The Psychology of Money shows how moves around in an economy and how personal biases and emotional intelligence play a crucial role in our financial decisions. The book helps us to have a better relationship with money and make smarter financial decisions.
Here are my seven favorite lessons from the book:
1. Luck and Risk is part of life :
Luck and risk play equal roles in one’s success or failure. So, “ Nothing is as good or as bad as it seems”.
Love and risk are both reality in life. Every outcome in life is guided by forces other than individual efforts. One has to respect both for their success or failure.
If you give luck and risk their proper respect, you come to the conclusion that when judging people’s financial success both your own and others – it’s never as good or as bad as it seems.
Bill Gates got one in a million luck by ending a high school that had a computer. Kent Evans who was a friend of Bill Gates and equally skilled in computers experienced one a million risks by never being able to finish what he and Bill set out to achieve. He died in a mountaineering accident.
Same force, the same magnitude, working in the opposite direction.
In the real world, luck and risk take part in financial success too. Some gave all their energy, effort and time but didn’t achieve any success. Some others get huge success by flaunting the laws.
Some people do every kind of excel analysis,buy a stock and five years later it’s gone nowhere. Some people unknowingly buy a stock and it makes a hit and they make a huge amount of money.
If you acknowledge that luck brought you success then you have to believe in its opposite, risk, which can turn your story around just as quickly. So more important is that we recognise the role of luck in success, the role of risk means we should leave room for understanding when judging failures.
2. Less Ego, More Wealth:
Saving money is the most important factor in creating wealth. Ego is harmful for our wealth. Wealth is what we don’t see. Ego is what we show off to society by destroying our wealth. We create wealth by suppressing what we could buy today in order to have more stuff or more options in the future. No matter how much you earn, you will never build wealth unless you put a break to your unnecessary expenses today.
3. Manage your money that helps you sleep at night:
Never ever put all your money at risk because you want more. Don’t waste your money to have those things that you don’t need. That’s foolish. If you risk your money, reputation,prestige and freedom for something that is unimportant to you. It doesn’t help you to sleep well at night. It gives you and your family an unwanted tension. Some people won’t be able to sleep well because they are not earning the highest returns; others will get a good rest if they’re conservatively invested. “Does this help me sleep at night?” is the best universal guidepost for all your financial decisions.
4. Give Time to Your Money To Grow:
Time is the most powerful factor in investing. It helps little things grow big and big mistakes fade away easily. You don’t need tremendous amounts of money to create tremendous amounts of money. If something is compound – small money can lead to results so extraordinary they seem to defy logic. The secret of your success in investing is time.
5. Wealth is what you don’t see:
We have a tendency to judge wealth by what we see, because that’s the information we have in front of us. We can’t see the next peoples bank balance or the brokerage statements. So we believe in outward appearance to gauge financial success. Cards, homes, travel photos. But the truth is wealth is what you don’t see.
Wealth is the sexy cars not purchased, the watches not bought, the clothes declined to take. Wealth is financial assets that haven’t yet been converted into luxuries. Wealth is hidden. It’s an income that is not spent on something. Wealth is an option not yet taken to buy something later. Its value lies in offering you options, flexibility, freedom and growth so that one day you purchase more stuff than you could right now.
The world is filled with people who look modest but are actually wealthy and people who look super rich and are living on the edge of bankruptcy. So keep it in mind when you judge someone on their standard of Living. Wealth is freedom. Wealth is peace. Wealth is what one doesn’t spend.
6. Save Money:
Save money without any specific reason. Just save. Some people save money for a down payment on the house or a new car, or for retirement. That’s great. But saving does not need a goal of purchasing something specific. One just saves for savings sake. Saving is a wall against life’s inevitable ability to surprise you at the worst possible moment.
Saving without a spending goal gives you more options and more flexibility. It also gives you the ability to wait and an opportunity to pounce. It gives you time to think and reflect. It gives you the option of changing careers, or retiring early and freedom from worry. Having more control over your time is a superpower in today’s busy world. So everyone should save money to gain control over time.
7.Give room for Error:
You must become comfortable with a lot of things going wrong. You can be wrong half of the time and still make a fortune in your financial state. No matter what you are doing with your money, you should be comfortable with a lot of stuff not working. That’s just how the world works. So you should always measure how you are done by looking at your overall portfolio; rather than individual gain. It is time to have a large chunk of investments and a few great ones. That is the best case scenario. Judging how you are done on focusing individual investments makes winners look more successful than they are, and losers appear more regrettable than they should. Room for error often looks like an old aged rule,but if it keeps you in the game it can pay for itself many times over.
Doing well with your hard earned money isn’t about what you know. It’s about how you behave. Hope our article from the book The psychology of Money helps you to change your money behavior and make you smart. Keep learning and keep achieving your goals.
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