Books

I just finished reading the book The Psychology of Money by Morgan Housel, and I thoroughly enjoyed it. A couple of years ago, I listened to the audiobook and liked it a lot. Having read numerous books on personal finance and investing, I must admit that this one offered me new perspectives on money, wealth, health, and investing. Here are some key takeaways that stood out to me:

1. Saving Money to Buy Flexibility

This is an intriguing perspective. As described in the book, most people save for specific goals, like buying a car or a house. However, Morgan argues that we don’t always need a concrete goal for saving. The purpose of saving is to have money readily available to buy flexibility and handle the unexpected in life. As the saying goes, “Anything that can go wrong will go wrong.”

Life is full of surprises, and savings can serve as a safety net. Early in my career, I held a temporary position and constantly worried about the future and whether my contract would be renewed. My wife reassured me, saying that we could pivot to another job since we had some savings in the bank. At that stage in life, our savings gave us confidence. As Morgan highlights, saving gives you the ability to do what you want, when you want, for as long as you want.

This perspective also reshapes how we think about financial security. Often, people tie their savings to material goals, but flexibility and peace of mind can be just as important. Imagine having the freedom to make career changes, take a sabbatical, or relocate to a new city without the looming fear of financial instability. This approach to saving isn’t about deprivation; it’s about empowerment.

2. Knowing When It Is Enough

“There is no reason to risk what you have and need for what you don’t have and need.” This statement resonated deeply with me. I enjoy spreadsheets and often calculate potential returns and future wealth. However, it’s easy to become overly optimistic when focusing solely on numbers.

I began my investing journey with index funds, ventured into single-stock picking, and eventually returned to index funds. The excitement around rising stock prices can be intoxicating. For instance, Tesla’s stock price skyrocketed from $242.84 on November 4th to $479.86 on December 17th—a 97% increase. A friend, thrilled about his Tesla shares, enthusiastically discussed the gains. While tempting, I reminded myself that peace of mind is more important than chasing temporary price surges.

This principle extends beyond investing. In life, understanding what is “enough” helps us prioritize what truly matters. Constantly striving for more can lead to unnecessary stress and risky decisions. Contentment doesn’t mean stagnation; it’s about appreciating and protecting what you already have.

3. Staying Healthy

Although the book is primarily about investing, Morgan touches on health in Chapter 5. He emphasizes the importance of a survival mentality: “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 principle applies to investing, careers, and business. Staying healthy and living long enough to reap the benefits of compounding is critical. Longevity amplifies returns—financially and personally.

Reflecting on this, I realized how interconnected financial success and personal health are. Poor health can lead to increased medical expenses, reduced productivity, and even a shortened time to enjoy the fruits of one’s labor. By prioritizing health, we increase our chances of achieving long-term financial stability and fulfillment.

4. Leaving Room for Mistakes

When projecting investment returns, I’ve often relied on historical performance. However, historical returns are just that—history. They do not guarantee future results, and unexpected events can disrupt even the best-laid plans.

Since 2016, I’ve been using a daily planner and always leaving some buffer time for unexpected or urgent tasks. This approach has proven invaluable because things rarely go as planned. The same principle applies to investing. When projecting returns, it’s wise to base calculations on conservative estimates. Aim to succeed even in low-return scenarios. Morgan’s quote perfectly encapsulates this idea: “Become OK with a lot of things going wrong. You can be wrong half the time and still make a fortune.”

Incorporating this mindset into everyday decisions helps mitigate risk and reduces anxiety. Whether it’s setting aside extra time for a project or allocating a portion of your portfolio to low-risk assets, preparing for errors and setbacks ensures resilience in the face of challenges.

Final Thoughts

The Psychology of Money is an exceptional book that inspired me to rethink my investment strategies. Its relatable examples and profound insights have left a lasting impression. This book is a must-read if you’re interested in personal finance and investing.

Beyond its financial lessons, the book encourages self-reflection. It’s not just about building wealth but understanding your relationship with money. Everyone’s journey is unique and shaped by individual experiences, values, and goals. Morgan’s storytelling reminds us that money is a tool—not a measure of success—and that true wealth is about living a meaningful and fulfilling life.