The Psychology of Money — Summary and Thoughts
Summary
After reading through what feels like a thousand different personal finance books, I was getting pretty tired of being taught the same thing without any new way of showcasing the advice. Each and every book was about being frugal, assets vs liabilities, and the effects of compound interest.
The Psychology of Money by Morgan Housel is a bit different. It tells you those things as well sure, but Morgan Housel has a way of transforming his advice to short relevant stories that all pull together to form the collective idea that is The Psychology of Money.
Housel defines in a short story early on how hedonistic adaptation will ruin your financial goals. Morgan Housel argues that the key to financial sucess is to understand human behavior. “No one is crazy” says Housel. But what people do with their money may seem crazy to us, while being perfectly normal to them. For example, someone that grew up during the peak of the great depression may think it is absolutely crazy to invest in the stock market. However, someone that grew up while the stock market was steadily climbing for a decade straight may think the opposite is crazy. “Why would you NOT invest in the S&P 500?”.
Morgan Housel also acknowledges the role that “luck” plays into each individual’s financial sucess.
“Bill Gates went to the only high school in the United States that had a computer, that is an incredible stroke of luck." — Morgan Housel
This has quickly become my favorite personal finance book of all time. Every time I feel myself slipping into the grasps of hedonistic adaptation, I re-read any of the 20 stories Housel shares in this fantastic little book. It is a quick reminder to me to define what it is that I want and evaluate whether or not each financial decision I make is keeping me on track or driving me off track.
My personal thoughts
I have a mixed relationship with personal finance books. I tend not to heed 100% of the advice in any single finance book. For myself, the ideas of each single author seem to be too extreme on one end or the other. Take Dave Ramsey for example. His ideas and debt avalanche method got me out of a massive amount of debt in less than 2 years. However, Dave Ramsey may get pissed at me if he knew that I have multiple credit cards to this day and haven’t cut them all up and thrown them in the trash. Credit cards have their place if used responsibly.
The Psychology of Money is unique. The book shares very practical and straightforward advice without any bias the author himself may have. You can definitely pick up on the psychological influence that each of the 20 stories is trying to unravel. It’s difficult to not agree with or learn from each of the 20 different stories that Morgan Housel tells. Like I said earlier, The Psychology of Money has quickly become one of my favorite personal finance books. To the point that I’ve now read it 4 times.
