Five lessons from the book "Psychology of Money"
There is a deluge of books on the subject of personal finance, but only a few are worth reading. While others offer advice on how to invest and save, other folks offer financial mantras. One theory attributes more of the cause of investors' success (or failure) to their mindset than to their financial acumen.
The book, which is published in September of 2020 and was written by Morgan Housel, a columnist for the Wall Street Journal and a partner in the Collaborative Fund, conveys the message that one's financial success depends less on knowledge and more on attitude and behavior, and that the latter is notoriously difficult to instill in even the most intelligent students.
The author offers 19 anecdotes from his own life to demonstrate his various arguments and shows how to make sense of money from a range of different perspectives.
KEY LEARNINGS
The power of compounding: The vast majority of Warren Buffett's fortune was accumulated after he reached the age of 65. Our cerebral circuitry is simply not designed to comprehend such craziness "The author makes a case.
The effect of compounding over time is what actually matters. When seen from a longer time frame, even relatively little benefits can appear to be great. He asserts that even with a somewhat meager starting point, it is still possible to achieve astonishing results that defy logic. The author presented comprehensive matters from a variety of vantage points, and he makes use of 19 anecdotes to support his claims.
Recognize appropriate social behavior and practice it: The author claims that a genius with uncontrollable emotions could be detrimental for a company. The opposite is also true. Even if they don't specialize in finance in college, individuals who possess certain non-intelligent qualities might amass significant fortune if they know how to behave in particular situations.
To be more precise, he asserts that "your own experiences with money make up maybe 0.0000000001% of what's happened in the world, but maybe 80% of how you think the world works." Because of this, there is a significant gap between what we learn from experience and how we use what we learn to interpret the outside world.
Avoid making poor judgments: When it comes to efficiently managing your time, avoiding poor decisions is equally as important as making excellent ones. Keep your head down and prioritize the security of your possessions. One should constantly be prepared for unforeseen events. and make necessary plan adjustments. Not only should you prepare for what is most likely to occur, but you also need to prepare for what might.
Cost of investment : There is always a price to pay while doing something. Even social media networks are not entirely free. They may give the idea of being free, but you must pay for them with your time and data. Similarly, the ultimate cost of investing is not monetary, but rather the effort to overcome negative emotions such as fear, doubt, uncertainty, greed, and regret. This is the cost that each person must pay. These are required in order to benefit in the stock market.
Luck plays a part: the author posits a connection between chance and danger. It is a fact that every outcome in life depends on variables besides just how much effort a someone puts in. Scott Galloway, a professor at New York University, is quoted as saying: "Nothing is as good or as bad as it seems."
According to him, because luck and risk are so similar, one cannot have a healthy amount of faith in either without simultaneously having a healthy amount of respect for the other.
He asserts that one should not focus excessively on specific results, but rather on broad trends. He goes into more detail on how unlikely it is that something terrible will happen. Looking at the accomplishments of the outliers is therefore not instructive because luck would have played a big role, and this is something that cannot be recreated.
If you are wealthy in the truest sense of the word, money is useful when you can use it to buy time and complete the tasks you want to complete. One definition of what it means to be truly affluent is this. Although some people may appear wealthy, this is mainly due to the items they have acquired through taking on debt. When compared to accepted standards, they are not considered wealthy.
People have a propensity to judge your wealth based on your capacity for consumption. Instead of being spent, the majority of a wealthy person's wealth is kept in reserve in the form of stocks, fixed assets, and other investments. The truly wealthy can use their money to purchase more leisure and freedom.