For example, consider two different people born in different decades and their attitudes towards the stock market, one born in the 1950s and the other in the 1970s. “In theory people should make investment decisions based on their goals and the characteristics of the investment options available to them at the time. But that’s not what people do. DocFilm GREED: The psychology of money, happiness and eternal life. Admits that this is a terrible financial decision but a great money decision (peace of mind). Sign Up To Be An Organ Donor . Housel reminds us that when people say they want to be millionaires, what it really means is that they want to spend a million dollars. It’s a soft skill, where, “The aim of this book is to use short stories to convince you that, “We think about and are taught about money in ways that are too much like physics (with rules and laws) and. And since, “Everyone knows the tangible stuff money buys. Access a free summary of Claudia Hammond on the Psychology of Money, by Claudia Hammond and 22,000 other business, leadership and nonfiction books on getAbstract. The Psychology of Money by Morgan Housel (2020) examines personal finance through the lens of human behavior. This worldview is influence by a unique set of circumstances, values, and external influences. Charlie Munger: “The first rule of compounding is never interrupt it unnecessarily.”. The book expands upon the ideas introduced in the 2018 article but you can get a good taste of his ideas there. Three types of people (past a certain level of income): Your savings rate is more important than your income or investment returns. It’s a soft skill, where how you behave is more important than what you know.” (Housel believes this is the more common of the two explanations). “Bubbles aren’t so much about valuations rising. Wealth is optionality, flexibility and growth. It is not intuitive that an investor can be wrong half the time and still make a fortune. “Physics isn’t controversial. If you were born in 1970, the S&P 500 increased almost 10-fold, adjusted for inflation, during your teens and 20s. We can’t afford to rest on our laurels. Examples of Rajat Gupta and Bernie Madoff: People who had everything but wanted more. “We think about and are taught about money in ways that are too much like physics (with rules and laws) and note enough like psychology (with emotions and nuance).”, “To grasp why people bury themselves in debt you don’t need to study interest rates; you need to study the history of greed, insecurity, and optimism.”. The majority of his fortune was left to a local hospital and library. It’s a failure of imagination.” It is, Daniel Kahneman (psychologist and economist): “The correct lesson to learn from surprises: that the world is surprising.”. “Doing well with money has a little to do with how smart you are and a lot to do with how you behave.” Engage in the right behaviors and you are likely to succeed. “Being able to wake up one morning and change what you’re doing, on your own terms, whenever you’re ready, seems like, “There is a paradox here: people tend to want wealth to signal to others that they should be liked and admired. So, “People are good at learning by imitation. The opposite is also true. The Psychology of Money is an important book. “When you accept that tails drive everything in business, investing, and finance you realize that it’s normal for lots of things to go wrong, break, fail, and fall.”. “The key to a lot of things with money is just figuring out what that price is and being willing to pay it.”, “Successful investing demands a price. Everyone should own a copy. Rather than accept that we don’t know something we actively attempt to develop personal theories (stories) that creates illusory understanding that is psychologically comforting. “If there’s one way to guard against their damage, it’s. Consider people most likely to purchase lottery tickets in the U.S.: low-income households who spend, on average $400/year. Owns his house without a mortgage. Rather, it is a book containing observations about our relationship with money. “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. Story of Bill Gates: Gates attended one of the only high schools in the world that had a computer in 1968. As Housel says, many of the poor financial decisions stem from our collective inexperience: “there is not decades of accumulated experience...we’re winging it.”. The Psychology of Money includes some of Housel’s existing blog posts, plus new insights and information about people’s relationship with money. The Psychology of Money by Morgan Housel is an excellent book on personal finance, our thinking towards money and how that drives a lot of our decisions in life. It’s volatility, fear, doubt, uncertainty, and regret—all of which are easy to overlook until you’re dealing with them in real time.”, “Few investors have the disposition to say, ‘I’m actually fine if I lose 20% of my money...but if you view volatility as a fee, things look different.”. The 80/20 Rule for Money: The 3 Ways Americans Spend Most of Their Money (& How You Can Save More), How to Meaningfully Make Money from Your Life Purpose (+ Infographics), Behind the Scenes: My Evolving Relationship toward the “Money Middle Way”. This is not a book about finance. Insights and interesting reads delivered straight to your inbox. Happiness, as it’s said, is just results minus expectations, Happiness is a complicated subject because everyone’s different, FIRE (Financial Independence Retire Early), take a job with a lower salary but more purpose, “How to Get Rich (without getting lucky)” by Naval Ravikant (Summary & Infographic), FIRE 101: A Beginner’s Guide to FIRE (Financial Independence Retire Early). It’s intellectually captivating, and it’s paid more attention than optimism, which is often viewed as being oblivious to risk.”, “Tell someone that everything will be great and they’re likely to either shrug you off or offer a skeptical eye. We can’t see people’s bank accounts or brokerage statements. Rather than keeping economics to the scholarly realm of fictional “Econs”, we are talking about making a difference in the real world. The world isn’t that kind to anyone—not consistently, anyways. 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