This post is part of the 📖 The Psychology of Money series.

Today, I am reading All Together Now chapter from the book The Psychology of Money: Timeless lessons on wealth, greed, and happiness written by Author, Morgan Housel.

TL;DR! 💬

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 18th short story When You’ll Believe Anything from the book The Psychology of Money.

All Together Now

Go out of your way to find humility when things are going right and forgiveness/compassion when they go wrong.

Because it’s never as good or as bad as it looks, the world is big and complex.

Luck and risk are both real and hard to identify. Do so when judging both yourself and others.

Less ego, more wealth.

Saving money is the gap between your ego and your income, and wealth is what you don’t see.

Wealth is created by suppressing what you could buy today to have more stuff or more options in the future.

Manage your money in a way that helps you sleep at night.

That’s different from saying you should aim to earn the highest returns or save a specific percentage of your income.

But the foundation of “does this help me sleep at night?” is the best universal guidepost for all financial decisions.

If you want to do better as an investor, the single most powerful thing you can do is increase your time horizon.

Time is the most powerful force in investing. It makes little things grow big, and big mistakes fade away. It can’t neutralize luck and risk, but it pushes results closer towards what people deserve.

Become OK with a lot of things going wrong. You can be wrong half the time and still make a fortune, because a small minority of things account for most outcomes. No matter what you’re doing with your money, you should be comfortable with a lot of stuff not working. That’s just how the world is.

So you should always measure how you’ve done by looking at your entire portfolio rather than individual investments.

Use the money to gain control over your time, because not having control of your time is such a powerful and universal drag on happiness.

“The ability to do what you want, when you want, with who you want, for as long as you want to, pays the highest dividend that exists in finance.”

Be nicer and less flashy.

Save. Just save. You don’t need a specific reason to save.

Define the cost of success and be ready to pay it.

Worship room for error.

Avoid extreme ends of financial decisions.

You should like a risk because it pays off over time. But you should be paranoid of ruinous risk because it prevents you from taking future risks that will pay off over time.

Define the game you’re playing, and make sure your actions are not being influenced by people playing a different game.

Respect the mess.

Key Takeaways

  • Respect the power of luck and risk, and you’ll have a better chance of focusing on things you can actually control. You’ll also have a better chance of finding the right role models.

  • No matter how much you earn, you will never build wealth unless you can put a lid on how much fun you can have with your money right now, today.

  • It is OK to have a large chunk of poor investments and a few outstanding ones. That’s usually the best-case scenario.

That’s it for today. Tomorrow, we will read the next chapter Confessions, the psychology of own money.

What we learnerd so far
  1. 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.

  2. 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.

  3. 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.

  4. 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.

  5. 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”.

  6. 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.

  7. 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.

  8. 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.

  9. 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.

  10. 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.

  11. 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.

  12. Surprise!

    Don’t rely solely on history when predicting the future of the economy and stock market.

  13. 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.

  14. 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.

  15. Nothing’s Free

    Stock market volatility is a fee, not a fine. Find the price and pay it. Convincing yourself that “market volatility is a fee, not fine” is an important part of developing the kind of mindset that lets you stick around long enough for investment gains to work in your favour.

  16. You & Me

    Investors often innocently take cues from other investors who are playing a different game than they are.

    Understand your own time horizon, identity what game you’re playing and play within those rules and not be persuaded by people’s actions and behaviours playing different games than you are.

  17. The Seduction of Pessimism

    Pessimism prevails while the powerful pull of optimism goes unnoticed. In investing, you must identify the price of success — volatility and loss amid the long backdrop of growth — and be willing to pay it.

  18. When You’ll Believe Anything

    Everyone has an incomplete view of the world. But we form a complete narrative to fill in the gaps. The more you want something to be true, the more likely you are to believe a story that overestimates the odds of it being true.

    The illusion of control is more persuasive than the reality of uncertainty. So we cling to stories about outcomes being in our control.

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.

The Psychology of Money

Author(s): Morgan Housel

Short Blurb: Doing well with money isn’t necessarily about what you know. It’s about how you behave. And behavior … Read more
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Part 21 of 23 in the 📖 The Psychology of Money book series.

Series Start | The Psychology of Money: Timeless lessons on wealth, greed, and happiness - Day 20 | The Psychology of Money: Timeless lessons on wealth, greed, and happiness - Day 22

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