The Psychology of Money by Morgan Housel

 

The Psychology of Money by Morgan Housel : Book Review

Understanding money is one of the most complex acts, if not difficult, in current times. We think we understand the aspects of money very well, but history of global economics has often showed us that we have often misunderstood it like never before. Coming to money and wealth at individual level, the situation is no better.

“The Psychology of Money” by Morgan Housel is perhaps one of the best books that concentrates on the aspects of money from an individual lay man point of view and it surely talks sense and common sense which some great minds often ignore.

The book is a great learning into the concepts and habits when it comes to the concept of money. Reading the book pages after pages would give one a good introduction as to how they look at the world may not be actually how the world actually is.

Starting to read through this insightful book, one would come across with an interesting aspect to money that is of one’s personal experience with money. This section concentrates on showcasing as to how our personal experience with money is not actually the hard truth but the manner in which we handle money is actually the result of how we think that the world works. This section showcases a good quantum of economic statistics and general population behavior during certain economic downturns. A good chunk of examples is cited to make one understand as how one thinks about the working of world influences money decisions. This section is insightful from an economic point of view for a layman reader.

The next section introduces us to the co-relation in between luck and risk and its impact on money and wealth. In this section, the concentration is on the life and times of Bill gates. This part makes the reader understand the different aspects relating to luck and risk that shaped the life of Bill Gates and how Bill gates actually made decisions during that time. This is interesting especially if one is eager to know some insightful aspects about Bill Gates’s life, especially the early one.

A section where in the author gives some examples about certain rich people doing crazy things on money is a good portion to read. There are certain lessons in this section ; The hardest financial skill is getting the goalpost to stop moving, social Comparison is a problem, “Enough” is too little, and the final one – There are many things never worth risking no matter the potential gain.

One of the most important chapters and perhaps the most relevant one is the one where the author brings about the concept of Compounding.  Warren Buffet is the key example in this section. There are certain financial secrets about the Buffet’s wealth that has been stated here which will blow a routine laymen reader. This chapter is the key recall one. Learning and understanding the key aspects of this chapter will help the readers in their personal lives.

In the section where in the author focuses on the topic of getting wealthy vs staying wealthy is as interesting as the chapter on compounding. Here in we come across certain examples from 20^th century who have gone wrong in this economical survival test. The survival mind set test that is showcased here comprises; able to stick around for long to get the returns of compounding, risk management as to the financial plan not going according to the plan, and a thought process that is optimistic about the future but paranoid about the what will prevent us from getting to the future.

One of the most important aspects of money is controlling one’s time. At the end of the day, the author showcases if you have money but if you can’t control your own time, then there is no dividend in that money.

The subsequent learnings from the book are on the aspects of understanding that impressing others with possessions is only a fallacy and spending money to show off is actually the fastest way to end up having less money.

The ultimate final learning on the money part is “saving”. The author showcases as to how saving is the basic first step of generating more money and future wealth. At the end of day, it all comes to what one’s wants and what are one’s needs.

There’s a post script (P.S) chapter that concentrates on the US Consumer behavior by stating a historical time line of events that have happened in the country and how this links with what the US consumer believes and does. This is a great reading material for lovers and economics and finance.

The book is very clear in thought and there’s no disguise of over-knowledge. For a person who is just starting out to save money and building financial wealth, this book is a must read and certain topics are a must apply. The language of the book is simple to understand and the practical examples that have been cited are insightful and also entertaining at some points.

“The Psychology of Money” by Morgan Housel is a must read.