Psychology of Money
A Book Review
Content: 3/5
Readability: 5/5
Relevance: 4/5
With this as a compass, you can reframe and retrain your financial and lifelong mentality on saving, spending, investing, and ‘greeding for money and the apparent power/freedom it grants you’.
Frugal sometimes, spendy on other times, I didn’t think there was much to garner here, just a little reshaping and retuning of little things for me. But it turned out to provide more than I thought. Given I already read a few financial and money books and economics, I was surprised to draw even more from here. I guess it makes sense as I was not only a target reader for this book, but also the world of money, finance, economics is broad and is one of only a few core pillars of modern human society…holding, impacting, and sustaining it all is humans and their money.
Here we go.
Your personal experience is unique and is only 0.00000001% of the what happened in the world. Yet somehow this experience makes you think that is how 80% of the world works. When in fact, that is not possible, and not true.
So when someone brings in a completely different experience, learn to listen to that and absorb it, as that experience in unique and will differ from your own — can be so drastic you might even deny, ignore, reject, or disagree with it, but that is their learned experience and failing to listen to it means you can’t gain more experience to getting closer to knowing how the world actually works
Be careful who you praise and admire. Don’t look down upon and avoid the people you don’t want to become. The chances of success and the chances of failure are certainties and thinking that success is easy just cause its visible is a facade that is hiding all the chances of failure and consequence which you could more closely relate to than success.
Instead, be aware of broad patterns and less on individuals.
Risk and luck definitely play a factor. Even if we are blinded by the success of certain individuals.
“Success is a lousy teacher. It seduces smart people into thinking they can’t lose” ~ Bill Gates
You are not invincible. If you acknowledge that success was luck, then you will believe in luck’s cousin, risk.
Failure can also be a lousy teacher, seducing smart people into thinking their decisions were terrible when sometimes they just reflect unforgiving realities of risk. The cost of a risk sometimes involves more than just capital loss, it may be a long term cost on your mental game, that crushes you and makes you anxious [of the market or your assets plummenting and never returning]. When failure just means you need to rearrange your financial goal such that a missed goal wont wipe you out so you can keep playing the odds until it falls back in your favor.
Nothing is as good and as bad as it seems.
Hardest financial goal is to get the goalpost to stop moving. Knowing what is enough and learning to live within those means. To turn off social comparison, thinking enough is too little if someone else has this shiny thing as well. There are many things not worth risking, no matter the potential gain.
That’s the book in a nutshell, this one understanding that takes a life long discipline to acquire.
Confounding compounding. Most of Warren Buffett’s wealth came after his 65th birthday. Understanding that placing something into the right place and waiting, the art of waiting on it, is probably the right and best choice. And not getting caught up in striking rich here and now and quickly.
Our minds are not built to handle the absurdities of knowing all that ROI could all come at the very end.
Good investing isn’t necessarily about earning the highest returns, because highest returns tend to be one-off hits that don’t repeat. It’s about earning pretty good rturns that you can stick with, repeated over a long period of time. That’s when compounding runs wild.
Staying wealthy is more important. To be unbreakable financially is most important, so you can stick around long enough to make the compounding work.
Planning is important, to plan for it to not go according to plan. To plan for the emergencies and the things going wrong, so you surive. Survival is the key to being wealthy.
A barbelled personality to be optimistic about the future but to be paranoid about what will prevent you from getting to the future.
You can be wrong half the time and still make a forture.
It’s not whether you’re wrong or right that’s important, but how much money you make when you’re right and how much money you lose when you’re wrong. ~ George Soros
Controlling your time, having control over your time is the highest dividend money pays. It is critical to live in a way such that the money you have helps you harness your own time and how you want to spend it. That freedom is the best dividend.
No one cares what riches you display, all you need to know is that if you spent money on a fancy car, you are that full fancy car poorer than you were before.
If you are meant to not spend your money, what is the purpose of having money. It is to save it and save more of it.
Building of wealth has little to do with how much you earn, but with how much your savings rates are.
The value of wealth is relative to what you need.
Past a certain level of income, what you need sits just below your ego.
People’s ability to save is more in their control than they think.
You need not a specific reason to save.
Flexibility and control over time is an unseen return on your wealth.
That hidden return has become more important over time — especially nowadays.
Reasonable is more essential than being rational. Being rational may push you past your comfort or your needs/wants bound, whereas if you are reasonable, usually this is enough and sufficient and no point in trying to get more out of your money than that.
History shows the correct lesson to learn from surprises is that the world is surprising and to plan for that.
History is a misleading guide. The further you look back, the more it is irrelevant to today. Things simply changed and things that affect and factor in today were non-existent then but essential to know of today. The further back you go, the more general you can have a takeaway. History has shown people’s greed or fear, how they behave under stress, is comparable to today. But the markets today are not comparable to the past. So it is near impossible to predict the future with them.
Leave room for error.
Avoid the extreme errors of financial goals (overspending, overinvesting, underspending, underinvesting).
Accept reality that we will change our minds on our goals and needs.
Nothing is free, there are always hidden costs and not all costs are in the form of currency.
If you view the actually price of admission, you recognize what you need to pay in order to get what you need. Find the price and pay it.
Beware of taking financial cues from someone playing a different game than you. If your investment is for 30 some years for a specific reason, beware some advice out there is for less years for other reasons, etc.
Money is ubiquitious. One bad thing happening tends to affect everyone and capture everybody’s attention.
Pessimists often extrapolate current trends without accounting for how markets adapt.
Progress happens too slow to notice, but setbacks happen too fast to ignore.
The more you want something to be true, the more you’ll believe a story that underestimate the odds of it being true. aka, confirmation bias.
Everybody has an incomplete view of the world. We form a complete narrative to fill in those gaps to convince ourselves we see it all. It rationalizes and stabilizes our mind and convinces we know our place and how things work.
When planning we focus on what we want to do and can do, neglecting the plans and skills of others whose decisions might affect our outcomes.
Both in explaining the past and predicting future, we focus on the casual role of skill and neglect the role of luck.
We focus on what we know and neglect what we do not know, which makes us overly confident in our beliefs.
Go out of your way to find humility when things are going right and forgiveness/compassion when they go wrong.
Less ego, more wealth.
Manage your money in a way that helps you sleep at night.
If you want to do better as an investor, single most powerful thing is to increase your time horizon. Just wait longer.
Become OK with lot of things going wrong. You can be wrong half the time and still make a fortune.
Use money to gain control of your time.
Be nicer and less flashy. Save Just save, no reason needed.
Define cost of success and be ready to pay it.
Worship room for error.
Avoid extreme ends of financial decisions.
You should like risk because it pays off over time.
Define the game you’re playing.
Respect the mess.
Author admits he is quite boring investor, sticks to safe bets, even goes into mutual funds. Why risk it all in the open? He lives within his means, doesn’t try to overinvest to multiple places, sticks to what is reliable even if he knows more and is aware of other opportunities. And just lives frugal, knowing his long term plan will work out even if his mind were to change, even though it hasn’t much.
The author’s final chapter in the book was about how our expectations and reality of the middle class remain close to the upper class in expectation, but far from the upper class in reality. And the anger and frustration of the middle class stems from not accepting that those differences had always existed and are only widened now since the end of WWII to a point of no seeming return. It is not about what is morally right or wrong in that, it is only that this is a fact. To feel you can be almost as great as the upper class without actually being there is only possible if the economy is swinging so well that that is possible.
