Insight summary about “Psychology of Money”

5 min readJun 18, 2022

Psychology of Money is a Softskill, that describes it more Important of how you behave rather that What you know about Money.

No one’s crazy

We all have our own unique experiences about dealing with money & we make financial decisions based on those experiences.

Stop dragging yourself into the competition of getting more -& more- rich by utilizing money.
once your finance is enough for you, don’t try to beat someone in form of wealth.

Warren Buffet's net worth is $84.5 billion of that $84.2 billion was accumulated after his 50th birthday.
when compounding isn’t intuitive we often ignore its potential & focus on solving problems by other means.

Good Investing is not necessarily about making good decisions. It’s about consistently not screwing up.
People try to get wealthy but not to stay wealthy.
Compounding only works if you can give years to grow your asset.

The success of a product/person comes from their small asset
warren Buffett’s 400–500 stocks are worth less than 10–20 stocks, that worth more than enough to drive the entire STOCKS of buffets.
Your success as an investor will be determined by how you respond to punctuated moments of terror, not the years spent on cruise control.

Controlling your time is the highest dividend money pays.
The common denominator of success is one’s satisfaction or happiness.
The most successful people are free with money, they can do what they want to do, how they want to do it & for as long as they want to do it.

Spending money to show people how much money you have is the fastest way to have less money.
People try to be rich but not wealthy, there is a big difference.
Rich is a current income but wealth is hidden. Which gives you more flexibility to have control of your money.
There is no faster way to feel rich than to spend lots of money on really nice things. But the way to be rich is to spend money you have, & not to spend money you don’t have.
The problem For many of us is it is easy to find rich role models. It’s harder to find wealthy ones because by definition their success is more hidden.

There are 3 types of people
The one who saves money
the one who doesn’t think he can save
& the one who doesn’t want to save
Saving can be created by spending less, you can spend less if you desire less & you will desire less if you care less about what others think of you.
Spending beyond a pretty low level of materialism is mostly a reflection of ego approaching income, it's a way to spend money to show people that you have money.
If you have the flexibility you can wait for good opportunities, both in your career & in investments. You’ll have a better chance of being able to learn the skills & less urgency to chase competitors.

Do not aim to be coldly rational when making financial decisions. Aim to be reasonable.
reasonable is more realistic & you have a better chance of sticking with it for the long run, which is what matters most when managing money.
Day trading & picking individual stocks is not rational for most investors — the odds are heavily against your success.

History is full of surprising events.
History in finance helps us to understand or give a rough guide of what tends to work & where people did go wrong, but it is not the map of the future.
Investment & finance is not a hard Science so it can replay every time.
Example: Doctors describe how the human heart works, this was the same working of the heart in 1020 as of 2020.
History can be a misleading guide to the future of the economy & stock market because it doesn’t account for structural changes that are relevant to today’s world.
That doesn’t mean we should ignore history when thinking about money. The further back in history you look, the more general your takeaways should be.
Things like people’s relationship to greed & fear, how they behave under stress, & how they respond to incentives can be taken into account.

Room For error is a game of odds not certainties, but bet too heavily even when odd seem in your favor you have created a room for error.
The margin of Safety — you can also call it room for error.
The margin of Safety is a Simple suggestion that we don’t need to view the world as black or white, it is the grey area where a range of potential outcomes is acceptable.
Room For error lets you endure a range of potential outcomes, & endurance lets you stick around long enough to let the odds of benefiting from a low-probability outcome fall in your favor.
A good rule of thumb for a lot of things in life is that everything that can break will eventually break. So if many things rely on one thing working, & that breaks, that’s a single point of failure.
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 & what they might be in the future.

Imagining a goal is easy & fun. Imagining a goal in the context of real-life stresses that grow with competitive pursuits is something entirely different.
we should avoid the extreme ends of Financial planning.
Assuming you’ll be happy with a very low income, or choosing to work endless hours in pursuit of a high one, increases the odds that you’ll one day find yourself at a point of regret.
we should also come to accept the reality of changing our minds
long-term financial planning is essential. But things change over time & your own goals & desires also change.

Originally published at http://clucth.code.blog on June 18, 2022.