Lessons from the Psychology of Money

On the recommendation of many of my friends and colleagues, I read The Psychology of money By Morgan housel recently. I am no book reviewer by any means but would like to share some thoughts on the book as it had a profound effect on my thoughts about money as a medium of happiness. 

As the author states, most of our financial decisions though taken after some quantitative analysis, but there is an element of psychology that plays a role in how we think about money. In the words of the author:

“Few people make financial decisions purely with a spreadsheet. They make them at the dinner table, or in a company meeting. Places where personal history, your unique view of the world, ego, pride, marketing, and odd incentives are scrambled together into a narrative that works for you.”

Few lessons which I would like to share with my connections which I feel are important when managing money:

1. Doing well with money has little to do with hard skills and more to do with the respect we give to the thought of using it:

The author states a sense of frugality is needed to succeed with money. Saving helps create a safety net that allows us to take calculated risks and do due diligence before jumping on the bandwagon. Without the safety net, we are forced to take whatever the situation throws at that very moment.

2. The power of compounding:

The power of compounding cant is overstated. Compounding is necessary for every aspect of life be it Exercise, Investing, Career, Education, etc. The author mentions how compounding works as a maximum force when undertaking any investment or any activity. As we forget time is the most powerful variable in the formula of compound interest. 

3. The importance of luck :

The author states that there is a luck factor that might be in play, so we need to be humble and still live in a way in which we are cognizant of the fact and tread carefully.

I will continue reading some good books and share some valuable learnings with my connections. 

Would love to hear from you any lessons from the Psychology of money that created a lasting impact on your thoughts about how you deal with personal finance.