PSYCHOLOGY OF MONEY

INTRODUCTION-

The Psychology Of Money by Morgan Housel has become a quite talked-about book amongst all "bookstagrammers" and that pushed me to read it too. Let me tell you that it is not a feel-good finance book that tells you all impractical stuff. The book examines personal finance through the lens of human behavior and human psychology and that's why it's different! 

Housel’s focus is the relationship between people and money—with particular emphasis on the human variable of the equation. So let me give you some major takeaways from this book.

1. No One’s Crazy

People do some crazy things with money. But no one is crazy. Here’s the thing: People from different generations, raised by different parents who earned different incomes and held different values, in different parts of the world, born into different economies, experiencing different job markets with different incentives and different degrees of luck, learn very different lessons. In theory, people should make investment decisions based on their goals and the characteristics of the investment options available to them at the time. But that’s not what people do. The economists found that people’s lifetime investment decisions are heavily anchored to the experiences those investors had in their own generation-especially experiences early in their adult life.

2. Luck & Risk

Luck and risk are both the reality that every outcome in life is guided by forces other than individual effort. They are so similar that you can’t believe in one without equally respecting the other. They both happen because the world is too complex to allow 100% of your actions to dictate 100% of your outcomes. Be careful whom you praise and admire. Be careful whom you look down upon and wish to avoid becoming. Or, just be careful when assuming that 100% of outcomes can be attributed to effort and decisions.

3. Never Enough

Social comparison is the problem here … The point is that the ceiling of social comparison is so high that virtually no one will ever hit it. This means it’s a battle that can never be won, or that the only way to win is to not fight to begin with—to accept that you might have enough, even if it’s less than those around you. Life isn’t any fun without a sense of enough. Happiness, as it’s said, is just results minus expectations.

4. Confounding Compounding

If something compounds—if a little growth serves as the fuel for future growth—a small starting base can lead to results so extraordinary they seem to defy logic. It can be so logic-defying that you underestimate what’s possible, where growth comes from, and what it can lead to.$81.5 billion of Warren Buffett’s $84.5 billion net worth came after his 65th birthday. Our minds are not built to handle such absurdities.

5. Getting Wealthy vs. Staying Wealthy

Getting money requires taking risks, being optimistic, and putting yourself out there. But keeping money requires the opposite of taking risks. It requires humility, and fear that what you’ve made can be taken away from you just as fast. It requires frugality and an acceptance that at least some of what you’ve made is attributable to luck, so past success can’t be relied upon to repeat indefinitely. The ability to stick around for a long time, without wiping out or being forced to give up, is what makes the biggest difference. This should be the cornerstone of your strategy, whether it’s in investing or your career, or a business you own. There are two reasons why a survival mentality is so key with money. One is obvious: few gains are so great that they’re worth wiping yourself out over. The other is the counterintuitive math of compounding. Compounding only works if you can give assets years and years to grow.

6. Man in the Car Paradox

There is a paradox here: people tend to want wealth to signal to others that they should be liked and admired. But in reality, those other people often bypass admiring you, not because they don’t think wealth is admirable, but because they use your wealth as a benchmark for their own desire to be liked and admired.

7. Wealth is What You Don’t See

We tend to judge wealth by what we see because that’s the information we have in front of us. We can’t see people’s bank accounts or brokerage statements. So we rely on outward appearances to gauge financial success, Cars, Homes, Instagram photos. Modern capitalism makes helping people fake it until they make it a cherished industry. The truth is that wealth is what you don’t see. Wealth is the nice cars not purchased. The diamonds not bought. The watches not worn, the clothes forgone and the first-class upgrade declined. Wealth is financial assets that haven’t yet been converted into the stuff you see. That’s not how we think about wealth, because you can’t contextualize what you can’t see.”

8. Nothing’s Free

Everything has a price, and the key to a lot of things with money is just figuring out what that price is and being willing to pay it. The problem is that the price of a lot of things is not obvious until you’ve experienced them firsthand when the bill is overdue.”Most things are harder in practice than they are in theory. Sometimes this is because we’re overconfident. More often it’s because we’re not good at identifying what the price of success is, which prevents us from being able to pay it.”

Like everything else worthwhile, successful investing demands a price. But its currency is not dollars and cents. It’s volatility, fear, doubt, uncertainty, and regret—all of which are easy to overlook until you’re dealing with them in real-time.

CONCLUSION-

Although, the book explores various other aspects of creating wealth. These are the 8 key takeaways that I feel that one must keep in mind while investing in the markets & not only investing how's our relationship with money. Hope you gained some knowledge and came to know the overlap of human psychology and how we function with money and liked reading it. If you did, don't forget to like and spread this with your friends!