Doing well with money has a little to do with how smart you are and a lot to do with how you behave. Exploring exactly how this plays out in real life is Morgan Housel's project here, and in this book, he covers 20 of the most important logical flaws, biases, and causes of bad behavior that do the most to make the world of money such a circus.

One of his greatest observations is that knowing what to do tells you nothing about what happens in your head when you actually try to do it, and he also explains why people make decisions with money that may seem crazy to us but actually make perfect sense to them. No one is crazy, says Housel, it's just that we've each learned different lessons about money depending on our worldview, how we were brought up, and the individual experiences we've had.

What's more, teaching behavior is hard to do, even to smart people. You can think of finance and investing and everything technical that comes with it as hard skills, or skills that can be acquired through education, practice, and repetition, and the psychology of money as a soft skill, soft being character traits and interpersonal skills that characterize a person's relationships with other people.

Morgan Housel is a partner at The Collaborative Fund and a former columnist at The Motley Fool and The Wall Street Journal, but The Psychology of Money came out of nowhere to sell more than a million copies since 2020, and the original article from which the book originated has also been read more than a million times. Clearly, the themes in this book speak to something vitally important in human life.

In this breakdown, we're going to be looking at why gaining control over your time is one of the highest dividends money can pay, and the parts that luck and risk play in the formation of our strategies for life. We're going to investigate the impact of desire on our financial planning, and why you should aim to be "mostly reasonable" as opposed to being coldly rational.

We're also going to be working on making you "antifragile" by making sure you eliminate any single points of failure that currently exist in your life, and I'm going to be introducing you to one of the most effective investment strategies ever devised, otherwise called "Shut Up and Wait."

Perhaps most importantly, we're going to try to understand the financial perspectives of others and what their previous life experiences and current circumstances may have taught them about how money works. Being born in the 1990s, inflation means nothing to me, but to someone born in the 1960s, it's a clear and present danger that they're all too familiar with.

Forty percent of Americans say that they couldn't come up with $400 in an emergency, yet the lowest-income households in America on average spend $412 a year on lottery tickets, four times the amount of those in the highest income groups. Put the two together, and it's the same people spending $412 on lottery tickets that couldn't come up with $400 in an emergency - which seems crazy to you and me. But you probably aren't in that income group.

But as Housel says, we can imagine the internal dialogue of those people going something like this:

"We live paycheck-to-paycheck and saving seems out of reach. Our prospects for much higher wages seem out of reach. We can't afford nice vacations...Much of the stuff you people who read finance books either have now, or have a good chance of getting, we don't. Buying a lottery ticket is the only time in our lives we can hold a tangible dream of getting the good stuff that you already have and take for granted. We are paying for a dream, and you may not understand that because you are already living a dream."

I promise that the book, and this breakdown, are more upbeat than that, but that's the kind of psychological jiu-jitsu that The Psychology of Money can arm you with, and while you're reading it you're likely to experience waves of sanity and clarity washing over you. I'm mixing my metaphors here, but go ahead and grab your paddle and let's head for the circus!

Key Ideas:

#1: “Doing well with money has a little to do with how smart you are and a lot to do with how you behave.”

These are absolutely two different things, and someone who's incredibly bright yet has zero patience and is prone to emotional waves and crashes is going to do a lot worse in the stock market - and with money in general - than someone who is perhaps less bright, but who does certain things well.

Geniuses go broke every day, and being intelligent is no defense against bad luck and risk. In many ways, we create our own luck - and stack our own probabilities - by the actions we take.

Where the stock market is concerned, sometimes the best thing you can do is nothing. Just wait. It'll go back up. As of this writing, there has never been a 20-year period in history where the market has lost money, so if you just keep dollar-cost averaging over time, then, historically, you have a 100% chance of making money. It's the geniuses who freak out when their portfolios drop 25% and sell everything who end up losing money when the market recovers naturally.

#2: “Knowing what to do tells you nothing about what happens in your head when you try to do it.”

The above (Key Idea #1) contains excellent financial advice - just shut up and wait - but how hard is this in reality? Really. Freakin'. Hard! Even if you know that the stock market has always recovered in the past and will most likely recover this time as well, it can be exceptionally difficult to see the money that's earmarked for your children's education and your own retirement evaporate within the span of a few months.

It's the psychological toll of knowing that what you do in this moment will affect your own well-being and the future well-being of everyone that you care about that makes it so hard to look your family in the eye when your market positions are tanking and everything seems so uncertain.

That's what I loved so much about this book - it directly addresses those things that happen inside your own mind when you try to do what's right for the people you care about. And it also gives you backup, motivation, and most importantly, data to help you weather these internal storms and chart your own course - regardless of what's happening on the battlefield of your own mind.

#3: “People from different generations, raised by different parents 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."

A recurring theme in The Psychology of Money is a recognition of the basic fact that people will take financial actions that make sense to them, knowing what they know, in their particular circumstances, even though those actions might look crazy to others.

Mere decades make a difference here. Someone whose first memories were formed during a period of high uncertainty, high inflation, and crashing stock prices are likely going to come away with an entirely different belief system around how money works, compared to someone whose upbringing occurred during the boom years. They will probably have completely different views regarding money.

Both people could be equally smart, well-meaning, and everything else, but they will just think differently about money based on their own particular life experiences and based on how the people who influenced them felt about money.

Not only is this important for our own peace of mind, in that we don't have to jump around from podcast to podcast, racing to copy every other billionaire's investment strategy; it also means that we can give each other a break, and perhaps indulge in some empathy regarding how others deal with money.

#4: “The world is too complex for 100% of your actions to dictate 100% of your outcomes.”

Sometimes luck just isn't on your side. Other times, you could do everything completely wrong - I mean seriously, what were you even thinking? - and things will turn out perfectly fine. This is because luck exists (or maybe better yet, probability exists), and the only thing that you can plan for is for your plan not to go according to plan.

The interplay between risk and luck is too opaque, too mysterious ever to be planned out in advance. A case in point brought up by Housel is the story of Kent Evans, a childhood friend of Bill Gates whom everyone thought was going to ride right alongside Gates, straight to the top.

Million-to-one odds placed Bill Gates in the exact perfect position to deepen his coding expertise before anyone else when his school in Seattle provided him with one of the very first computers. Just like the million-to-one odds that resulted in Evans being killed in a mountaineering accident at just 17 years old.

If there's a lesson in all this, it's that attachment to plans or outcomes can lead to pain and dashed expectations - not that you shouldn't try. Make plans, set goals, work towards the outcomes you're trying to bring to life, but always with a clear-eyed view of the role of luck in human affairs, and the ultimate fragility of those same humans.

#5: “Everything worth pursuing has less than 100% odds of succeeding.”

Carrying forward the last point, it's also important to realize that certainty doesn't exist - will never exist - in a constantly changing universe, and we can never afford to wait for conditions to be perfect before we act.

We will always have blind spots, the rules of the game always seem to be in flux, but all meaning and radical achievement lies on the opposite side of risk and uncertainty. If you are sure to succeed, it probably isn't worth doing.

#6: “Focus less on specific individuals and case studies and more on broad patterns.”

Oh man, this is important too. Especially with the rise of "Top 5 Things All Billionaires Do Before Breakfast" videos on YouTube and similar examples of survivorship bias. Seriously, if we someday found out that Elon Musk eats fried muktuk stuffed with tire rubber for breakfast every day, you can bet that sales of old tires and whatever muktuk is will go through the roof, with everyone clamoring to digest this one "secret thing" that's the key to all of Elon's success.

Plenty of billionaires are good people who've built sustainable businesses on solid fundamentals and have added a lot of good to the world, but others have had to check their conscience at the door in order to make their fortunes! Housel gives several examples of business magnates from other eras who have trodden all over the laws that apply to everyone else, and who now have their names on the sides of buildings! Depending on your point of view, they were either "resisting outdated laws," or were blatant criminals who just didn't get caught.

Following their example would be ridiculous! Much better to look at broad patterns, and the themes that keep recurring in the lives of people who have achieved outsized success.

Reading is one of them. Absolutely, reading is one of them. Show me a side-by-side of successful people who read versus successful people who don't - it's not even close. So yea, reading is something that you're going to want to do. Many successful people also have some form of mindfulness practice that keeps them grounded, focused, and energized. Almost all of them will get lots of sleep and not put toxic shit in their bodies. These are patterns, themes, common threads that tie all these success stories together, and if you adopt many of these practices yourself, you're going to be favored by the gods of probability.

#7: “The hardest financial skill is getting the goalpost to stop moving.”

It's the nature of desire to keep slipping away from us. Once we get what we used to want, we often find that there's something else that we want next, just waiting for us over the next ridge.

In a previous book breakdown, I introduced you to what Naval Ravikant, the legendary investor, had to say about desire. He tries to limit the number of desires that he has operating in his life at any one time, and he recognizes his main desire - whatever it is - to be the "axis of my suffering." Whenever you desire something, it's like agreeing to be unhappy until you get what you want. And I mean, we go around desiring things all day, and then we wonder why we're unhappy.

Morgan Housel is right on with his assessment as well: one of the hardest things you'll ever do is to decide when enough is enough. And you really have to do this if you want to be sane. In a world that's always telling you that you aren't quite enough as long as you don't possess this thing, you have to be intentional about planting those goalposts firmly in the ground and not backing down an inch.

#8: “None of the 2,000 books picking apart Buffet's success are titled This Guy Has Been Investing Consistently for Three-Quarters of a Century. But we know that's the key to the majority of his success. It's just hard to wrap your head around that math because it's not intuitive. There are books on economic cycles, trading strategies, and sector bets. But the most powerful and important book should be called Shut Up and Wait. It's just one page with a long-term chart of economic growth."

#9: “The more you need specific elements of a plan to be true, the more fragile your financial life becomes.”

Another wise investor, Nassim Taleb (man, who ever knew these guys were so smart!?), has a series of books that I've recommended below, one of which directly concerns the point that Housel is making here. In Antifragile, Taleb goes into detail about how to protect yourself from random, cataclysmic events - what he calls Black Swans.

In his view, you can either be "fragile," "robust," or "antifragile." Fragility is when you are harmed by these random events; robustness comes about when you're just about in the middle of the road and these Black Swans are no big deal, and antifragile is when you gain from disorder. An example will make this clearer.

Say that there are three scandals, each affecting a politician, a construction worker, and a writer. The politician, whose career could be utterly ruined by such a scandal is therefore fragile because the Black Swan event - the scandal - threatens to wipe him out. The construction worker is relatively robust because odds are, he can just find another construction job in another town maybe, where no one knows about the scandal that affects him.

The writer, however, is antifragile because even a storm of negative publicity means that a ton of people are talking about her book, which is going to keep her book in the news, which is going to lead more people to check it out, if not just to see if it's really as incendiary as people say. So she gains from something - disorder, a negative event, a Black Swan - that wipes out the politician. Your muscles are also antifragile because you can break them down in the gym by lifting heavy weights and they will grow back bigger and stronger. That's antifragility!

As much as possible, you want to be antifragile. Or at least robust. In general, you want to avoid having "single points of failure" in your life, where just one mistake, one angry boss, one Black Swan can completely wipe you out. In stock market terms, you want to be diversified across different asset classes, such as stocks, bonds, real estate, etc.

This isn't necessarily financial advice, but there's a lot of money to be made during recessions and downturns when stocks all go "on sale" and you can buy them at rock-bottom prices before the market recovers. That's how fortunes are made in the stock market. If you have cash available, you can take advantage of this. But if you have everything invested in tech stocks and they plunge by 50%, you're much more fragile to Black Swan events and you won't have the cash to buy cheap stocks that will later go up in value.

There's a lot more I could add here, but in the interest of space, I'll move on. I'll close by saying though, that the less you need this particular plan to work out in every single way, the less fragile you are. Flexibility, options, and contingency plans will always serve you well.

#10: “Money’s greatest intrinsic value - and this can't be overstated - is its ability to give you control over your time. To obtain, bit by bit, a level of independence and autonomy that comes from unspent assets that give you greater control over what you can do and when you can do it."

Elsewhere in the book, Morgan Housel says, "The highest form of wealth is the ability to wake up every morning and say, 'I can do whatever I want today.'" I'm inclined to agree! Speaking from experience here, it's awesome to have autonomy and relative control over how your day unfolds, and I believe that it's a goal worth shooting for, no matter who you are. It's also attainable.

I still do things I don't want to do (nobody wants to do heavy barbell squats), but I generally start my day at around noon, when I wake up (with no alarm), make my way downstairs to brew some coffee, after which I spend a few hours reading before getting down to work - and writing these book breakdowns for you!

It's magical, there's really no other word for it, and I wouldn't be sitting here telling you about it if I didn't think that you could achieve more control over your calendar as well. It really is money's greatest intrinsic value.

Now, I'm absolutely not ignoring the realities of economic life for many people - the dependents, the responsibilities, the student loans, and everything else that makes life so tough for so many different people. I'm just saying that gaining control over your time is one of the single greatest things you could do for yourself, and it's so completely worth shooting for. Remember, I worked for years as an overnight security guard at a hospital; I've mopped floors at restaurants; I remember earning pennies for articles that I spent hours meticulously crafting.

But having made it to the other side, I can say, unequivocally, that being in control of your own life - and time is what your life is made of - is just incredible. You may be close, or you may have a little ways to go yet, but it's one financial goal that's totally worth shooting for.

#11: “Spending money to show people how much money you have is the fastest way to have less money.”

This one Key Idea has been pretty much tattooed on my brain ever since I first read The Psychology of Money, and it's informed so much of my financial thinking forever after. If you keep just this one short sentence at the top of your mind, you're going to make much better financial decisions than 99% of the population.

Not only will spending money recklessly on luxury items drain your bank account and scuttle your future prospects like nothing else, but it's also just completely counterproductive, as Morgan Housel explains. He calls it the Man in the Car Paradox, and the gist of it is that we hardly ever actually look at the people driving really nice cars and think that they’re really cool people. We only see the car and think how cool other people would think we are for owning it.

Even if you do end up buying some insanely expensive car, hardly anyone is going to care about you specifically; they're going to be thinking about themselves, and how much other people would "respect" them for having one just like it! You can see how crazy this is. I know Morgan Housel says that "no one is crazy," but this is pretty damn close.

Not only that, but owning expensive things doesn't really tell you anything about the true financial status of the person displaying those things. It's not like they have a digital readout of their bank balance next to their license plate. All you really know about someone who drives a $100,000 car is that they have $100,000 less than they used to...or $100,000 more in debt.

The bottom line is that the people who will admire you for the stuff you own are not the kinds of people you want to admire you, and you can save yourself a ton of hassle, stress, not to mention money, by just avoiding that whole circus.

#12: “When most people say they want to be a millionaire, what they might actually mean is 'I'd like to spend a million dollars.' And that is literally the opposite of being a millionaire."

#13: "Rich" is what you can see, but "wealth" is what you don't see. It's very easy to spot rich people, but exceptionally difficult to spot wealthy people. That also goes a long way towards explaining why it's so hard for many people to build real, lasting wealth, because it's incredibly difficult to learn from what you can't see, and what you don't see modeled by others.

Many of the loudest voices on social media are displaying atrocious spending habits that would end disastrously for anyone who found themselves copying those habits.

Contrast those behaviors with the quiet guy next door with the 10-year old car and the sensibly-sized house who's been diligently saving and investing, has everything he wants (because he's pruned his desires), and still has millions in the bank that he's not flashing screenshots of to anyone who will look and "like." You should talk to him about index funds rather than looking online to find out who will lend you the most money for a car.

It's relatively easy to look rich, but Housel would advise seeking out wealthy role models instead and learning from them. They're likely to say things like "If you have to do mental gymnastics to figure out whether you can afford something, you can't afford it," and other sage advice.

#14: “You can build wealth without a high income, but you have no chance of building wealth without a high savings rate.”

This one's controversial, because while it's true that you can build wealth without a high income, it will also take an extra-long time to materialize, at the end of which you may have much more money, but you'll also be quite a bit older, and perhaps even unable to fully enjoy the wealth that you've built up.

That being said, having a high savings rate - saving more of your income - is one of the only things you can directly control. You're not going to be able to control the economy, the job market, the stock market, etc., but you can absolutely decide to spend less and save more, cutting expenses where you can and really taking control of your saving. This is within your locus of control, and it's one of your greatest areas of leverage.

It's not all about how much money you make, either - although that's definitely one key variable in your wealth equation. Rather, it's about how much you keep, and those are two completely different things.

#15: “Every bit of savings is like taking a point in the future that would have been owned by someone else and giving it back to yourself."

When you own your time, you own everything. Yet how many people do you see who are more worried about squandering their money than they are about squandering their life?

No price is too high for the privilege of owning yourself, and the sooner you can develop more autonomy and control over how your day unfolds, the happier you're going to be. That means buying your time back, for example by hiring people to do the most time-consuming tasks that you'd rather not do yourself, or by stepping fully outside the rat race itself.

In the latter case, Housel is making the point that if you've saved enough money, you can essentially buy back all of your time, and not have to spend any of it doing work you don't enjoy or spending it with people you don't like.

This is a powerful place to be, but many people see it as out of reach. I think the important thing here is to keep the ultimate goal in mind, and just keep making meaningful progress over time. Every rep counts - every dollar saved can be put towards buying your ultimate freedom - and instead of letting this massive goal demotivate you, think about how great it feels to have this goal in the first place and to be on your way to achieving it.

#16: “In a world where intelligence is hyper-competitive and many previous technical skills have become automated, competitive advantages tilt toward nuanced and soft skills - like communication, empathy, and, perhaps most of all, flexibility. If you have flexibility you can wait for good opportunities, both in your career and for your investments. You'll have a better chance of being able to learn a new skill when it's necessary. You'll feel less urgency to chase competitors who can do things you can't, and have more leeway to find your passion and your niche at your own pace. You can find a new routine, a slower pace, and think about life with a different set of assumptions. The ability to do those things when most others can't is one of the few things that will set you apart in a world where intelligence is no longer a sustainable advantage."

#17: “Aiming to be mostly reasonable works better than trying to be coldly rational.”

The "mostly-perfect" system that you actually use is going to be much more effective than the absolutely perfect system that you never use. Rational money skills work the same way. Sometimes it makes sense to do things that don't necessarily make rational sense. Let me show you what I mean with a personal example.

In my own life, I set aside $1,000 a year for parking tickets, random fines, late fees, lost money...whatever. If I was being coldly rational, I would just do everything in my power never to get a parking ticket, always return everything on time, and make sure that every dollar that left my bank account was perfectly accounted for, but this is unrealistic! Life happens, and sometimes you'll get hit with unexpected expenses or costs that you didn't see coming.

If I didn't have that fund set aside, I might get angry - at myself, or, more likely, at some poor customer service rep - and just let that whole incident ruin part of my day. But because I have that $1,000 set aside, I can just absorb the hit, resolve to do better next time, and move on with my life! It's the same money either way, but because it's in a different "category" in my mind, I've essentially written it off as "sanity money."

Maybe you have friends that are always pushing you to invest in safer index funds rather than "gambling" on crypto altcoins, but if you're young enough that you'll have time to recover from a financial loss (and you're not investing with money you can't afford to lose), then maybe you just want to have fun guessing which altcoins are going to 10x this year. It may not be completely "rational," but as long as you've got a backup plan you're going to be fine.

#18: “The historical odds of making money in U.S. markets are 50/50 over one-day periods, 68% in one-year periods, 88% in 10-year periods, and (so far) 100% in 20-year periods. Anything that keeps you in the game has a quantifiable advantage."

Really quickly, this means that there has never yet been a 20-year period where the stock market has lost money. If you're invested primarily in index funds, which track the performance of the market as a whole, the above means that you're almost guaranteed to make money if you just wait long enough.

#19: “Things that have never happened before happen all the time.”

I'm going to openly contradict Key Idea #18 by saying that nothing whatsoever is guaranteed. Historically, it's always been the case that the stock market has recovered and come back stronger after recessions and downturns, but history is not a map of the future!

Most stock market analysts couldn't predict 6 o'clock at 5:30, and there's a reason why they all have that disclaimer about "past performance not being a guarantee of future results." The future is opaque, wide open to transformation and disruption, and that's just a feature of our universe that we all have to live with.

#20: “Fifteen billion people were born in the 19th and 20th centuries. But try to imagine how different the global economy - and the whole world - would be today if just seven of them never existed: Adolf Hitler, Joseph Stalin, Mao Zedong, Gavrilo Princip, Thomas Edison, Bill Gates, Martin Luther King. I'm not even sure that's the most meaningful list. But almost everything about the world today - from borders to technology to social norms - would be different if these seven people hadn't left their mark. Another way to put this is that 0.000000000004% of people were responsible for perhaps the majority of the world's direction over the last century."

#21: “The thing that makes tail events easy to underappreciate is how easy it is to underestimate how things compound. How, for example, 9/11 prompted the Federal Reserve to cut interest rates, which helped drive the housing bubble, which led to the financial crisis, which led to a poor jobs market, which led tens of millions to seek a college education, which led to $1.6 trillion in student loans with a 10.8% default rate. It's not intuitive to link 19 hijackers to the current weight of student loans, but that's what happens in a world driven by a few outlier tail events."

#22: “Few things matter more with money than understanding your own time horizon and not being persuaded by the actions and behaviors of people playing different games than you are. The main thing I can recommend is going out of your way to identify what game you're playing."

#23: “The world tends to get better for most people most of the time.”

One of today's greatest chroniclers of human progress is Harvard professor Steven Pinker who, in his book Enlightenment Now, showed the world just how proud we should be of all our current progress, regardless of the fact that we still have so much work left to do.

In the book, he cites the fact that "If news outlets truly reported the changing state of the world, they could have run the headline 'Number of People in Extreme Poverty Fell by 137,000 Since Yesterday' every day for the last 25 years [italics mine]. We live in a world not just with a smaller proportion of extremely poor people but with a smaller number of them, and with 6.6 billion people who are not extremely poor."

Seriously, just take a moment to reflect on how absolutely amazing that is. We are lifting people out of poverty at an astounding rate, and life expectancy across the world has shot up to the highest it's ever been in the history of humanity.

Further progress isn't guaranteed, of course, and we have to work together every single day just to make sure that we don't backslide into our former ways, but I mean, ask yourself: "In what time period would you rather be alive than today?"

If you only watch the news and listen to the Negative Nancies of the world with their endless bitching and complaining, you'll miss the blazing spectacle of human progress and flourishing that's unfolding before our very eyes. Sure, the world still faces massive, extremely challenging problems, but when hasn't it? And who's more capable than us of solving them?

Book Notes:

"A genius who loses control of their emotions can be a financial disaster. The opposite is also true. Ordinary folks with no financial education can be wealthy if they have a handful of behavioral skills that have nothing to do with formal measures of intelligence."

“Most single topics don’t require 300 pages of explanation.”

“The challenge for us is that no amount of studying or open-mindedness can genuinely recreate the power of fear and uncertainty. I can read about what it was like to lose everything during the Great Depression. But I don't have the emotional scars of those who actually experienced it."

“We all think we know how the world works. But we’ve all only experienced a tiny sliver of it.”

“The entire concept of being entitled to retirement is, at most, two generations old.”

“Let me reiterate how new this idea is: The 401(k) - the backbone savings vehicle of American retirement - did not exist until 1978. The Roth IRA was not born until 1998. If it were a person it would be barely old enough to drink."

“Dogs were domesticated 10,000 years ago and still retain some behaviors of their wild ancestors. Yet here we are, with between 20 and 50 years of experience in the modern financial system, hoping to be perfectly acclimated. For a topic that is so influenced by emotion versus fact, this is a problem. And it helps explain why we don't always do what we're supposed to with money. We all do crazy stuff with money, because we're all relatively new to this game and what looks crazy to you might make sense to me. But no one is crazy - we all make decisions based on our own unique experiences that seem to make sense to us in a given moment."

Luck and risk cannot be separated. You can’t believe in one without respecting the existence of the other.

The person you were 20 years ago setting the direction of your life is like having a stranger make decisions for you!

You can make a good decision that had an 80% chance of working out but still land on that 20% side of the outcome. It may have been the best decision you were capable of making with the information that you had at the time, but it just didn't work out. It doesn't necessarily mean that you made the wrong decision, though. Reasonable people would have done the same thing, and sometimes it's just the cost of doing business in an unpredictable universe.

“Extreme examples are often the least applicable to other situations, given their complexity.”

“Plan on the plan not going according to plan.”

“A future filled with unknowns is everyone’s reality.”

“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”
-George Soros

“Controlling your time is the highest dividend money pays.”

“Using your money to buy time and options has a lifestyle benefit few luxury goods can compete with."

“If you don’t come to work on Saturday, don’t bother coming in to work on Sunday.”
-Common investment banking expression

“Doing something you love on a schedule you can’t control can feel the same as doing something you hate.”

"Singer Rihanna nearly went bankrupt after overspending and sued her financial advisor. The advisor responded: 'Was it really necessary to tell her that if you spend money on things, you will end up with the things and not the money?'"

Your savings is the gap between your ego and your income.

“Almost 600 people ace the SATs each year. Another 7,000 come within a handful of points. In a winner-take-all and globalized world these kinds of people are increasingly your direct competitors."

“History is the study of change, ironically used as a map of the future.”

“If you view investing as a hard science, history should be a perfect guide to the future. Geologists can look at a billion years of historical data and form models of how the earth behaves. So can meteorologists. And doctors - kidneys operate the same way in 2020 as they did in 1020. But investing is not a hard science. It's a massive group of people making imperfect decisions with limited information about things that will have a massive impact on their wellbeing, which can make even smart people nervous, greedy and paranoid."

“Imagine how much harder physics would be if electrons had feelings.”
-Richard Feynman

“Good ideas are indistinguishable from bad ideas taken too far.”

“Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you.”

“For reasons I’ve never understood, people like to hear that the world is going to hell.”
-Deirdre McCloskey

“There are two topics that will affect your life whether you’re interested in them or not: money and health.”

“Progress happens too slowly to notice, but setbacks happen too quickly to ignore.”

“Being able to wake up one morning and change what you're doing, on your own terms, whenever you're ready, seems like the grandmother of all financial goals. Independence, to me, doesn't mean you'll stop working. It means you only do the work you like with people you like at the times you want for as long as you want."

“When forced to choose, I will not trade even a night’s sleep for the chance of extra profits.”
-Warren Buffett

“No matter how we save or invest I'm sure we'll always have the goal of independence, and we'll always do whatever maximizes for sleeping well at night. We think it's the ultimate goal; the mastery of the psychology of money. But to each their own. No one is crazy."

“I just want to be right—I don’t care if the right answer comes from me.”

“Look for people who have lots of great questions. Smart people are the ones who ask the most thoughtful questions, as opposed to thinking they have all the answers. Great questions are a much better indicator of future success than great answers.”

“I learned that if you work hard and creatively, you can have just about anything you want, but not everything you want. Maturity is the ability to reject good alternatives in order to pursue even better ones.”

This Book on Amazon: Principles, by Ray Dalio

“Never ask the doctor what you should do. Ask him what he would do if he were in your place. You would be surprised at the difference.”

“If there is something in nature you don't understand, odds are it makes sense in a deeper way that is beyond your understanding. So there is a logic to natural things that is much superior to our own. Just as there is a dichotomy in law: 'innocent until proven guilty' as opposed to 'guilty until proven innocent,' let me express my rule as follows: what Mother Nature does is rigorous until proven otherwise; what humans and science do is flawed until proven otherwise.”

“You may never know what type of person someone is unless they are given opportunities to violate moral or ethical codes.”

This Book on Amazon: Antifragile, by Nassim Taleb

“An extraordinary life is won on offense, then preserved on defense.”

“Why do parents force their kids into debt for the promise of jobs that might not exist?”

“Money buys happiness when you use it to buy your freedom.”

This Book on Amazon: Unscripted, by M.J. DeMarco

“Tomorrow and plans for tomorrow can have no significance at all unless you are in full contact with the reality of the present, since it is in the present and only in the present that you live. There is no other reality than present reality, so that, even if one were to live for endless ages, to live for the future would be to miss the point everlastingly.”

“What we have to discover is that there is no safety, that seeking is painful, and that when we imagine that we have found it, we don’t like it.”

“You do not play a sonata in order to reach the final chord, and if the meanings of things were simply in ends, composers would write nothing but finales.”

This Book on Amazon: The Wisdom of Insecurity, by Alan Watts

The View from the Opposition:

No one's ideas are beyond questioning. In this section, I argue the case for the opposition and raise some points that you might wish to evaluate for yourself while reading this book.

#1: The people who are selling the books about investing didn't make their money in the stock market - they made it by selling books.

This is not to bash Morgan Housel in the least - he very clearly knows what he's talking about, he's written a phenomenal book, and I've never heard of him doing anything shady or deceptive. That being said, you always have to be careful about where you're getting your information from. Including from me!

The reality is that compound interest definitely works, but it works much better with larger numbers and larger initial investments. Yes, you can dollar-cost average into the stock market and eventually become a millionaire, but it's going to take years and years if you don't have a lot of money to invest at the beginning, which is the situation most people find themselves in.

Just realize that there are a ton of unscrupulous people out there hawking investment strategies, but if you take a closer look, you'll find that most of them made their money in some other way!

It's easier to sell a dream in the form of a book, make a million dollars off of it, and then invest that money into the stock market, than it is to patiently invest, year after year, seeing your balance grow at an average of 8% yearly, which has been the average historically. You can see how earning 8% on $1,000,000 is much more lucrative than earning 8% on $10,000, yet most authors of finance books will never come out and say this.

#2: You're unlikely ever to save your way to a million dollars.

"I'll take 'More Things Authors of Finance Books Will Never Come Out and Say' for 500, please, Alex!" To be clear, I'm a huge fan of having an emergency fund, and I love the idea of saving generally, but you're unlikely to get rich doing it, and here's why.

Even if you make $200,000 a year and save 10% of your money each month (or $20,000 annually), it would take you 50 years to save a million dollars. Oh yea, and even if you started when you were 20 years old, you'd now be 70 and your health would probably preclude you from enjoying that wealth as much as you'd be able to in your 20s and 30s. Add in the costs of inflation and everything else that could happen to derail your plan over the course of 50 years, and this whole "savings" thing starts to crumble.

Now, again, in no way am I saying that people shouldn't save money. They should. You should. But people need to be realistic about what saving money can do for them, how long it will take, and the dangers associated with using that as your primary strategy for wealth creation.

Same thing with cutting expenses. You can only save so much money on lattes. Saving money, just like reducing your expenses, all go under the heading "Defense." In order to really hit your financial targets, though, you're going to have to start going on "Offense," and perhaps starting a business - or making more money at your job - where the math and the economics are more in your favor. There's a limit to how much you can cut costs, but when you run a business, there's no limit to how much you can earn.

#3: Don't settle.

The closest thing that comes to a criticism of Housel's book is that much of it reads like a consolation for not having as much money as you'd like to have. I'm not certain that that's fair to him, but that's just the sense that I get.

I would hate to have someone read the book - or this breakdown - and decide to settle for less in life, and to downgrade their dreams. Again, I don't think that Housel is specifically advocating this, but it's certainly important enough that I had to address it.

If your dream is to make hundreds of millions of dollars, buy a fleet of Lambos, hire Bill Gates to be your butler, cover the Arctic Circle in cardboard, and organize the first interstellar space flight, no one has any right to tell you to be more realistic. Just go for it.

As long as you're a net positive in the world and you lift other people up with your example and your contribution, I'm probably going to support you, no matter how unlikely it is that Bill will ever become your butler.

There's so much wisdom within the pages of The Psychology of Money that can make your life better, but ultimately, it's you that has to live it. Striving for huge, noble goals is part of what makes life worth living, and putting in an honest hard day's work is one of the greatest sources of satisfaction available to humankind. There's no contradiction in being happy with what you have, yet endeavoring to do more.

"The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time and still retain the ability to function.”
-F. Scott Fitzgerald

Action Steps:

So you've finished reading the book. What do you do now?

#1: Give people a break.

I try to give most people the benefit of the doubt. We're all trying to live our lives under conditions of uncertainty, limitation, and imperfection, and I think that many, if not all people are just doing their best.

That's one of the biggest takeaways from this book, I believe, too. No one is crazy - they just look crazy to us - and maybe with a little more (or a lot more) empathy and understanding we could eventually learn to live with each other.

#2: Gain some distance from your thoughts about money.

Don't believe everything you think. Sometimes a thought is just a thought, and you don't have to believe something just because it originated inside your own head. That's a fairly advanced concept, but it's going to benefit you immensely if you can learn to take the 30,000-ft view of all the crazy and to disidentify with it.

Meditation is great for this, and even things that maybe aren't "formal" meditation, but just involve you seeking some silence and solitude and learning to observe your own thoughts. Examine what you think, question it, look at what's happening inside your own mind, and just watch your thoughts. Ask yourself, "Are you your thoughts? Or are you the thinker of your own thoughts? How do you know?"

#3: Strive to be mostly reasonable.

One of the major themes of this book is that what makes sense to you might look crazy to someone else who grew up with different experiences or a different upbringing, but neither one of you is crazy. You don't always have to do the exact perfect thing in every financial situation, especially if it delivers more peace of mind to act in some other way.

There are a ton of possible examples I could give, but for one thing, different people will have different ideas about how much money they need to have saved up in order to feel "secure." Maybe it's "reasonable" to have 6 months of emergency expenses covered, but if you'd feel better with 1 year's worth - or 1 month's worth - then that's the perfect answer for you.

#4: Become antifragile...or at least robust.

Antifragility is about becoming stronger in the face of adversity, and you can set your life up in such a way that this is true for you more often than not. The obvious example is in the weight room, where your muscles grow back bigger and stronger after you break them down with heavy weights during your workout. Your muscles are antifragile, but your mind can also be that way.

You can use adversity to build up mental toughness so that you're better able to recover from shocks in the future. Seek out meaningful challenges and overcome them. Be uncomfortable every day of your life, so you can be prepared for when your strength is truly tested. That's how you become antifragile.

At the very least, aim for robust, which means that no matter what happens, you can at least get back to baseline and move on with your life.

“In the face of strong winds, let me be a blade of grass. In the face of strong walls, let me be a gale of wind."

#5: Spend money to buy time.

One of the best ways to spend your money is to buy time. You can do this by studying your schedule and seeing if there's anything that you can pay someone else to do so that you can free up that time for something else.

It helps to set a "personal hourly rate" here - the amount of money you'd be willing to sell your time for - and then measure the costs of any delegated tasks against that. For example, if your personal hourly rate is set at $100/hour (pro tip: whatever number you had in mind first, double it), then if you can pay someone $100 or less to free up an hour of your time, you should do it.

This works even if you're not rich. Don't spend money you don't have, of course, but every hour you can claim for yourself is another hour that doesn't belong to anyone else, and that's one of the greatest feelings in the entire world.

#6: Keep some cash handy.

What's going to almost always be a good idea is to keep some cash handy, either for emergencies or to invest in the stock market during one of its inevitable downturns. Fortunes are made during recessions, and stocks "go on sale" during those times. If you invest in index funds when stocks are at their lowest point, you stand to make money during the (almost) inevitable recovery.

Be aware, however, of the fact of inflation, and how your cash will be worth less and less over time. Sometimes, even high-yield savings accounts don't keep pace with inflation, and you should be cognizant of that reality as well.

#7: Plant your goalposts.

Decide well in advance how much exactly is enough, and what you need to have in your life in order to be happy and fulfilled. And then pledge not to go beyond that! More can never be enough, and there's sort of a Parkinson's Law effect going on with respect to our desires, in that what we desire keeps expanding to the extent that we learn about new things that we could want. Resist the social pressure to keep advancing those goalposts!

#8: Play your own game.

There are many "good games" that you could play in life, and it helps to carefully delineate exactly which "game" you are playing.

Are you playing the "fame and fortune" game? That one's pretty competitive, and you should know what you're getting into. Or maybe you're playing the "be the best dad you could possibly be" game? That one's infinitely more winnable, because it's completely internal. There's literally no one who could compete with you in that game, and you can set the victory conditions yourself.

People everywhere will try to convince you to play their game, but don't fall for that shit! Don't even start playing a game you don't want to keep playing for a long, long time, and make sure that you know exactly what you're getting into and what exactly you're willing to do in order to win.

#9: Shut up and wait.

Don't just do something...stand there! Odds are, the stock market will always recover from any setbacks it will ever experience, and you'll make money over time if you just keep dollar-cost averaging into index funds and avoid making any catastrophic decisions.

There's never been a 20-year period where the market has lost money (but remember, that could change), and so it's always a better idea to ride out the storm and wait for the dawn.

#10: Strive to achieve noble goals in the face of uncertainty.

No one who gave their best in life ever regretted it. Nobody has life all figured out, but over and over again it's been found that people most regret the things they didn't do, rather than the things they've done that didn't work out exactly according to plan. Nothing is guaranteed, but anything worth doing has less than a 100% chance of succeeding, and none of us have anything to lose.

#11. Get a good night's sleep.

Warren Buffet famously said that he wouldn't trade even a single night's sleep for the chance to make extra profits, and there's a guy who's got both of his goalposts planted firmly in the ground.

The economic opportunity that's available today is just astounding, and there are more ways to make money than anyone has the time to pursue. There are also temptations everywhere to behave unethically and cheat the system, but you have to live with yourself, and it's a helpful heuristic to refuse to do anything that would prevent you from laying your head down at night in peace.

About the Author:

Morgan Housel is a partner at The Collaborative Fund and a former columnist at The Motley Fool and The Wall Street Journal.

He is a two-time winner of the Best in Business Award from the Society of American Business Editors and Writers, winner of the New York Times Sidney Award, and a two-time finalist for the Gerald Loeb Award for Distinguished Business and Financial Journalism. He lives in Seattle with his wife and two kids.

Additional Resources:

Original Psychology of Money Article

The Collaborative Fund

Morgan Housel on Twitter

This Book on Amazon:

The Psychology of Money, by Morgan Housel

If You Liked This Book:

Atomic Habits, by James Clear

Principles, by Ray Dalio

Designing the Mind, by Ryan A. Bush

The Wisdom of Insecurity, by Alan Watts

I Will Teach You to Be Rich, by Ramit Sethi

The Millionaire Fastlane, by M.J. DeMarco

Unscripted, by M.J. DeMarco

The Great Rat Race Escape, by M.J. DeMarco

Money: Master the Game, by Tony Robbins

The Intelligent Investor, by Benjamin Graham

Essentialism, by Gregory McKeown

Antifragile, by Nassim Taleb

The Black Swan, by Nassim Taleb

Skin in the Game, by Nassim Taleb

The Laws of Human Nature, by Robert Greene