Psychology of Money by Morgan Housel is a recent bestseller. It deserves to be one.
As the book itself says, it does have its share of destiny associated with it. It is well timed with two viral words of the day – Psychology and Money. Who does not want to understand the mindset to make more money. Thankfully, the book does not give a single pill to make money and quickly become rich.
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Using excellent storytelling, it helps you understand what money means to you – personally and as society. It then tells you to be comfortable with the money you have or the money-making capability you have.
Key Lessons from Psychology of Money:
Well, I have included some of my own wisdom in extending what Morgan says.
- Destiny or luck is a factor in everything, whether you see it or not. Humans have a tendency to attribute others success and our own failures to fate. However, every aspect of our life including making money has lucks role – which can work either way for you.
- Earning money is one skill and keeping money is another. In fact, I often say that we spend so many years preparing ourselves to earn money, learning skills that are in demand, but hardly anyone teaches is how to spend money, save money and enjoy money. Traditional business communities traditionally know this but most others tend to miss this aspect.
- Understand that money is a resource that allows you to buy many things in life, from basic needs to luxuries. The biggest luxury that wealth can give is the independence to use your own time. For each one of us, luxury may have a different meaning, but earning money all the time is not luxury as you are losing your precious time and energy for doing so.
- Do not try to earn respect by spending on things to show off. If respect is attached to your owning certain things – be it a big house or a car, the respect is for that thing, not you. People who respect you will respect you with or without them. You will find many examples in India. Think of all the saints who have nothing material to show off, but the biggest leaders and the wealthiest bow down before them.
- Do not be swayed by tall claims that have not stood the test of time. Whenever fund managers tell me to buy certain mutual funds or similar instruments, I always ask them if they themselves have invested in it. The reaction mostly tells me about their conviction on what they are out to sell. Also, understand that news by default is exceptional, so are big case study successes and failures.
- Understand that you needs as well as your aspirations are unique to you. So, your planning for money should also be unique. You can learn from the experiences of others but you must chart your own trajectory.
- There is a limit for rational decisions. Some larger power or factors are always working in the background that we are never aware of. They can turn the tide either way. Let us call it an unmeasurable ‘unpredictability’ factor.
- Too much reliance on past data and trends will hamper your thinking, for past rarely repeats in the same fashion. You may also let go of many innovative opportunities that did not exist in the past. Balance data with prudence.
American Bias in Psychology of Money
The book is lovely but you must understand that it comes from a very American mindset. All the examples are from America and the common behaviour assumed is also quite American. When you apply these learnings to your life, tweak it to your socio-cultural environment.
For example, it is perfectly fine to assume some family support in India, specially from parents while it may be more of an exception in the western world.
I also disagree with some facts like earliest known currency was created in Turkey in 600 BCE. We do have records of currency being used earlier. Or his saying that concept of saving and investing are very recent.
Morgan Housel needs to meet the Vaishya community of India that has been in the business of money since time immemorial. Saving and investing are inherent to lifestyle of this community.
So, no, we are not new to this game of money. Our ancestors have been doing it for thousands of years at least. In fact, frugality is almost treated like a virtue in our society. Saving habits are inherited by default. An example is our re-use of everything possible. Of course, things have changed in the recent past since we started blindly worshipping the west.
Overall, psychology of money would put a lot of sense in your head about money.