The Psychology of Money Book Summary

Lessons on Wealth, Greed, and Happiness - Waller's Reading Room Book Summary

IT’S ALL ABOUT THE MONEY SOFT-SKILLS!

Welcome back Reading Fam! The Psychology of Money, written by Morgan Housel, reveals the critical role human behavior plays in money management and wealth creation. Traditionally, skills in the field of finance are thought of as hard-skills or technical knowledge. Housel explains, there is some foundational knowledge required, but in finance, your behavior and mindset around spending play a much larger role than financial acumen.

Money soft-skills (mindset and spending behavior) beat hard-skills (financial analysis and investing knowledge). He starts with a story about Ronald Read, a lower middle-class man with a humble occupation who lived his life frugally and invested in blue chip stocks. At the end of his life, he had a net worth greater than $5 million dollars. In comparison to business leader and Harvard educated Richard Fuscone, who made millions throughout his life but ended bankrupt with no income. The difference being, money soft-skills.

My Top Takeaways

#1 Luck and risk tolerance play a huge role in wealth creation.

Luck and risk are both the reality that every outcome in life is guided by forces other than individual effort. They both happen because the world is too complex to allow 100% of your actions to dictate 100% of your outcomes. - Morgan Housel

It is so tempting to believe that we are fully in control. We underestimate the role luck or lack thereof plays in our everyday success or misfortune. This is especially true regarding wealth creation. Housel talks about Bill Gates, who attended the only high-school with a computer in his entire state, likely region. Without exposure to early computer skills, “there would be no Microsoft”, Gates stated. Others take large risks, oftentimes breaking the law, to create extraordinary wealth. Vanderbilt and Rockefeller fall in this category.?

The key takeaway here is, always be apprehensive when analyzing a person’s success. Yes, hard work and dedication is necessary. But don’t underestimate the role of good fortune.?

The more extreme the outcome, the less likely you can apply its lessons to your own life, because the more likely the outcome was influenced by extreme ends of luck or risk. You’ll get closer to actionable takeaways by looking for broad patterns of success and failure. -Morgan Housel

#2 “Enough” is relative when it comes to money. Define “Enough” for you.

There is no reason to risk what you have and need for what you don’t have and don’t need.?-Morgan Housel

Housel makes a few points regarding contentment:

• The hardest financial skill is getting the goalpost to stop moving. When the average person earns more, they spend more and aspire for more “things” that reflect their new income level. These increased expectations and living expenses tend to keep people stuck and unable to save or invest for the future.
• Social comparison is the problem here. It’s difficult to be content when constantly comparing oneself to others. Stop comparing your situation to others. Most people are living a life they can’t truly afford.
• Enough is not too little. “Enough is realizing that the opposite - an insatiable appetite for more - will push you to the point of regret”.

There are many things never worth risking, no matter the potential gain. Don’t take risks that have a high likelihood of harming your reputation, freedom, family, or close friendships. It’s not worth it.?

#3 Autonomy of time is the ultimate goal?

The highest form of wealth is the ability to wake up every morning and say, “I can do whatever I want today". - Morgan Housel

The end-goal is freedom of choice. The ability to choose how you spend your time and energy is invaluable. It is wise to position yourself to be independent of outside factors that control your ability to choose. This may mean:

• Saving up so you can walk away from undesirable conditions at your choosing
• Creating a business that funds your lifestyle and hiring others to manage the day-to-day operations
• Choosing an occupation you enjoy, even if it’s for less money, while reducing living expenses

#4 Wealth is what you don’t see.

It is so ingrained in us that to have money is to spend money that we don’t get to see the restraint it takes to actually be wealthy. People are good at learning by imitation. But the hidden nature of wealth makes it hard to imitate others and learn from their ways.?- Morgan Housel

Real wealth is largely hidden. It is tied up in business shares, index funds, strategic real-estate, and other investment vehicles. Wealth is typically not held in fancy cars, jewelry, and other flashy items. Wealth is an option not yet exercised. It requires patience and self-control to build.

#5 Save, just because.

Building wealth has little to do with your income or investment returns, and lots to do with your savings rate. - Morgan Housel

You don’t need a reason to save. Housel encourages readers to save just because. The world is unpredictable, unexpected events can happen at any-time. It is best to be prepared. “Saving is a hedge against life’s inevitable ability to surprise the hell out of you at the worst possible moment”. The more you save, the more power you have over your time, and less dependent you become on sources of income.?“Past a certain level of income, what you need is just what sits below your ego”.

I’m all about striving and achieving, but materialism is never ending. It’s a game that can’t be won. Determine what you and your family need to live comfortably. “Flexibility and control over your time is an unseen return on wealth”. Savings increase flexibility.?

?Waller’s Reading Room Rating (W3R) for this book:

Purpose/Persuasiveness - Did the author convince me to adopt his/her point of view? - 5 out of 5 stars

Clarity/Conciseness - Does the author have well thought out and clearly articulated ideas without a bunch of fluff? - 5 out of 5 stars

Ideas/creativity - Does the author have a unique perspective and convey the message creatively? - 5 out of 5 stars

Total: 5 Stars

Purchase this book:?The Psychology of Money

Thanks for reading this edition of Waller’s Reading Room! If you enjoyed it or have thoughts, you can reply directly to this email and let me know. Don’t forget, I’m always taking recommendations, let me know what I should read next.

Upcoming book reviews, read with me:

• The Negotiating Game: How to Get What You Want

Yours Truly.

Omar Waller