Book summary: The Psychology of Money key takeaways

This week is book club week and what a perfect time for me to share my own key takeaways! Also for those joining the event but haven't read the book, there you go...thank me later! Enjoy!

Introduction

We are taught about money in ways that are too much like physics (with rules and laws) and not enough like psychology (with emotions and nuance). It’s time to change our perspectives. There’s a lot of influencing factors when it comes to the understanding of money. 2 people will view life experiences differently.?

Chapter 1

We see the world through different lens. Money means different things to different people. How I perceive money as a Zimbabwean born in the family I was born will differ from how another person may perceive money. My upbringing and previous life experiences will affect how I save and invest.?

Chapter 2

Not all success is due to hard work and not all poverty is due to laziness. We tend to focus too much on the extreme successful and the extreme unsuccessful but that’s not a good measure when you want to learn about money and finances because peoples situations and circumstances are largely due to risk and luck. This is humbling because whenever things start going well, keep alert because it can easily switch on you. Learn with a broad perspective, there’s no black and white ruler of financial success tools.?

Chapter 3

There is no reason to risk what you have and need for what you don’t have and don’t need. Life isn’t any fun without a sense of enough. Happiness = Results - Expectations. Social comparison will leave you discouraged. Accept that you might have enough, even if it’s less than those around you. Determine your enough. Stop trying to keep up with other peoples wealth. Enough is not too little. Enough is realizing that an insatiable appetite for more will push you to regret. People end up burning out at work just because enough is not enough. Know what’s invaluable - things that are not worth risking, no matter the potential gain:

- reputation?

- Friends and family?

- Freedom?

- Independence?

- Being loved by those who you want to love you?

- Happiness?

Stop taking risks that might harm these things. Know when you have enough.?

Chapter 4

From the ice age illustration: something big can grow from a relatively small change in conditions. You don’t tremendous force to create tremendous results. Something that compounds (like money) a little growth serves as the fuel for future growth. Good investing isn’t about earning the highest returns, but pretty good returns that you can stick with and which can be repeated for the longest period of time.?

Chapter 5

Getting money is one thing. Keeping it is another. The two are two different skills. Yesterday’s success does not translate to tomorrow’s good fortune. Money success = survival . The ability to stick around for a long time should be your strategy.?

Planning is important, but the most important part of every plan is to plan on the plan not going according to plan. A good plan emphasizes room for error. I liked also the concept of a barbelled personality- being optimistic about the future but concerned of how the future will turn out.?You make wiser decisions in risk taking.

Chapter 6

Anything that is huge is usually the result of a tail event. Definition of an investing genius: someone who can do the average thing when all those around them are going crazy. It’s normal for lots of things to go wrong, break, fail and fall. No one makes good decisions all the time. We tend to only see the finished product, not the losses incurred that led to the tail success product. Our failures are a big part of our stories.

Chapter 7

Freedom. Closest definition of happiness is people having control of their lives. Money’s greatest value is to give you control over your time. While people are now richer, they are less happy because we are now always at work. Always thinking of business solutions mentally. What people consider happiness :

- quality friendships?

- Being part of something bigger?

- Quality family time

The goal therefore is to have money that allows you to have the above ?????

Chapter 8

Assets - we tend to think if we acquire expensive rich assets people will think we are smart, rich and important. And that people will respect and admire us. Which is false because people rarely look at the person but they start actually thinking of themselves with the asset. What brings more respect is humility, kindness and empathy.

Chapter 9

Wealth is what you don’t see. Rich is current income. Wealth is income not spent. The value of wealth lies in offering you options, flexibility and growth to one day purchase more stuff than you could right now. It’s easy to find rich role models but harder to find wealthy ones because their success is more hidden. It takes a lot of restraint to be wealthy. It’s hard for many to build wealth because it’s difficult to learn from what we can’t see (wealth !) the irony!! The world is filled with people who look modest but are actually wealthy and those who look rich but are on the edge. We must be woke before we judge people.?

Chapter 10

Your ability to save is more in your control than you might think. One of the most powerful ways to increase your savings is to raise your humility. Savings can be created by spending less, desiring less and caring less about what others think of you. You don’t need a specific reason to save. Having savings gives you options and flexibility. The opposite: when you don’t have control over your time, you are forced to accept whatever is thrown your way. The hidden (unseen) return in wealth gives you flexibility and freedom.

Chapter 11?

The more reasonable you make your financial decisions, the better chance you have committing to them in the long run. A rational investor makes decisions based on numeric facts whereas a reasonable investor makes decisions that minimise future regret. Investing has a social component that’s often ignored rationally. You are more likely to stick to investing in a company passionate about even in tough seasons when rationally it makes sense to leave. People find it more reasonable to invest home as opposed to other countries.

Chapter 12

History is not a map of the future. The most historic events which shaped the now financial market were outliers - meaning they were surprises and they are less likely to ever occur again. That means we can’t always predict our financial future based on previous incidents.?

Chapter 13

When planning always give yourself room for error. You have to plan on your plan not going according to plan, you must leave room for error - margin of safety. This gives you endurance which helps you stick longer than you would have. I liked the point of optimism bias in risk-taking. You have to take risks to get ahead, but no risk that can wipe you out is ever worth taking. You CAN NOT be relying on a single income now with no savings. Your future is unknown.?

Chapter 14

Long term planning is essential but you need to understand that you change and your desires change. This makes planning harder than it seems. Avoid extreme ends of financial planning otherwise you could end in regret which may feel like you lost time. Give your plan decades to grow. Endurance is key. At every point in your working life, aim to have:?

- moderate annual savings

- Moderate free time?

- Moderate commute

- Moderate family time?

Accept the reality of your mind changing and move on as soon as possible.?

Chapter 15

This chapter strongly reminds me of the quote that says “to make money you need to spend money”. Return on investment is never free and will never be. Volatility and uncertainty will always have a fee attached to it. And you can’t expect to enjoy the return of investment if you haven’t paid the fee.?

Chapter 16

Know which financial “game” you are playing and stick to it. Be careful of making decisions that copy what other people are doing. Though you can see their purchases, you don’t know their goals, worries and aspirations. Don’t just blindly follow investment trends, these could be bubbles which can damage your portfolio when they burst.

Chapter 17

I loved this chapter and I found it interestingly true. We tend to pay attention and action on negative news than we do positive news. I took this chapter less as a money chapter and more as a life lesson. Goodwill is built over years and reputation can be destroyed in a day. I love Stephen Hawking (whom I have seen in real life MHSRIP)?train of thought to reduce expectations which in turn allows you to appreciate everything. Pessimism makes you more alert to the decisions you need to make.

Chapter 18

When we want something to be true we tend to believe anything that’s linked to the desired outcome. Everyone had an incomplete view of the world - we don’t know what we don’t know. We are all at risk of falling victim to an appealing financial fiction. My key takeaway is that when you start a project, while you might forecast on its potential success, be prudent to know that anything can happen. Unlike NASA engineering, the world of financial investments can be unpredictable.?

Chapter 19

I loved this final summary! So precise!?

No one can tell you what to do with your money! Be humble. Save money. Be at peace with your financial decisions. Be patient. Accept failure. The goal is independence. Be kind. Life has surprises. Nothing is free. Endurance. Don’t be extreme. Take risks with caution. Know your game. Do what works for you.