Book- The Psychology of Money

The Psychology of Money has 20 lessons. Each of the lesson describes the psychology. I always felt money is more about calculation and precision. To understand the psychology is a good way to build a good relation with money.

I've highlighted a lot of insights from this book and would return to it to ground myself in understanding money. 

1.No one's Crazy- Everyone has different experience with money and it depends on their environment, family, social circle and their own fears. Author writes, 'People from different generations, raised by different parenst who earned different incomes and held different values, in different parts of the world, born into different economies, experiencing different job markets with different incentives and different degrees of luck, learn very different lessons.'

2. Nothing is as good or as bad as it seems- Referring to Bill Gate's success story, author writes about the probability of luck and risk.

"If you give luck and risk their proper respect, you realise that when judging people's financial successs- both your own and others- it's never as good or as bad as it seems."

"The line between 'inspiringly bold' and 'foolishly reckless' can be a millimeter thick and only visible with hindsight."

"Be careful who you praise and admire. Be careful who you look down upon and wish to avoid becoming."

"Some people are born into families that encourage education; otheres are against it. Some are born into flourishing economies  encouraging of entrepreneurship; otheres are born into war and destitution. I want you to be succesful, and I want you to earn it But realise that 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."

3- Learn to say "Enough"-  In Warren Buffet's words- "To make money they didn't have and didn't need, they risked what they did have and did need. And that's foolish. If you risk something that is important to you for something that is unimportant to you, it just does not make any sense." Having said that, author also points out that 'enough' is not about having too little. There are various invaluable things in life and keeping them intact is by knowing when you have enough.

Reputation, freedom, independence, family, friends, being loved by those who want to love you, happiness, all are invaluable. 

The important financial skills to not moving the goal post all the time. Being aware of one's needs, wants, desires and to say 'enough' is a very important skill to live a happy life. 

Never get into social comparison as, it will only keep your goal post moving. Author narrated this insight through a nice anecdote- Rajat Gupta's rise and fall story. 

4-Compounding Effect- 81.5 billion of Warren Buffet's 84.5 billion dollars net worth came after his 65th birthday. Author emphasizes on the value of time and compounding. "You don't need tremendous force to create tremendous results." Build it on time! Author points out to the observation of Buffet being in this game for 3 quarter centuries and indicates that invest.Shut up and wait. would be one of the practical takeaway from Warren's investing journey. 

5-Getting wealthy vs Staying Wealthy- Good investing is not necessarily about making good decisions. It's about consistently not screwing up.  There are million ways to get wealthy but, there's only one way to stay wealthy- Author says, it's some combination of frugality and paranoia. 

'Getting money is one thing. Keeping it is another.'

6- You can be wrong half the time and still make a fortune."When we pay special attention to a role model's successes we overlook that their gains came from a small percent of their actions. That makes our own failurse, losses,  and setbacks feel like we're doing something wrong. But, it's possible we are wrong, or just sort of right, just as often as the masters are. They may have been more right when they were right, but they could been wrong just as often as you.

7-Freedom- Controlling your time is the highest dividend money pays. Use money to gain control over your time. "The highest form of wealth is the ability to wake up every morning and say, "I can do whatever I want today."

Campbell points out the denominator of happiness- "Having a strong sense of controlling one's life is a more dependable predictor of positive feelings of wellbeing than any of the objective conditions of life we have considered. Money's greatest intrinsic value is its ability to give you control over your time. Using your money to buy time and options has a lifestyle benefit few luxury goods can compete with.  Manage your money in a away that helps you sleep at night. 

Author talks of his investment banker internships and helped him what he want in life. Also, story of a musician who got rich by making himself free to do what he wanted to do seemed to be the story of how he got rich. 

8. Man in the Car Paradox. No one is impressed with your possesssions as much as you are. No one really looks at the owner of the car but see themselves in the cars that are driven around. If you are buying around for social validation, do not do it. No one respects you for the car you drive. Less ego. More wealth.

9.Wealth is what you don't see- Spending money to show people how much money you have is the fastest way to have less money. There's a lot of difference between being rich and being wealthy. Rich is current income. Someone driving a 100,000 dollar car is almost certainly rich, because even if they purchased the car with debt you need a certain level of income to afford the monthly payment. Wealth is hidden. It's income not spent. 

10- Save money. Save for the sake of saving it. The only factor you can control generates one of the only things that matters. Building wealth has little to do with your income or investment returns, and lots to do with your savings rate. One of the most powerful ways to increase your savings is not to raise your incomes. It's to raise your humility. The flexibility and control over your time is an unseen return on wealth. 

11- Be reasonable than coldly rational as we're not spreadsheets but humans with a lot of emotions. 

12- History is the study of change ironically used as a map of the future. 

13- Room for Error- Have a room for error as life happens! The most important part of every plan is planning on your plan not going according to plan. Fixing on the % of  margin of error is upto you. Having a gap between what you can technically endure versus what's emotionally possible is an overlooked version of room for error. The powerful statement that helped me to reflect on appetite for risk is- Is trading a night's sleep for the chance of extra profits is worth it?

14- You'll change. Imagining a goal is easy and fun. Imagining a goal in the context of realistic life stresses that grow with competitive pursuits is something entirely different. Only 27% of college grads have a job related to their major, according to the Federal Reserve. Long term financial planning is essential. But, things change-both the world around you, and your own goals and desires. 

15- Everything has a price- Define the game you're playing. Find the price, then decided if you want to pay it or not because not every price is on it's label. Avoid the extreme ends of financial decisions. 

16- You & me- Everyone play financial games differently. Be aware of it. While we can see how much money other people spend on cars, homes, clothes and vacations, we don't get to see their goals, worries and aspirations. A young lawyer aiming to be a partner at a prestigious law firm might need to maintain an appearance than a writer who can work in sweatpants. 

17- Do not fall for the pessimism. Growth is driven by pessimism and destruction is driven by single points of failure. 

And the other three lessons include a summary and author's own way of dealing with money. Enjoyed reading and learning alot about the psychology of money. Worth reading.