While everyone is talking about different ways to make money or high-paying jobs, business ideas, and startups…etc. The author Morgan Housel took another path to explain this, which is the psychological path.

The Psychology of Money is a book that discusses “the human beings psychology” when it comes to making money and how your behavior can affect your wealth.

” Money is everywhere, it affects all of us, and confuses most of us. Everyone thinks about it a little differently. It offers lessons on things that apply to many areas of life, like risk, confidence, and happiness. Few topics offer a more powerful magnifying glass that helps explain why people behave the way they do than money. It is one of the greatest shows on Earth. “ -Morgan Housel


the psychology of money


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Getting Wealthy Vs Staying Wealthy

” Good investing is not necessarily about making good decisions. It’s about consistency not screwing up “ – Morgan Housel

There are hundreds and hundreds of ways that could make you wealthy, but when it comes to staying wealthy the author sees that there’s only one important way which is the combination of frugality and paranoia.

So, capitalism is hard because getting money requires you to take risks, to be optimistic, and put yourself out there, but in order to keep your money, it requires you the exact opposite of taking risks. It requires humility, and fear that what you’ve made can be taken away from you at any moment.

The magical word for success here is “survival” Not “growth” or “brains” or “insight.” The ability to stick around for a long time, without wiping out or being forced to give up, is what makes the biggest difference. This should be the cornerstone of your strategy, whether it’s in investing or your career, or a business you own.

Tails, You Win

A lot of things in business and investing work this way. In “The Psychology of Money”, the author spoke about Long tails and how they have a tremendous influence in finance, where a small number of events can account for the majority of outcomes.

That can be hard to deal with, even if you understand the math. It is not intuitive that an investor can be wrong half the time and still make a fortune. It means we underestimate how normal it is for a lot of things to fail. Which causes us to overreact when they do.

When Amazon launched the fire phone and it failed, the CEO Jeff Bezos didn’t apologize to shareholders. But instead, he said shortly after the disastrous launch of the company’s Fire Phone:
” If you think that’s a big failure, we’re working on much bigger failures right now. I am not kidding. Some of them are going to make the Fire Phone look like a tiny little blip. “


The highest form of wealth that a human being can reach is the ability to wake up every morning and say, “I can do whatever I want today.” People want to become wealthier to make themselves happier.

Happiness is a complicated subject because everyone’s different. But if there’s a common denominator in happiness—a universal fuel of joy—it’s that people want to control their lives. The ability to do what you want, when you want, with who you want, for as long as you want, is priceless. It is the highest dividend money pays.

A small amount of wealth means the ability to take a few days off work when you’re sick without breaking the bank. Gaining that ability is huge if you don’t have it. A bit more means waiting for a good job to come around after you get laid off, rather than having to take the first one you find. That can be life-changing.

Six months of emergency expenses mean not being terrified of your boss, because you know you won’t be ruined if you have to take some time off to find a new job. More still means the ability to take a job with lower pay but flexible hours. Maybe one with a shorter commute. Or being able to deal with a medical emergency without the added burden of worrying about how you’ll pay for it.

Then there’s retiring when you want to, instead of when you need to. Using your money to buy time and options has a lifestyle benefit few luxury goods can compete with.

Reasonable > Rational

“Aiming to be mostly reasonable works better than trying to be coldly rational.” – Morgan Housel

When it comes to managing money, you’re not a spreadsheet. You’re a person. A screwed-up, emotional person. So during making your financial decision, do not be coldly rational. Aim to be just pretty reasonable. Reasonable is more realistic and you have a better chance of sticking with it for the long run.

Most forecasts about where the economy and the stock market are heading next are terrible, but making forecasts is reasonable. It’s hard to wake up in the morning telling yourself you have no clue what the future holds, even if it’s true. Acting on investment forecasts is dangerous. But I get why people try to predict what will happen next year. It’s human nature. It’s reasonable

Morgan Housel Thinks that people are neither rational nor irrational. They are humans. They don’t like to think harder than they need to, and they have unceasing demands on their attention.

Nothing is Free

“Everything has a price, but not all prices appear on labels” -Morgan Housel

Like everything else, successful investing demands a price. But its currency is not dollars and cents. It’s volatility, fear, doubt, uncertainty, and regret, all of which are easy to overlook until you’re dealing with them in real-time.

Let’s say you want a brand new car. It costs $30,000. You have three options:

1) Pay $30,000 for it

2) Find a cheaper used one

3) Steal it. In this case, 99% of people know to avoid the third option, because the consequences of stealing a car outweigh the upside.

The same thing for investing: you can pay this price, accepting volatility and upheaval. Or you can find an asset with less uncertainty and a lower payoff, the equivalent of a used car. Or you can try to get the return while avoiding the volatility that comes along with it.

Many people in investing choose the third option. Like a car thief—though well-meaning and law-abiding—they form tricks and strategies to get the return without paying the price. They trade in and out. They attempt to sell before the next recession and buy before the next boom.

Most investors with even a little experience know that volatility is real and common. Many then take what seems like the next logical step: trying to avoid it. But the Money Gods do not look highly upon those who seek a reward without paying the price. Some car thieves will get away with it. Many more will be caught and punished.


In the end, I want you to know that reading summaries is helpful (at least better than not reading at all). But, you will not get the full benefit unless you read the whole book. Remember: “reading a summary of a certain book is like watching a trailer of a movie while reading the whole book is like watching the whole movie.” 


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