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The Psychology of Money

by Morgan Housel

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Morgan Housel is a partner at Collaborative Fund and a former columnist at The Motley Fool and The Wall Street Journal. The Psychology of Money is a short read with poignant points around how we view money. Morgan challenges us to look at ourselves and consider our finances in more of a philosophical and psychological approach than a pragmatic step-by-step guide. Guaranteed to have you re-think what freedom and wealth actually looks like in your life and how you should reframe your path towards that goal. - Nicholas Beaird

Favorite Quotes The Psychology of Money

The person who grew up in poverty thinks about risk and reward in ways the child of a wealthy banker cannot fathom if he tried.

Your personal experiences with money make up maybe 0.00000001% of what’s happened in the world, but maybe 80% of how you think the world works.

Compounding doesn’t rely on earning big returns. Merely good returns sustained uninterrupted for the longest period of time—especially in times of chaos and havoc—will always win.

There is the old pilot quip that their jobs are “hours and hours of boredom punctuated by moments of sheer terror.” It’s the same in investing. Your success as an investor will be determined by how you respond to punctuated moments of terror, not the years spent on cruise control.

A good definition of an investing genius is the man or woman who can do the average thing when all those around them are going crazy.

the highest form of wealth is the ability to wake up every morning and say, “I can do whatever I want today.” People want to become wealthier to make them happier. Happiness is a complicated subject because everyone’s different. But if there’s a common denominator in happiness—a universal fuel of joy—it’s that people want to control their lives. The ability to do what you want, when you want, with who you want, for as long as you want, is priceless. It is the highest dividend money pays.

But the truth is that wealth is what you don’t see. Wealth is the nice cars not purchased. The diamonds not bought. The watches not worn, the clothes forgone and the first-class upgrade declined. Wealth is financial assets that haven’t yet been converted into the stuff you see

Nassim Taleb says, “You can be risk loving and yet completely averse to ruin.” And indeed, you should. The idea is that you have to take risk to get ahead, but no risk that can wipe you out is ever worth taking. The odds are in your favor when playing Russian roulette. But the downside is not worth the potential upside. There is no margin of safety that can compensate for the risk.

Spreadsheets are good at telling you when the numbers do or don’t add up. They’re not good at modeling how you’ll feel when you tuck your kids in at night wondering if the investment decisions you’ve made were a mistake that will hurt their future.

The biggest single point of failure with money is a sole reliance on a paycheck to fund short-term spending needs, with no savings to create a gap between what you think your expenses are and what they might be in the future.

Many of us wind through life on a similar trajectory. Only 27% of college grads have a job related to their major, according to the Federal Reserve. Twenty-nine percent of stay-at-home parents have a college degree. Few likely regret their education, of course. But we should acknowledge that a new parent in their 30s may think about life goals in a way their 18-year-old self making career goals would never imagine.

All Excerpts From Housel, Morgan. “The Psychology of Money.” Apple Books. This material may be protected by copyright.