I consider The Psychology of Money one of the most important books to be published in recent times. This is definitely a book that everyone (preferably, aged 10 and above) must read.
For someone who has learned to appreciate the importance of financial literacy quite late in life and who often berates herself for not being more financially savvy, The Psychology of Money written by Morgan Housel is a perfect read.
Morgan has an engaging writing style and uses a solid combination of anecdotes, data, incisive insights, and empathy to drive home a crucial message – when it comes to managing our personal finance, we are all playing our own individual games with rules unique to our life situations.
Here’s an interesting line from the book:
We call everyone investing money “investors” like they’re basketball players, all playing the same game with the same rules. When you realize how wrong that notion is you see how vital it is to simply identify what game you’re playing.
Having spent a good chunk of my lifetime by first being utterly oblivious to the importance of personal finance and later by being highly impatient with the quirks of the stock market, I realize I need to spend time clearly identifying the game I want to play with the skills and resources that I have.
Rather than obsessing and speculating about uncontrollable factors such as recession, economy, and other world events, I need to spend time identifying my priorities and goals, and the role of money to achieve those.
Finance related topics are generally considered highbrow, the domain of specialized individuals.
Remember how confused one generally feels after a conversation with a financial advisor or a banking relationship manager.
Ideally, their jobs should be all about demystifying financial products and services to help you make an informed purchase decision. Instead, you end up being even more confounded than before, signing up for a service because you feel these individuals are experts and therefore, they should know better.
I know it because that’s what I have done literally all my life! After repeatedly asking for clarifications, I’d notice the look of exasperation on the faces of such financial “gurus”.
I would then proceed to give up my “pointless” needling questions shortly thereafter before resorting to the two easy options available – either completely mistrusting the individual and banishing them for good or taking a leap of faith and buying the service.
Therefore, I particularly liked the empathy with which Morgan has written The Psychology of Money. The last thing anyone needs is to be talked down to and to be made to feel bad about the choices they have made so far in life, whether related to careers, relationships, or money. That’s why Morgan’s empathetic approach is so refreshing.
I have always had an uneasy relationship with money. Growing up in a family where money was always tight, I developed and internalized philosophies such as “money is not the most important thing in life”, “one should not work for money”, “too much money is evil” and more.
Morgan shows why it’s important for each of us to develop greater empathy towards self and others about the mental scripts we have internalized over the years about how we view money and how we use it.
At the same time, he emphasizes about the role of luck and risk, the two realities that influence the outcomes of our decisions in spite of our skills and our best efforts.
“Not all success is due to hard work and not all poverty is due to laziness.”
Without a doubt, the ability to have greater self-compassion when your investing decisions don’t turn out as expected cannot be underscored enough.
Agreed, it’s easier said than done yet we have to accept the truth “No pain no gain”. Investing, especially in high-risk opportunities with the expectation of earning high returns, is definitely going to be a journey where you will win some and lose a lot.
The Psychology of Money isn’t littered with clearly laid out rules and frameworks, or shortcut tips to make more money. No. Just timeless wisdom about humility, austerity and saving well.
For me, the biggest revelation was the power of exponentials: Compounding.
In fact, while reading the book, I lamented to my spouse about how I wish I had understood compounding earlier. I could have avoided several financial decisions taken in haste.
To quote Charlie Munger, one of the greatest investors of all times,
“The first rule of compounding: Never interrupt it unnecessarily.”
But then again, for all those times that you regret about or will regret (because to err is human) I hope you take succor in the words of the successful investor, Michael Batnick,
“Some lessons have to be experienced before they can be understood.”
At MyBookWorks, we highly recommend The Psychology of Money for its timeless wisdom to help you think with greater clarity about developing a healthier relationship with money and importantly, about building a life around what truly matters to you.
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