“Wealth is what you don’t see. It’s the cars not bought, the diamonds not purchased, the watches not worn, the clothes forgone, and the first-class upgrade declined.” ~ Morgan Housel
Doing well with money and building wealth aren’t necessarily about what you know. It’s about your habits and how you behave. And behavior is hard to teach, even to really smart people, writes Morgan Housel in his book The Psychology of Money.
In the real world, people don’t make financial decisions on a financial spreadsheet. They make them at the family dinner table, or in a bar, where personal history, your own unique view of the world, ego, pride, marketing, and odd incentives are scrambled together.
In The Psychology of Money, award-winning author Morgan Housel explored the strange ways people think about and behave around money. He teaches you how to make better sense of one of life’s most important topics.
Below are 15 important and life changing lessons and quotes from The Psychology of Money by Morgan Housel:
1. Money is a tool. It’s not an end in itself. “Controlling your time is the highest dividend money pays.”
2. Don’t let your emotions control your spending. Be mindful of the emotions that can drive you to overspend, and learn to control them.
3. Invest for the long term. The stock market will go up and down in the short term, but over the long term, it goes up. “Growth is driven by compounding, which always takes time. Destruction is driven by single points of failure, which can happen in seconds.”
4. Don’t try to time the market. No one can predict the future, so don’t try to guess when to buy and sell stocks. “The enemies of investing success are impatience and the illusion of control.”
5. Diversify your investments. Don’t put all your eggs in one basket. Spread your money across different asset classes to reduce your risk.
6. Don’t be afraid to take risks. But don’t be reckless either. “Luck and risk are both the reality that every outcome in life is guided by forces other than individual effort.”
7. Pay yourself first. Make sure you save money for your future before you spend it on anything else. “The highest form of wealth is the ability to wake up every morning and say, ‘I can do whatever I want today.’”
8. Live below your means. The less you spend, the more money you’ll have to save and invest. “Saving is the gap between your ego and your income.”
9. Don’t compare yourself to others. Everyone is on their own journey. Focus on your own financial goals and don’t worry about what others have. “Be nicer and less flashy. No one is impressed with your possessions as much as you are.”
10. Be patient. Building wealth takes time. Don’t expect to get rich quick. “Compounding works best when you can give a plan years or decades to grow.”
11. Be grateful. Appreciate what you have, both in terms of your financial situation and in your life in general.
12. Help others. One of the best ways to feel good about your money is to use it to help others.
13. Be kind to yourself. Everyone makes mistakes. Don’t beat yourself up if you make a financial mistake. Just learn from it and move on.
14. Never give up. The road to financial independence is long and winding, but it’s worth it. Keep working hard and never give up on your goals.
15. Money can’t buy happiness. But it can buy peace of mind and security. “Doing something you love on a schedule you can’t control can feel the same as doing something you hate.”
The Psychology of Money by Morgan Housel is a book about the emotional side of money. It’s about how our feelings about money can lead us to make bad decisions. It’s also about how to overcome these emotional biases and make better financial decisions.
Source: Morgan Housel, The Psychology of Money