The Psychology of Money Book Summary

Book Summary

15 min

Audio available

Brief Summary

People make real-world financial and investment decisions based on their beliefs and life experiences, not on hard math or data. Risk, luck, and skill also shape an individual’s chance for financial success. To achieve financial success, make a reasonable plan that focuses on compounding annual gains over time. Be ready to adapt when the markets inevitably change and don’t allow greed to distract you from your goals. Everyone will have different investment techniques, and the key is to choose the plan and techniques that will give you the greatest chance of reaching your personal financial goals.

About the Author

Morgan Housel is an author, partner at Collaborative Fund, and former columnist at The Motley Fool and The Wall Street Journal. He has been awarded the New York Times Sidney Award, the Best in Business Award from the Society of American Business Editors and Writers, and was a finalist for the Gerald Loeb Award for Distinguished Business and Financial Journalism.

Topics

Money & Investments

The Psychology of Money Book Summary Preview

What You’ll Learn

The dangers of being greedy and trying too hard to appear wealthy through fancy materialistic purchases
Why people are prone to economic and financial pessimism
How to develop a unique investment strategy while still allowing for change

Who Is This For

Individuals hoping to improve their investment strategy
Families who want to learn financial techniques to help them reach their long-term financial goals
Individuals looking to gain a better understanding of the psychology behind why people make the financial decisions they make

Key Insights

Many factors shape an individual’s view of money, including their life experiences, their childhood, and their status in life. People will ultimately make their investment decisions based on their personal experiences. Risk and luck also play a big part in determining if an individual will become successful or not. Many people are driven to always be striving for more, even if what they have is already enough, but greed can make people lose perspective on what really matters in life. Remember that money is not the key to happiness. Most people are happiest when they feel that they are in control of their own lives.

The key to getting wealthy is compounding. Allowing small annual gains to add up over time is the most important step to achieving financial success. To stay wealthy, stay humble, don’t take unnecessary risks, and have a plan for when things go wrong. Humans are inherently irrational beings, so try to aim to make reasonable decisions, but don’t be concerned with being overly rational. Make a plan, but be ready to adapt as things inevitably change. In investing, there is always a chance something will go wrong. Everyone will have their own view of the economy, and these stories will ultimately shape how they invest their money. It is important to choose the best investment techniques that make the most sense with the kind of life you want to live and align most closely with your personal goals.

Many Factors Shape People’s Financial Decisions

Everyone will have a different view of the world, based on their individual experiences, status, childhood, and other factors. This includes how people view money. Therefore, people will most often make their investment and finance decisions based on their personal experiences, rather than always choosing the most financially rational decisions that will get them closer to their goals. For example, people who have less money are more likely to purchase lottery tickets than wealthy people, because it is one of the few ways they can imagine achieving financial freedom and wealth. Many people do not make sound investment decisions simply because they do not understand the financial concepts they require, because these concepts are still relatively new and many people do not have enough experience with them to truly understand them.

Luck also plays a big part in how people become financially successful. This is why emulating wealthy people is not always the key to success. For example, Bill Gates is undoubtedly smart, but he was also lucky that he was...