The Psychology of Money.
This book written by Morgan Housel seemed interesting to me because of the title. As an aspiring psychologist, I often find myself reading varied articles and being curious about things connected to psychological concepts. Personally, money is a necessity, a key to financial independence, and a way to live a comfortable life. I see, many young people of my generation being aware of stocks and mutual funds- and while that is good, I don’t have much idea. I have realized that many people have different ways of looking at investment. Therefore, I felt the need to give this book a read and see if the insight will be of any use to me.
Well, the book is surely useful and full of lessons! Here are 5 of my favorite lessons:
Sometimes you need to be reasonable rather than being rational: People’s perceptions towards finance and investment are determined by their socioeconomic status, financial or economic crisis, sociopolitical climate. What works for you might not work for me. Investing your money implies sailing through the uncertain times and being hopeful of things taking a turn. And while strategies seem appealing, they can’t be implemented all the time if doing so keeps your family at stake.
Staying wealthy is the key: People have the urge to spend money on things to show off their wealth and this isn’t the key to stay wealthy. Saving money, living below your means, and spending money on things that should matter is the key to freedom and flexibility.
You should know that you don’t know: Our perceptions are created based on our experiences but that doesn’t mean we are aware of the complete picture. Therefore, we tend to build narratives to make sense of the world we live in to connect the dots. And this can sound deep but it is true- a lot of things aren’t in our control.
Tails drive everything: The author is implying that major, influential events (extreme outcomes) that change the course happen very rarely, and these are tail events. And while these events are undoubtedly appealing, we need to realize that regular losses and speed breakers are a part of the game. We focus on the outcome but fail to see how we arrived at those outcomes i.e. frequent losses.
Luck and risk will play a role: It can be difficult to navigate if the experiences we face are due to luck or risk. Two people can take the exact decisions but the consequences can drastically vary. This should be noted while investing because we can’t be 100% sure of what will happen next.
I had a good time reading this book but here’s a few things I want you to take note of:
Cultural context: The book has mentioned many financial and historical events of the U.S. and so the cultural context will be a bit challenging to understand.
Technicality: I have to be honest with you, the book gets too technical in some chapters and it becomes difficult to understand concepts. For someone who is not from a finance background, you might have to ask your peers, family members to explain or google concepts to understand better.
Examples all the way: The book is loaded with a lot of examples about things about different fields which helps you to understand the key concepts more simply.
Time-consuming: I couldn’t finish the book at a stretch. Occasional breaks helped me to make the reading experience more interesting. Underline, write or highlight the pointers- doing so is important and worth it.
Summary: The book has summarized essential points after the 20 chapters. But still, go ahead and read the entire book!
In conclusion, I liked the book but I intend to read this again in the future. The concepts are so good that making a note of them can act as a reminder whenever you decide to take investment decisions.
You can buy the book here.
Kindly Note: The views and opinions expressed in this article are those of the authors, not Limelighting Life Collective.
Author, Madhura Bilimogga For Limelighting Life Collective