The Psychology Of Money Book Review

The Pyschology of Money Book Reveiew

The book “The Psychology of Money” is a masterpiece that highlights the most common mistakes people tend to make with money.

Even though we came from different places, different regions, and different financial backgrounds, still when it comes to handling money, we behave the same way.

So handling money is an evident skill; in other words,

Appropriately handling money is a life skill, which everyone needs to learn.

We need to handle the money in 3 stages

1. When we have no money.
2. When we have Little money.
3. When we have lots of money.

Literally every stage of our life, that’s why it's called a life skill.

If we close our eyes and go backward for few years, we would never find any situation where we thought money managing skill or personal finance in a way we should.

Due to this, we hypnotize ourselves and created a single dimension view for money, which is earning money.

But money has multiple dimensions, and we need to be experts, or at least we should be good at each dimension.

Dimensions of Money

3 Dimensions of money:

1. Earn money (From more than one source of income)
2. Protect money (Saving the money)
3. Grow money (Invest money)

This book explains the third dimension, smart ways to grow money.

Before we learn the third dimension, I would like to share a few gists about the first 2 dimensions with the knowledge I have.

Earn Money:

Earning money should not be a depend on single source of income. Ideally, we should have different sources to earn money, even it is significantly lower than your salary.

Earn Money With Multiple Sources

Depending on a single source of income is like taking a single lifejacket and trying to swim the entire pacific ocean. Just imagine how stupid it is.

Protect money:

Protecting money means we should save our earnings. In any situation, we need to save some portion of money from our earnings.

To the people who say it’s hard to save money, I would like to share a very simple rule. You can consider it as the golden rule for saving.

Save first, Spend next.

I hope, earn money and protect money straighten up and logical. Now let’s move to the third dimension to grow money.

This book talks mainly about this topic in detail.

Prerequisite before reading this book:

You need to have at least a basic understanding of the stock market, finance, and a few basic terminologies to get key insights from the book.

Such as,

• Short Selling: Believing that asset class price will fall from the time you sell it. You need to buy again to make a profit.
• Long Position: Believing the asset class price will increase from the time you brought it. You need to sell again to make a profit.
• Inflation Rate: The rate at which CPI (Consumer price index) increases. In simple terms, the change in the price of a product/good year to year. Let’s say you brought a product at 100 rs in the year 2020, the same product price increased, and in 2021 is 108 rs. In this case Inflation rate is 8%. Generally, the inflation rate will be in the range of 6 to 8 %.
• S&P 500: This is a stock market index to measure the 500 top companies' performance.
• Dot-com bubble: The rise of internet usage, which leads to companies going online and unexpected rise the related stocks.

In short:

The key summary points from the book for growing money.

• To get fruitful compounding growth for your investment, invest for a very long time.
• Invest in the market leader stocks, don’t fall trap for the penny stocks and TV anchor based investments.
• Don’t try to time the market. Invest in different sector stocks. Always consider the cumulative growth of your investment portfolio, not the individual stocks.
• Prepare mentally that 50% of the time, stocks go opposite to the direction you expected to go. Even in those cases, you will also make a decent profit with other 50% of stocks going in the direction you expected to go. Learn to lose money.
• Don’t find a reason to save money, Just save.
• Always prepare for the odd events, have enough money to handle them.

Rating: 4 (out of 5)

Even it is suggested that this book is for everyone, I feel the concepts and key insight make sense for the people who know the stock market and who regularly invest in stocks.

Below are highlights noted while I am reading the book.

1. A genius is a man who can do the average thing when everyone else around him is losing his mind.
2. Behaviour is hard to teach, even to really smart people.
3. When things are going extremely well, realize it’s not as good as you think.
4. A genius who loses control of their emotions can be a financial disaster; the opposite is also true.
5. History never repeats itself. Man always does.
6. Imagine how much harder physics would be if electrons had feelings.
7. The most important part of every plan is planning on your plan, not going according to plan.
8. We all think we know how the world works. But we’ve all only experienced a tiny sliver of it.
9. Some lessons have to be experienced before they can be understood; we are all victims, in different ways, to the truth.
10. Nothing is as good or as bad as it seems.
11. Luck and Risk are siblings, they are both the reality that every outcome in life is guided by forces other than individual effort.
12. Not all success is due to hard work, and not all poverty is due to laziness. Keep this in mind when judging people, including yourself.
13. Success is a lousy teacher, and It seduces smart people into thinking they can’t lose.
14. There is no reason to risk what you have and need for what you don’t have and don’t need.
15. Life isn’t any fun without a sense of enough. Happiness, as it’s said, is just results minus expectations.
16. Don’t get too attached to anything.
17. The big takeaway from ice ages is that you don’t need tremendous force to create tremendous results.
18. Good investing is not necessarily about making good decisions, and It’s about consistently not screwing up.
19. Getting money is one thing; keeping it is another.
20. If I had to summarize money success in a single word, it would be survival.
21. Getting money and keeping money are two different skills.
22. You can be wrong half the time and still make a fortune.
23. It’s not whether you’re right or wrong that’s important, how much money you make when you're right and how much you lose when you’re wrong.
24. Controlling your time is the highest dividend money pays.
25. The highest form of wealth is the ability to wake up every morning and say, “ I can do whatever I want today.”
26. Retiring when you want to, instead of when you need to.
27. Controlling your time is such a key happiness influencer.
28. No one is impressed with your possession as much as you are.
29. Humility, kindness, and empathy will bring you more respect than horsepower ever will.
30. Spending money to who people how much money you have is the fastest way to have less money.
31. If you spend money on things, you will end up with the things and not the money.
32. The way to be rich is to spend money you have and to not spend money you don’t have. It’s really that simple.
33. The problem for many of us is that it is easy to find rich role models, but it’s harder to find wealthy ones because, by definition, their success is more hidden.
34. Every bit of saving is like taking a point in the future that would have been owned by someone else and giving it back to yourself.
35. History is the study of change, ironically used as a map of the future.
36. Things that have never happened before happen all the time.
37. Long-term planning is harder than it seems because people’s goals and desires change over time.
38. Compounding works best when you can give a plan years or decades to grow.
39. Most things are harder in practice than they are in theory.
40. Progress happens too slowly to notice, but setbacks happen too quickly to ignore.
41. Expecting things to be bad is the best way to be pleasantly surprised when they’re not.
42. Good decisions aren’t always rational. At some point, you have to choose between being happy or being right.