All of us want to earn money, However, not many of us know how to ensure that money becomes our constant companion and friend. We all earn money but rarely do we think of the thought processes that influence our journey to wealth creation. Morgan Housel’s book, The Psychology of Money, is a treatise which can help us befriend money and ensure that we have a fulfilling and enduring relationship with wealth. A brilliant and thought-provoking analysis of important financial aspects such as personal finance, investing, and astute business decisions, Housel’s book is well known in the financial circuits as a guide to the world of investing and becoming rich.
Below, our top takeaways from the book.
Takeaway #1: The first thing that this book exemplifies is that the rich are not a separate sub-species. Indeed, they are normal human beings like you and me, albeit with a better approach towards money and financial wellbeing. Housel’s book enunciates the fact that it is our psychological build-ups that determine whether we end up rich, middle class or poor, for, our psychology affects the way we think and make decisions in all areas of our lives. Trusted for his brilliant investment strategies and years of experience, Housel’s The Psychology of Money is a study of the failings of the human psyche and a guidebook on how to save ourselves from the follies committed by those who came before us.
Takeaway #2: Inarguably, the book shines light on the path to wealth creation. However, it also underscores the relevance of several factors like our personal histories, opinions of the world, egos, inherent pride, and external marketing tactics in the financial making process. Intuitively you would understand that these factors should be kept at bay since financial decisions should ideally have a foundation of logic and reasoning. Further, to make sure that we do not fall prey to the dangers of our emotions, it is important to assess our goals and fears before we begin the investment journey. Another point to be noted is that, many times, because of our collective consciousness and fear of the unknown, we may end up missing out on opportunities to grow wealth.
Takeaway #3: The Psychology of Money also emphasizes on the incredible power of compound interest and wealth, espousing the fact that if we have enough money, we will be willing to take incredible risks and financial opportunities which may or may not succeed. Money, therefore, gives us power over our investment decisions. And, while dubious investments are risky, compound interest is a risk-free option which provides us the possibility of financial freedom.
Takeaway #4: Another major takeaway from the book is that it is best to stick with good and proven investment methods, especially when we are in the process of building wealth. The book makes a very strong point – people who are rich are those who are capable of maintaining their wealth for the longest period of time. When beginning our financial journeys, it is common sense, along with well known aspects like flexible and logical thinking, frugal budgets, and long-term investment horizons, which goes a long way towards making us financially free and, in time, rich.