Book Review: The Psychology of Money by Morgan Housel
Advice I didn’t know I needed.
The number of discussions around money is infinite. Almost of all of us chase money or what it brings to us, but it is surprising that we don’t evaluate our behavior with respect to it. This book aims to bridge that gap, and does it incredibly well.
Doing well with money isn’t necessarily about what you know. It’s about how you behave. And behavior is hard to teach, even to really smart people.
The author begins with a story comparing two very different individuals — Ronald Read, who fixed cars and died a millionaire, and Richard Fuscone, a Harvard-educated Merrill Lynch executive with an MBA, who had a successful career but was left bankrupt in the end. This sets the premise about the book — doing well with money is more about behavior than skill. What follows are eighteen short points about the various facets of dealing with money.
I particularly resonated with one often overlooked point — each of us views money in a way that’s unique to us. This perspective is shaped by the conditions we grew up in and what we’ve experienced in life, so it is not fair to judge people for the decisions they make about money without seeing the complete picture. This, to me, made all the difference. Every other book aims to teach you tricks, or give you aphorisms to live by without considering if it even applies to your situation. However, the author from the very outset asks you to take control by understanding the basics, evaluating your needs and situations and then choose what’s best for you.
But good investing isn’t necessarily about earning the highest returns, because the highest returns tend to be one-off hits that can’t be repeated. It’s about earning pretty good returns that you can stick with and which can be repeated for the longest period of time. That’s when compounding runs wild.
We are shown the wonders of compounding and also that the magic works when we wait long enough — $80 billion of $81 billion that Warren Buffett was worth was accumulated after he turned 65 years.The author also talks about saving without a goal, because the effect is two-fold — you hedge against the uncertainty of the future and also learn to live with less. We are also warned of how we cannot possibly differentiate between getting lucky or making a shrewd decision.
All these, and more, help us understand how we react to money and the emotions that we attach to it. Reading this helped me take a step back and observe and I can safely say that I’m more aware of the way I react towards money now.
The biggest takeaway from this book is surprisingly not about money but about how we can be happier — it’s statistically proven that people are happier when they are the drivers of their life. Being financially sound helps us make decisions that are not controlled by the urge to make money, it would give us more choices in life and hence more freedom. This is the highest dividend that we get from money.
This book gave me a road map to think about what I want, how comfortable am I with change, what pitfalls I might encounter and how I could avoid them. All of this without throwing a lot finance or economics related terms at me.
Who should read this book?
This is the kind of book that comes under the must-read category. It’s a mirror to our various fears, worries, hopes and plans. It’s a big brother advice on how we can make the most out of life with so much unpredictability, while being as comfortable as possible.
You can read the summary of the book here — https://link.medium.com/1nm2TGaSIfb
