The Psychology of Money

The Psychology of Money is a book written by Morgan Housel that I’ve been wanting to read for a few months. I finally did it! Of course in order to get the full nuance and whatnot you need to read the entire book because it’s filled with a bunch of success (and failure!) stories from a lot of people that you can learn from. These are only the key points that I think is worth to remember in the long term.

Consistent compounding over ‘short burst’.

Small habits and decision can compound over time, leading to significant outcomes. Don’t underestimate little things you do consistently. Instead of trying to earn a lot in a single day, earn ‘enough’ consistently. It will compound overtime. What people often overlooked when judging someone’s wealthiness is ‘time’. The wealth has been built up for years. Remember that Warren Buffet has been investing since he’s 10 years old (albeit something not everyone could do). The main point here is that Time is Important.

Luck and Risk goes hand in hand

People don’t attribute ‘Luck’, they even see it as somewhat condescending. In reality, ‘Luck’ plays quite a big role in someone’s success or misfortune. People who are wealthy are people who happens to be in the right time, the right moment, the right place, and doing the right thing. Not everyone have the same faith. Don’t be too fixated on the things they do, always account that there is some ‘Luck’ at play.

[!tip] Not all success is due to hard work, and not all poverty is due to laziness. Keep this in mind when judging people, including yourself.

Getting wealthy is different from staying wealthy

Getting wealthy is a thing, staying wealthy is another thing. The key of being wealthy boils down into ‘Paranoia’. Being scared that in a single day your fortune could just flip over because nobody can predict the future.

Always plan for something for a plan that is not going according to plan

Sounds a bit complicated, but the main point here is that always make your plan robust. The less factors or variables can affect your plan, the better it is. The more flexible your plan is, the better it is. If one variable suddenly goes wrong, if your plan goes wrong then that’s not a very good plan, it should still somewhat work albeit not 100% according to plan.

Manage your expectations

People’s financial decisions and behaviours are controlled by their expectations. It’s important that your expectation is adaptable since the real condition is always changing. You can’t expect your current expectation will be met in the future, things are always changing all the time.

Simplicity over complexity

Less is more as the saying goes. Make your financial plans as simple as possible. Like mentioned in previous part, it’s important that your plan relies on less variables. Often times straightforward strategy yields better result than its counterpart.

Being wrong is okay

Not every financial decisions are always right. Everything is unpredictable hence you can’t always make the right choice. It’s important that you’re used to making wrong decision and learn from them. This is why having a good risk management is very important because you can’t avoid being wrong.

A lot of the success are the result of the tail events

You will fail, a lot. It’s kinda like 95% of the success comes from the 5% extreme success. Be patient over something if it doesn’t worked out initially. A lot of successful things came out from the tail event, where time and luck really plays a big factor, and a lot of |wrong things happen beforehand.

[!tip] Nature is not kind enough to give you only good things, but it is kind enough to give you a chance for good things to happen