obvious targets of our savings.
That means — less ego, more wealth.
The intangible benefits of money can be far more valuable and capable of increasing your happiness than the tangible things that are obvious targets of our savings.
9// Room for Error (Margin of Safety)
The margin of safety is the only effective way to safely navigate a world that is governed by odds, not certainties. Hence, Worship room for error.
The most important part of every plan is planning on your plan not going according to plan.
The margin of safety is the only effective way to safely navigate a world that is governed by odds, not certainties. Hence, Worship room for error.
The most important part of every plan is planning on your plan not going according to plan.
10// Nothing’s Free
Everything has a price, but not all prices appear on labels.
Like everything else worthwhile, successful investing demands a price. But its currency is not dollars and cents. It’s volatility, fear, doubt, uncertainty, and regret.
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Everything has a price, but not all prices appear on labels.
Like everything else worthwhile, successful investing demands a price. But its currency is not dollars and cents. It’s volatility, fear, doubt, uncertainty, and regret.
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The trick is convincing yourself that the market’s fee is worth it. That’s the only way to properly deal with volatility and uncertainty.
Hence, define the cost of success and be ready to pay for it. Because nothing worthwhile is free.
The trick is convincing yourself that the market’s fee is worth it. That’s the only way to properly deal with volatility and uncertainty.
Hence, define the cost of success and be ready to pay for it. Because nothing worthwhile is free.
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