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A review by manish_ladla
The Psychology of Money by Morgan Housel
5.0
This book has been on my "To-Read-List" since 2020. I have read various reviews positive reviews of the book. Finally this became my 2nd book of 2023 . The insights are quite useful. Major takeaways are :-
1-The human behavior regarding finance is subjective. It depends on his/her upbringing/upbringings/ parental value etc. eg my parents value investment in gold and real estate whereas I prefer mutual funds and real estate. I only think gold as buffer reserve for hard times
2-Though the person who works hard is often rewarded but luck factor is also involved in deciding destiny of a person. My friends would have cracked UPSC exam if their financial problems had not made them to choose a job first. I was lucky to prepare for exam just because my parents had enough money to pay for my coaching. Same was not possible for my wife. Elon Musk is successful because he had a head start from rest because of his parents business. But this does not means we can success to luck alone. lucks favors the hard-worker only. Failure can be a lousy teacher, because it seduces smart people into thinking their decisions were terrible when sometimes they just reflect the unforgiving realities of risk. The trick when dealing with failure is arranging your financial life in away that a bad investment here and missed financial goal there won't wipe you out so you can keep playing until the odds fall in your favor
3- Define the limit in finance and beyond that don't indulge in risk to get more wealth. There is no end of wealth accumulation. More you accumulate , expenditure increases manifold and waste spending increases. Define a financial limit of how much you want to accumulate. social comparison will make your financial limits (set by you) to dwindle. Don't get swayed by it. set a limit what is enough for you.
-you just need enough to do what you want, when you want, with who you want and for as long as you want. Once you achieve this, then there is no need of more money
-value of wealth is relative to what we need - eg a professional investor will grind for long hours daily to to add a .01 % to their returns but they can have enjoyed a far better lifestyle with just 2-4% of their total income. Means there is no need to go beyond a limit when you can enjoy everything with current income. Dong grind yourself after money
-Everyone needs a basic income. Once that is covered , thee is another level of comfortable basics and past that there is basics that are both comfortable , entertaining and enlightening . But spending beyond a pretty low level of materialism is mostly a reflection of ego approaching income , a way to spend money to show people that you have money
-we will desire less materialism if we care less about what other think about us. What we need from others is respect and admiration. we can get these with our skills and humility and not by showing our wealth.
4- understand the power of compounding
5-Getting wealthy v/s staying wealthy is ultimate test of earning money. Those who has suddenly became wealthy are more often able to control their expenses. It result in wasteful spending with very less savings . This has happened with us. Our monthly expenses are touching 80 thousands. We have to keep this in mind. Staying wealthy involves
-we have to be paranoid as not to slip back into poverty.
-keep cash in hand so that we don't have to sell stocks to meet sudden expenses
-always be critical of your own financial plans. There is always a probability that your financial plans will not go as you wish. So keep a margin of error and plan accordingly.
6-Not all of our portfolio will generate a great return. Most of the mutual funds will give below average to average returns. Only selected few will give humongous returns. Also in the crazy times, you will have to keep patience
-"A good definition of an investing genius is the man or woman who can do the average thing when all those around them are going crazy ". It means to keep patience in troublesome times of mutual funds.
7-Rich vs wealth - Rich is current income. Someone driving a wealthy car is almost certainly rich, because even if they have purchased the car with debt, he need a certain level of income to afford the monthly payments, same is with those who live in big homes. It is not hard to spot rich people. They often go out of their way to make themselves known. Wealth is hidden. It is income not spent. Wealth is an option not yet taken to buy something later. Its values lies in offering options, flexibility and growth to one day purchase more stuff than you could right now
8-Beyond a certain level of income , people fall into three groups (1)those who save (2) those who don't think they can save (3) those who don't think they need to save.
-building wealth has little to do with our income or investment returns and lot to do with our savings rate
1-The human behavior regarding finance is subjective. It depends on his/her upbringing/upbringings/ parental value etc. eg my parents value investment in gold and real estate whereas I prefer mutual funds and real estate. I only think gold as buffer reserve for hard times
2-Though the person who works hard is often rewarded but luck factor is also involved in deciding destiny of a person. My friends would have cracked UPSC exam if their financial problems had not made them to choose a job first. I was lucky to prepare for exam just because my parents had enough money to pay for my coaching. Same was not possible for my wife. Elon Musk is successful because he had a head start from rest because of his parents business. But this does not means we can success to luck alone. lucks favors the hard-worker only. Failure can be a lousy teacher, because it seduces smart people into thinking their decisions were terrible when sometimes they just reflect the unforgiving realities of risk. The trick when dealing with failure is arranging your financial life in away that a bad investment here and missed financial goal there won't wipe you out so you can keep playing until the odds fall in your favor
3- Define the limit in finance and beyond that don't indulge in risk to get more wealth. There is no end of wealth accumulation. More you accumulate , expenditure increases manifold and waste spending increases. Define a financial limit of how much you want to accumulate. social comparison will make your financial limits (set by you) to dwindle. Don't get swayed by it. set a limit what is enough for you.
-you just need enough to do what you want, when you want, with who you want and for as long as you want. Once you achieve this, then there is no need of more money
-value of wealth is relative to what we need - eg a professional investor will grind for long hours daily to to add a .01 % to their returns but they can have enjoyed a far better lifestyle with just 2-4% of their total income. Means there is no need to go beyond a limit when you can enjoy everything with current income. Dong grind yourself after money
-Everyone needs a basic income. Once that is covered , thee is another level of comfortable basics and past that there is basics that are both comfortable , entertaining and enlightening . But spending beyond a pretty low level of materialism is mostly a reflection of ego approaching income , a way to spend money to show people that you have money
-we will desire less materialism if we care less about what other think about us. What we need from others is respect and admiration. we can get these with our skills and humility and not by showing our wealth.
4- understand the power of compounding
5-Getting wealthy v/s staying wealthy is ultimate test of earning money. Those who has suddenly became wealthy are more often able to control their expenses. It result in wasteful spending with very less savings . This has happened with us. Our monthly expenses are touching 80 thousands. We have to keep this in mind. Staying wealthy involves
-we have to be paranoid as not to slip back into poverty.
-keep cash in hand so that we don't have to sell stocks to meet sudden expenses
-always be critical of your own financial plans. There is always a probability that your financial plans will not go as you wish. So keep a margin of error and plan accordingly.
6-Not all of our portfolio will generate a great return. Most of the mutual funds will give below average to average returns. Only selected few will give humongous returns. Also in the crazy times, you will have to keep patience
-"A good definition of an investing genius is the man or woman who can do the average thing when all those around them are going crazy ". It means to keep patience in troublesome times of mutual funds.
7-Rich vs wealth - Rich is current income. Someone driving a wealthy car is almost certainly rich, because even if they have purchased the car with debt, he need a certain level of income to afford the monthly payments, same is with those who live in big homes. It is not hard to spot rich people. They often go out of their way to make themselves known. Wealth is hidden. It is income not spent. Wealth is an option not yet taken to buy something later. Its values lies in offering options, flexibility and growth to one day purchase more stuff than you could right now
8-Beyond a certain level of income , people fall into three groups (1)those who save (2) those who don't think they can save (3) those who don't think they need to save.
-building wealth has little to do with our income or investment returns and lot to do with our savings rate