Understanding our relationship with money can aid us in making better financial decisions.
Table of contents
🚀 The Book in 3 Sentences
Time is the most powerful force in investing.
Manage your money in a way that helps you sleep at night
Saving for things that are impossible to predict or define is one of the best reasons to save.
🎨 Impressions
This book delves into the psychology behind our financial weaknesses in a very palatable and concise manner. Housel considers how past experiences, moving the goalposts and being coldly rational can worsen long-term financial gains. The alternative is having clear, reasonable financial goals that are not over-reliant on historical financial performance. If you can implement these approaches, you can be financially successful in the long run.
🔍 How I Discovered It
👤 Who Should Read It?
The book is relatively short but packed with fun and timeless financial lessons on how to deal with money. Is perfect for those curious about the behavioural economics and decision analysis of all aspects of money, a rudimentary take (albeit an insightful one) on these topics to some readers.
☘️ How the Book Changed Me
I learnt that...
The accidental impact of actions outside of your control often have a greater influence than your conscious decisions. So, work hard and take risks but also consider the role that luck plays in finance. Focus less on specific individuals and case studies and more on broad patterns. This should also help develop greater humility when things are going right and compassion when they are going wrong.
the goalposts seem to move the more you earn. There are countless rich individuals who have lost everything because they felt the millions they had were not enough. We shouldn’t risk what you have and need for what we don’t have and don’t need. Saying “enough” is realizing that an appetite for more will push you to the point of regret.
Good investing is about consistently not screwing up. Financial success can be summarized by one word: survival. The most financially successful are those who have been able to stick around for a long time. You can only grow your wealth if you have given an asset time to compound.
controlling my time is the highest dividend that money pays.
✍️ My Top 3 Quotes
Social comparison is a battle that can never be won, or that the only way to win is to not fight to begin with—to accept that you might have enough, even if it’s less than those around you.
There’s only one way to stay wealthy: some combination of frugality and paranoia.
Modern capitalism is a pro at two things: generating wealth and generating envy.
📒 Summary + Notes
TOP 5 TAKEAWAYS
#1: the Power of Compound Interest
You don't need tremendous force to create tremendous result. Warren Buffett Is a Prime Example of this. His current net worth is $84.5 billion, but he accumulated $84.2 billion after his 50th birthday. This shows the power of compounding. The key to compounding isn’t about earning the highest returns. You want pretty good returns that you can stick with for the longest period of time.
#2: Avoid the Extreme Ends of Financial Planning
People’s goals and desires change over time and you are no different. So, this means long-term financial planning can be difficult. Our inability to predict our future selves is called the End of History Illusion. If you look back, I imagine you can visualize how much you have changed. That said, Housel believes you will underestimate how much you will change in the future. To counteract this, you should avoid the extreme ends of financial planning. Accept that you will likely change your mind in the future.
#3 Leave Room For Error
You should always leave room for error when estimating your future returns. Housel calls this planning on your plan not going according to plan. So, the author assumes his future returns will be ⅓ lower than the historical average. This simple decision means he saves more than he usually would. This is his margin of safety.
#4 Stop Focusing on Historical Data
Housel describes a mistake several investors make called the Historians as Prophets Fallacy. This mistake is an overreliance on historical data to predict future financial interest. The reality is that innovation and change are integral to finance. Because the world changes, basing your investments solely on past performance is a bad decision. History can be a misleading guide to the future of the economy and stock market because it doesn’t account for structural changes that are relevant to today’s world.
#4 Stop Judging People By Their Visible Wealth
Some people use newfound wealth as an opportunity to show off. Housel suggests you stop judging people’s wealth by what you see. Remember that people’s true wealth is what you do not see. Those who decide not to buy something now to buy something later will stay wealthy for longer. Wealth’s value lies in offering you options, flexibility, and growth to one day purchase more stuff than you could right now.
#5 We All Have Unique Experiences of Investing
Our current relationships with money are based on our past experiences. Housel uses the example of people who lived through The Great Recession and are now scared of reinvesting. Many of us won’t have lived through The Great Recession. So, the author recommends avoiding judging others for their financial decisions as no one is crazy. We have all simply had different experiences of investing. He also explains that we must learn to make investment decisions based on our goals and investment options rather than experiences. The world is always changing and relying on your experiences means you are basing your decisions on knowledge of a different world.
Comments