When I heard that Morgan Housel was going to launch his Book, “The Psychology of Money”, I was so excited. I have followed his blog on the collaborative Fund website for a number of years. (https://www.collaborativefund.com/blog/). Please go check this out!
His writing his simple, refreshing and highly informative. He has a remarkable talent of connecting seemingly unrelatable topics from history to medicine back to how we view our own personal finances. Here are some of my takeaways:
We all make decisions around money based on our own unique life experiences. Our beliefs and our access or lack of access to money growing up will make up these experiences. What may seem normal to you could seem crazy to me and visa versa.
Making money is one thing. Keeping it is another that few people know how to do well. The mindset we use in making money involves a lot of risk-taking, hustling and optimism. The mindset involved to keep money is the opposite involving humility and pessimism. If we apply the same mindset to keeping our money as to how we made it in the first place, we could increase our risk of losing it altogether.
Wealth is what you don’t see. We often will give someone a “wealthy” status just by seeing the house they bought or the car they drive. But wealth is what’s left after you deduct the outstanding debt on those items. People who look like they have money may not actually have a lot. People who don’t, might actually do. Looks can be deceiving.
Save money because this is something you can control. You also don’t need a specific reason to save because you will always be better off if you do versus if you don’t.
Nothing is free and the volatility you experience with your investments is the price you pay for playing the game. The higher the returns, the higher the price.
Pessimism is seductive. Bad news will capture people’s attention more than good news which could even go unnoticed. “In stock markets, where a 40% decline that takes place in six months will draw congressional investigations, but a 140% gain that takes place over six years can go virtually unnoticed.”
I highly encourage you to go and get this book. It reiterates the point that managing our money has less to do with number crunching and head knowledge. It's primarily got to do with our own human behaviour made up of our individual beliefs, personal experiences and worldviews. It’s important we understand how we behave and what are the underlying drivers that fuel these behaviours. Self-awareness is empowering and you will be better equipped to make better financial decisions for yourself and your family.