The Psychology Of Money: Book Review & Summary

the psychology pf money

Morgan Housel is the author of The Psychology of Money

What is this book about?

Author Morgan Housel shares 19 short stories exploring the strange ways people think about money and he teaches you how to make better sense of one of life’s most important matters.

Who should read this book?

Anyone interested to learn about finances and want to be better with money can read this book. The author has written this book in a way that makes it easily understandable to anyone who reads it. It is not too lengthy and one can finish it in a week.

Top quotes from the book :

A) Spending money to show people how much money you have is the fastest way to have less money.

B) Controlling your time is the highest dividend money pays.

C) 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.

D) Progress happens too slowly to notice, but setbacks happen too quickly to ignore.

E) Saving is the gap between your ego and your income.

F) 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.

Want to build wealth? This book may help you : Rich Dad Poor Dad Summary

Take-home messages: Summary

A) When it comes to managing our finances, we tend to make unconventional choices due to a lack of knowledge and experience. What may appear irrational to one person might seem justified to another. Money is a subjective matter, and there isn’t a one-size-fits-all approach to handling it. Before investing, we all consider our options and weigh the pros and cons based on our individual circumstances. Our personal experiences and judgment at a particular point in time influence our financial decisions.

B) Other factors like luck and risk also play a role in determining the outcome of our actions, and it cannot be solely determined by our choices. Decisions have a <100% success chance, and unlucky outcomes may occur. Acknowledge luck and risk’s roles in financial success and avoid judging outcomes. Avoid single investments to prevent unfavorable outcomes.

C) It is essential to set a goal and put in the necessary effort to achieve it. The feeling of satisfaction upon accomplishing the goal is significant. However, it is important not to move the goalpost just to gain more money or power. It is crucial to realize that life is not enjoyable without a sense of contentment with what one has.

D) Even though the social comparison is a common practice, it is practically impossible to reach the highest level of it. Therefore, it is a losing battle to engage in comparison with others. Instead, it is better to acknowledge that you have enough, even if it may not be as much as those around you.

E) Enough doesn’t mean leaving the opportunity and potential on the table, but to know the right opposite, that, an insatiable appetite for more, will push you to a point of regret.

F) Many things are never worth risking for, like, family, friends, health, and reputation. Freedom and happiness!

G) Focus on achieving consistent and decent returns over a longer period, rather than solely aiming for the highest returns that can be unpredictable and unsustainable in investing.The real trick lies in investing skillfully and then allowing enough time for compounding to do its work.

H) To obtain money, one must be willing to take chances, have a positive outlook, and expose oneself. However, in order to maintain money, one must exhibit the opposite behavior of taking risks. It necessitates modesty, apprehension, and recognizing that it can be lost at any moment if fortune does not favor you.

I) A significant number of achievements are attributed to tail events, which involve making stable and long-term investments, even when there are no immediate returns. Often, we tend to focus on things that are popular, profitable, and influential, and overlook the underlying tail events that contribute to success. It is imperative to acknowledge the significance of these events and not underestimate their impact.

J) Money can provide the highest joy of freedom to do anything and anytime. According to Agnes Campbell, a psychologist, having a strong sense of controlling one’s life predicts positive feelings of well-being more reliably than any objective condition of life.

K) Money provides individuals with control over how they spend their time. Having a high-paying job may not be fulfilling if it demands an unmanageable schedule. Money offers the freedom to pursue preferred activities at any time, with anyone, and this is its most significant benefit.

L) People often have a misconception that having a luxurious car, a nice watch, and a huge villa will make them look successful, smart, and rich. But remember, people, don’t see you! They often see only your riches and bypass admiring you, not because they don’t think wealth is admirable, but because, they use your wealth as a benchmark or a standard for their desire to be successful.

M) The difference between Rich and Wealthy is, that “Rich” signifies the current income, whereas “Wealth” is hidden! The income that is not spent! Wealth provides you the flexibility or option to buy the stuff whenever you want and gives you the freedom to retire early. Wealth is a financial asset that you haven’t yet converted into material things like fancy cars or watches or bungalows.

N) Building wealth is directly proportional to the personal swing and inversely proportional to your expenses. Expenditure and Saving are the parts of the money equation that are 100% in your favor.

O) Avoid extreme ends of financial decisions. You should like a 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.

This was a good read that introduced me to a new perspective on Wealth. I will rate it 8.5/10. It took me 1 week to read this book. I would recommend this amazing book to my readers!

The Psychology of Money Buy the book here.

Have an insightful read you all!