The Psychology of Money

Sharing my learnings from the book,  The Psychology of Money by Morgan Housel

The Psychology of Money by Morgan Housel

In The Psychology of Money, award-winning author Morgan Housel shares 19 short stories exploring the strange ways people think about money and teaches you how to make better sense of one of life’s most important topics.

• Morgan Housek argues that the human factor (relationship between real people & their money) is key to understanding financial decision-making
• Everyone has their own experience of the economy & money. We all like to think we know how the world works, but we usually only experience a small sliver of that reality. We know less than we’d like to think we do
• Personal experience drives financial decision-making.
• The economic concepts we use today are still historical infants.
• We often end up ignoring the role of luck when it comes to financial decision-making but that’s a mistake. As Nobel Prize-winning economist Robert Schiller put it, the exact role of luck in successful investing outcomes can’t be fully known.
• When it comes to money, we don’t just need to figure out what works and what doesn’t – we also need a way of building randomness into our models
• Stick to analyzing patterns of success and failure. The more common a pattern, the more likely that it’s applicable to your life and financial decisions.
• Capitalism is great at 2 things: generating wealth & envy. In capitalist terms, there’s nothing morally wrong with envy but envy can make you reckless. Envy drives bad calls and the cost of those calls is a lot higher than the gains you stand to make.
• making money is all about risk, optimism and courage. Keeping money is an entirely different psychological ball game. Staying rich means being humble. To keep what you already have, practice perseverance. When you’re scared of losing, you look at potential wins through a different lens.
• When you get a few things right, you can afford to get more things wrong. Failure is inevitable; what really matters is the nature of your successes.