In this post we will cover the key learnings from ‘The Psychology of Money’. With each takeaway we explain the authors take on the topic as well as give our own suggestion. Let’s get to it!
Biases and Opinions
Chapters:“Save Money” + “Man in the Car Paradox” + “Never Enough”
The Psychology of Money
People have different views about money and these views are shaped throughout your life experiences. Nobody’s view is wrong or right, just a perspective.
Women Who Get It
Understand that in the real world, you’re unlikely to lose 90% of the time or more. Meaning that even if you lose often, you only need to have one big victory that can erase all of the losses. Diversifying your investments is key, since one company at least, will do particularly well.
NOTE: life is fluid and you are allowed to change your narrative at all times moving forward!
Less Ego, More Money
Chapters: “No One’s Crazy” + “You’ll Change”
The Psychology of Money
The value of wealth is relative to what you need. Past a certain level of income, what you need is just what sits below your ego.
Try to ask yourself if you often times spend money in an ego-driven manner. Are your spending habits dependent on your needs or unnecessary wants to impress others? Perhaps there is room for improvement to reach long-term saving goals, as opposed to short-term gratification.
NOTE: saving rates and budgets are subjective, try to find a medium between taking care of your current as well as future self.
Be Willing to Pay the Price for Success
Chapters: “Nothing’s Free” + “Tails You Win” + “Luck and Risk” + “Surprise”
Stock market returns are asymmetric. It means that you can lose money on 9/10 investments but still be cash flow positive. Be okay with failures they are the norm.
Try to ask yourself if you often times spend money in an ego-driven manner. Are your spending habits dependent on your needs or unnecessary wants to impress others? Perhaps there is room for improvement to reach long-term saving goals, as opposed to short-term gratification.
Freedom is Invaluable
Chapters: “Freedom” + ‘Wealth is What You Don’t See”
Having enough money enables you to enjoy all your time in a way you see fit. Being rich offers you opportunities in the short-term, but being wealthy provides you the flexibility of having more of the items you want – freedom, time, possessions – in the future.
Understand that true wealth is time and independence, not money. Autonomy is the biggest predictor of happiness. Ask yourself the question how you see yourself spending your time in 5 years from now, what would that look like for yourself? What are some steps you can take to get closer to that lifestyle?
Ex. actually starting to draft that business plan you thought of for years, seeing where you can cut back in spending to save and invest in long-terms goals etc.
Confessions
At the end of the book the author explains his own investment strategy. His purpose is to be financially free so he doesn’t depend on a job and can do whatever he wants. He owns his house without a mortgage, which he considers financially bad, but emotionally good. 20% of his money is in cash so he can face a financial emergency. The author also invests in low-cost index funds as he knows that merely picking stocks and beating the market is really hard.
Ask yourself the question how you want to move forward with with you spending, saving and overall financial habits moving forward. What would that look like? Also, what tools and resources would you need to bridge the gap between you and your financial goals?
We hope you enjoyed this read and feel one step closer to putting what you’ve learned into working practice! Stay tuned for our next blog post in the upcoming weeks.