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The Psychology of Money by Morgan Housel Book Review

The Psychology of Money is a book about, well, the psychology behind money and personal finance. I picked it up after having read several essays by the author at Collaborative Fund – like this one. He’s an excellent writer and I thought I’d give it a shot.

After all, it’s really hard to write a personal finance book that’s actually new or revolutionary. Most of the lessons you need to know can fit on an index card.

But that’s exactly the problem. We don’t actually do the personal finance tasks. It’s abstract, tedious, almost too simple, and constantly competes with all the shiny things.

It’s very similar to eating well. Eating is not complicated, but we make it complicated because, well, that’s what our brain likes to do.

Either way, that’s what the Psychology of Money is all about. It’s about why we are all horrible with money, and how can we think about it differently so that we do the right thing.

What I Liked

Morgan Housel is a straight-up amazing writer. The stories are amazing, engaging, and captivating.

The book is an easy, accessible read. There are some anecdotes that might be a bit insider-ish, but I think he keeps it fairly general audience-level.

I liked at the end where he spelled out how *he* manages his money. It is sad, ironic, and unfortunate that there are so many people who make money off personal finance advice…and then go do something crazy, exotic, and hypocritical.

He marshals charts and statistics to backup his stories without making it a book about numbers.

He goes to great lengths to show that some cliches are simply, true, even if we dismiss them at our our peril.

What I Didn’t Like

Not a whole lot, honestly. I think there are likely some readers who might pick this up as a How To book, rather than a What and Why book and will be disappointed. It’s not a book on why you should use Vanguard instead of Betterment or Schwab; instead, it’s a book about why you have to resist selling your stock funds when you get scared.

What I Learned

Note – this is straight from his takeaways in the back. But it’s super-useful as a reminder.

Go out of your way to find humility when things are going right and compassion when things are going wrong. The world is big and complex and you have very little control over the world economy. Respect luck, but also respect what you *do* have control over.

Less ego, more wealth. Saving money is the gap between your ego and income. Neither you (or others) will necessarily see your wealth. Wealth is options in the future.

Manage your money in a way that helps you sleep at night. Don’t let people convince you to be more conservative or more aggressive than you want to be.

Time is the single most powerful force in investing. Increase your time horizon. Investments that need to work in a year will likely fail…those with 30 years to work are much more sure.

Become OK with things going wrong. You only need to be right a few times.

Use money to gain control over your time.

Be nicer and less flashy – people care about themselves, not about you.

Save. Just save. You don’t need a reason to save. If you think you are saving enough, save some more. Savings give you options.

Define your cost of success and be ready to pay it. Nothing worthwhile is free. Uncertainty, doubt, and regret are common costs that are worth paying.

Worship room for error. Finance is an endurance race; don’t push to the breaking point.

Avoid extremes in financial decisions.

You should love risk because it pays off over time (note the takeaway on time above). A lot of risk over a lot of time is the only surefire investment.

Define the game *you* are playing. Don’t play other people’s games or let them convince you to play their game.

Respect the mess. No one knows the future. And no one knows your goals & desires. Give respect to everyone.

By Nate

I'm Nate Shivar - I live in Atlanta and love exploring the city, outdoors, books & Internet. Read about me, my Now page, or my work.

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