This post is part of the đź“– The Psychology of Money series.
Today, I am reading You’ll Change chapter from the book The Psychology of Money: Timeless lessons on wealth, greed, and happiness written by Author, Morgan Housel.
Doing well with money isn’t necessarily about what you know. It’s about how you behave. And behavior is hard to teach, even to really smart people.
In The Psychology of Money, award-winning author Morgan Housel shares 19 short stories exploring the strange ways people think about money and teaches you how to make better sense of one of life’s most important topics.
Yesterday, I finished reading the 13th short story Room for Error from the book The Psychology of Money.
You’ll Change
Long-term planning is harder than it seems because people’s goals and desires change over time.
Long-term financial planning is essential. But things change—both the world around you and your own goals and desires.
It is one thing to say, “We don’t know what the future holds.” It’s another to admit that you, yourself, don’t know today what you will even want in the future.
The End of History Illusion:
Psychologists call the tendency for people to be keenly aware of how much they’ve changed in the past and underestimate how much their personalities, desires, and goals are likely to change in the future.
There are two things to keep in mind when making what you think are long-term decisions.
- We should avoid the extreme ends of financial planning.
- We should also come to accept the reality of changing our minds.
Compounding works best when you can give a plan years or decades to grow. This is true for not only savings but careers and relationships. Endurance is key.
When you consider our tendency to change who we are over time, balance at every point in your life becomes a strategy to avoid future regret and encourage endurance.
The trick is to accept the reality of change and move on as soon as possible. The quicker it’s done, the sooner you can get back to compounding.
That’s it for today. Tomorrow, we will read the next chapter Nothing’s Free, everything has a price, but not all prices appear on labels.
No One’s Crazy
Every decision people make with money is justified by taking the information they have at the moment and plugging it into their unique mental model of how the world works.
Luck & Risk
Nothing is as good or as bad as it seems. More important is that as much as we recognize the role of luck in success, the role of risk means we should forgive ourselves and leave room for understanding when judging failures.
Never Enough
There are many things never worth risking, no matter the potential gain. Knowing when you have “enough” is an invaluable skill. Building a sense for “enough” is remarkably simple: Stop taking risks that might harm your reputation, family, freedom and independence.
Don’t forget that being loved by those “whom you want to love” is invaluable than risking everything for money.
Confounding Compounding
Good investing isn’t necessarily about earning the highest returns. It’s about earning pretty good returns that you can stick with and which can be repeated for the longest period of time.
Getting Wealthy vs Staying Wealthy
Good investing is not necessarily about making good decisions. It’s about consistently not screwing up. There are a million ways to get wealthy and plenty of books on how to do so. But there’s only one way to stay wealthy: some combination of frugality and paranoia.
Getting money is one thing. Keeping it is another. If you have to summarize money success in a single word, it would be “survival”.
Tails, You Win
Gains come from a small per cent of your actions called “Long Tail Events”. You can be wrong half the time and still make a fortune. Remember, tails drive everything. Just do the average thing when all those around you are going crazy.
Freedom
Controlling your time is the highest dividend money pays. 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.
Man in the Car Paradox
If respect and admiration are your goals, be careful how you seek them. Humility, kindness, and empathy will bring you more respect than horsepower ever will.
Wealth is What You Don’t See
Wealth is hidden. It’s income not spent. Wealth is an option not yet taken to buy something later. Its value lies in offering you choices, flexibility, and growth to one day purchase more stuff than you could right now.
Save Money
Savings can be created by spending less. You can spend less if you desire less. And you will desire less if you care less about what others think of you.
Reasonable > Rational
You’re not a spreadsheet. You’re a person. A screwed up, emotional person. When it comes to investing, try to be reasonable rather than rational.
Surprise!
Don’t rely solely on history when predicting the future of the economy and stock market.
Room for Error
People underestimate the need for room for error in almost everything they do that involves money. The solution is simple: Use “room for error” when estimating your future returns.
You’ll Change
Long-term financial planning is essential. But things change—both the world around you and your own goals and desires. The trick is to accept the reality of change and move on as soon as possible. The quicker it’s done, the sooner you can get back to compounding.
Buy or not to buy
If you want to be wealthy and then stay at the totem pole forever, you must immediately read this book. I bought several copies of this book to gift friends and family. It’s an easy read with a lot of anecdotes and real-life lessons. I already implemented several hacks in my life whistle taking investment decisions.
Author(s): Morgan Housel
Part 16 of 23 in the đź“– The Psychology of Money book series.
Series Start | The Psychology of Money: Timeless lessons on wealth, greed, and happiness - Day 15 | The Psychology of Money: Timeless lessons on wealth, greed, and happiness - Day 17