Introduction

The Psychology of Money is a book that was recommended to me by the internet. I had seen YouTube videos and multiple ad’s online that described this book as being important in the financial space and for understanding your money. I personally found this book to be informational and well written, and to that I thank Morgan Housel (author). Though, this isn’t an extremely profound book and doesn’t provide much that you wouldn’t already know. My description of this book would describe it as one that reiterates what we all need to hear about finances. It reminded me of my father or some important father figure in my life telling me how to be smart. It may repeat things that you already know, but they are facts that you need to hear again and take into consideration at different points in your life.

Overall, I loved this book and think that it is a great start for learning how your emotions and events in your life can effect your financial decisions for good and bad.

Chapter By Chapter Breakdown

In this chapter by chapter breakdown I note the most important points that I found in each chapter which provides a insight into what the chapter was about. There are also some random points on facts that I thought were interesting and/or insightful.

Chapter One - No One’s Crazy

No One’s Crazy is a theme and a repeated phrase by Housel throughout this book. It takes on multiple meanings and is further explained. My gained definition of this phrase is that we all make financial decisions based off our own lives. No one is living the same life as me and I make the best decisions to benefit my life. Thus, what one person might seem crazy might seem right to me and make sense.

1. We live life with a set of views on money and how it works. This varies widely between people and not everyone thinks the same way about their finances.
   1. We all have different experiences.
2. One reason JFK (former President) wasn’t wanted as the president was because of his inexperience with the Great Depression. People thought that he was unfit to lead the economy because of this.
3. We all think that we know how the world works, but we have only experienced such a small sliver of it.
4. Lottery tickets are more indicative of the human mind than we think and here is one way that Housel described it. Lottery tickets are the only time that we have a tangible dream of a good life. We pay for the dream and not really for the ticket.

Chapter Two - Luck & Risk

General Description

Instead of focusing on exceptions, it is important to seek patterns in success and failure to better understand their causes.

1. Luck and Risk are opposite sides of the same coin.
2. Some very famous people were scams (i.e. Bernie Madoff) and operated outside the law but gained so much noteriety that they are still remembered today.
3. It is important to remember that not all success is hard work and not all poverty is because of laziness.
4. You want to look for patterns of success and failure, not one-offs.

Chapter Three - Never Enough

General Description

Money by itself may never provide you enough happiness, and risking more to chase money could provide you with more dissatisfaction and regrets. One must protect their money and don’t risk what you have for something that is uncertain. Some risks are just not worth taking.

1. There is no limit on what is “enough” money to you. What amount of money would actually make you happy?
2. Don’t throw away the money that you cannot lose.
   1. Don’t risk what you have for what you don’t have.
3. Modern capitalism generates wealth and envy.
4. An insatiable appetite for more only pushes you to regret. A good example of this is going to a Casino. Just be happy with what you win but sometimes that is really hard when you could win more. Then you lose it all.
5. Some things are just not worth risking. Don’t do it.

Chapter Four - Confounding Compounding

General Description

Start early and maintain consistency. This is a trait that sticks around throughout the whole book and is introduced here. Another quote that most people already know but it is good to hear it again. For a successful life and financial stability, the goal should be steady, reliable returns that be sustained over the long term.

1. Warren Buffet got so much of his success just from starting so young and having a good return over so many years.
2. We overlook the key drivers of success. Most would think that Buffet had amazing returns or the best that ever existed, but he didn’t. He had moderately good returns for so long.
3. What you reliably want for a good life and good money is a good return you can stick with and what can be repeated for the longest amount of time.

Chapter Five - Getting Wealthy vs. Staying Wealthy

1. Keep your wealth. Stay frugal and paranoid.
2. Earning money is one thing. Keeping it is another.
3. The Forbes richest 400 people has a 20% turnover per decade.
4. Keeping money is the oppoiste of risk. You should have humility and fear of losing your money.
5. Compounding money over time is so important and the safe option.
6. Be financially unbreakable no matter what happens.
7. Good returns that are not interrupted for the longest time will always provide the best results.
8. Plan on your plan not going to plan.
9. Keep up your margin of safety (be unbreakable).
10. Seeing things blakc and white is the easy way and to not accept nuance.

Chapter Six - Tails, You Win

General Description How you respond to challenges plays a critical role in shaping your outcomes. While we often see the end result, success is typically built on many failures along the way. Your success not only depends on h ow you win but also how you manage your losses.

1. Most companies fail. But the top one or two make all the difference.
2. How do you respond when things get hard? This determines your outcome in the situation.
3. We see the end, but not everything that leads up to it. Many failures to one’s success.
4. How much do you make when you win vs. how much do you lose when you lose? This determines your net money and assets.

Chapter Seven - Freedom

General Description

Happiness is closely tied to having control over your time, and money’s true value lies in granting that freedom. However, when work constantly occupies your thoughts, it can feel never-ending, even if it’s mental rather than physical labor. Structuring enjoyable activities too rigidly can diminish your sense of control and satisfaction.

1. One of the greatest controls on happiness is being able to control your time.
2. What amount of money lets you do you want, when you want?
3. Money’s greatest intrinsic value is control over your time.
4. Reactance - doing something you love on a schedule can make it something that you hate.
   1. This can make you feel disempowered.
5. Used to just work and labor on something. Now we use our head to think while we work.
   1. Work is constantly in our head so it never ends.
6. Kids don’t care about the money. They just want you to want them.

Chapter Eight - Man in the Car Paradox

1. We don’t really want that very expensive item. We want to be respected and admired, but we fail to realise that people just admire the expensive thing and don’t care about who is behind the wheel.
2. Humility, respect, and kindness will get you further than any horsepower will.

Chapter Nine - Wealth is What You Don’t See

1. We judge wealth by what we see, because that the information we have in front of us.
2. When you say that you want to be a millionare you are saying is that you would like to spend a million dollars. And that is the opposite of being a millionare.
3. Being rich is what people see, but being wealthy is hidden. Wealth is what people cannot see.
   1. Saving is hard and requires self-control. Having wealth is hard and requires self-control.

Chapter Ten - Save Money

General Description

When you care less about others’ opinions, your desires diminish.

1. Value of wealth is relative to what you need.
2. A powerful way to save is to raise your humility, not your income. Save more, you don’t need to make more.
3. You will desire less, the less you care about what people think of you.
4. Find a new routine, a slower pace, and think about life with a new set of assumptions.
5. Flexibility is what allows for opportunity.

Chapter Eleven - Reasonable > Rational

General Description

Not all decisions need to be perfect to be effective. Sometimes, the simpler strategy is better.

1. Don’t just be rational, be reasonable too. There is a difference.
2. Technically imperfect strategies are sometimes better because they are easy to stick to.
3. If you’re passionate about who you work for and love the mission, the bad times are blunted by the fact that you feel like you’re part of something meaningful.

Chapter Twelve - Surprise

1. We have such a reliance on past data that we base what we do financially on this data.
2. The world is always changing and economically it is never the same as what it once was.
3. The big outliers are what make all the changes and what causes change.
4. We can’t predict those outliers and they’re new each time. Can’t be based on past data.
   1. Here is also where I learned that Morgan Housel has a connection with Daniel Kahneman (another famous Author).
5. Housel has a nice excerpt about Benjamin Graham’s novel The Intelligent Investor.
   1. From this she descibes not to use Intelligent Investor as advice. Rather more of a wide exposure to the economy and its inner workings.
6. The further back that you look, the more likely you are to examine a world that no longer applies today.

Chapter Thirteen - Room for Error

1. Need to plan on your plan not going to plan. Give yourself room for error.
2. Margin of safety is important.
3. Pursure things where the range of the outcome is acceptable and you won’t lose it all.
4. Spreadsheets don’t take your feelings into account. They show the facts.
5. NO RISK IS WORTH LOSING IT ALL.
6. Avoid single points of failure. Have backups. One bad thing should not be enough to break you.
7. Save for things that you cannot possibly predict.

Chapter Fourteen - You’ll Change

General Description

We stuggle to predict who we will become or where we want to be in the future. Aim for moderation instead.

1. We are bad at forecasting who we are going to be when we get older.
2. We don’t really know today what we are oging to want for ourselves in the future.
3. What we should aim for in life is to be moderate.
   1. Moderate savings, moderate free time, commute, etc…
   2. It increases our ability to stick with a plan and avoid regret.
4. Accept change or be at a place where you can accept change and move on as fast as possible.

Chapter Fifteen - Nothing’s Free

General Description

Understanding your personal “price” involves considering not just monetary costs but also factors like fear, uncertainty, and regret. Attempting to avoid the initial cost of something can lead to paying more in the long run.

1. Every job looks easy when you’re not the one doing it.
2. What is your price? What is it worth to you? Not just money, but fear, uncertainty, regret, etc…
3. Trying to avoid the original price of something can lead to you paying double.
4. Volatility is a fee that comes with investing, not a fine. Those are two different things.
   1. You must convince yourself that this fee is worth paying for.
5. We must pay a price for everything.

Chapter Sixteen - You & Me

1. Some decisions might only seem greedy in hindsight.
   1. When we know the outcome.
2. Prices look different to everyone. Something cheap for you may be very expensive to someone else.
3. Always chasing profit. Those who day trade have a completely different way of trading.
   1. If you are not a day trader, do NOT trade like a day trader. These are two completely ways of investing and living.
   2. What may be good for one person does not mean it is good for another.

Chapter Seventeen - Seduction of Pessimism

1. Optimism is the belief that odds will improve over time, even with setbacks. It is not that everything will always be perfect. That is confusing two different things, optimism and complacency.
2. Pessimism is easier to listen to. It sounds smarter and more plausible.
3. Loss looms larger than gains. You are going to pay more attention to what you lose than what you win.
4. Issues with money are systemic and have become more systemic over time.
5. Extreme scenarios, whether good or bad, usually don’t stay that way for long. We as humans react and will react to those extremes.
6. Tragedies can happen overnight and miracles rarely do.
7. Growth requires compounding over time, but destruction can only take one failure.
   1. This can similarly be done with your career. It might take you a lifetime to build where you are in your career but one mistake to be destoryed.
8. Pessimism reduces expectations which makes it a pleasant surprise when things go well.

Chapter Eighteen - When You’ll Believe Anything

1. Many things in life we want to be true so we imagine that they are. We convince ourselves that what we desperately want to be true actually is true.
2. You might be telling a good story, but sometimes it just matters if other people around you want to believe it.
3. Making a bigger gap between what you want and need makes you more likely to accept a financial fiction.
4. We tell ourselves stories to fill in the gaps.
   1. We tell ourselves what we want to see.
   2. Imagine the truth that we can believe.
5. What happens in the world is out of your control.
6. Wanting to be in control is an emotional itch that we want to scratch.
7. We think we are so skilled and disregard luck playing a part into our successes.
8. Startups are usually not successful from the skill of those in the startup but usually because of the people that believe in them and fund their success.

Chapter Nineteen - Together Now

1. Doctors have changed how they treat. They used to treat diseases but now they treat the patient. They used to do whatever they could to save the patient, but now they have a list of possible remedies and the ones that you are most comfortable with. This is also because of the advancements that we have had in medicine too.
2. People can’t really tell you what to do with your money because they don’t know you and your financial portfolio.
3. Find humility when you’re doing good. Respect both luck and skill in your success.
4. Have a smaller ego. Your ego might make you look rich, but it will destroy your wealth. You can’t build wealth when you are too busy having fun.
5. Increase your time horizon. Good things take time.
6. Look at the whole picture, not just individual investments.
7. The most important thing money can buy is control over your time.
8. No one is as impressed with your things as you are.
9. Success is not free. What are you willing to sacrifice and go through for your success.
10. Avoid extremes in your monetary decisions.

Chapter Twenty - Confessions

General Description

This chapter is a confessional from author Morgan Housel talking about what they do with their finances and how they live their life.

1. There is no right answer and no universal truth.
2. Keep expectations in check and live below your means.
3. Good decisions aren’t always rational. Chose between being happy and being “right”.
4. Everyone is going to eventually hit a massive expense that you won’t have been expecting. You don’t always have to save for a specific goal.
5. Life is just playing odds and we all think of odds in life differently.

Final Excerpt

This final excerpt described history and what significant events happened in history and how that changed our economic landscape. This was all historical information and was a nice read, but nothing to really note about.

Final Thoughts

I really enjoyed reading through this book. It was quite an easy read, but that made it comfortable and easy to get through. I enjoyed how it made me look back on my financial decisions without feeling ridiculed. Excited to look back at this some day and see how things have changed in my life.

Take it slow and no one is crazy.