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BOOK REVIEW PSYCHOLOGY OF MONEY

BY MORGAN HOUSEL
Written By: Capt. Oman Minhas
03 Jan 2025
SI&T Quetta
1. The Book, PSYCHOLOGY OF MONEY has been written by MORGAN
HOUSEL who has been writing on finance from 2008. In 2020 he published this
book containing the report of his research over the period of decade. Our lives are
anchored to few rules and regulations in social, personal, professional, financial and
economic matters. The struggle of people starts from birth and ceases at death. How
we navigate our self through major and core issues and challenges is based upon
what we learn in general and what is taught to us in academics. However, there are
two matters which no one on earth can ignore and neglect which is money and
health. This book teaches some principles which are universal in applicability
unanimously for all people in this modern age. This book comprises of 300 pages
and 20 chapters.
2. The intro begins with story of 3 people. One is Ronald Read who remained a
cleaner and gas station boy for over 18 and 25 years respectively. At the age of 82,
he died and 8 Million dollars were discovered in his bank account which made
headlines throughout the world. The story and secret behind his wealth was not
robbery, corruption or black money but this was his wealth he generated for over 8
decades through investments. The compounding effect of investing made this
cleaner a millionaire. While the other person was Gupta who was born at a slum in
India but later became a millionaire at his later stage of life. He wanted to be part of
Billionaire club albeit he was owning around 100 million dollars. However, he started
to made illegal shortcuts which ultimately landed him in jail. Meanwhile the 3 rd person
was owner of 737 Million dollar Madoff who also wanted to be part of billionaire club.
However, when he started a Ponzi scheme, he was also caught and sent to jail. The
point here to make is, it’s sometime easy to make money but to keep the money is
actual job. People own money but how you handle it is the art. Moreover, saving and
investing is the real key of financial freedom and independence. As Ronald read was
just a cleaner but he donated 6 Million dollars to charity and 2 million dollars to his
grandchildren. Although, he earned less but his lifestyle below his means allowed
him to save money for unforeseen and unpredictable cycles of life. He had a

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patience of 50 years in investing and his investments compounded over time. He

had never to ask and seek help from anyone. There are countless lessons which can
be extracted from his story. This book is a comprehensive guide on how money is
integral and core component of modern life and how earning huge money is less
important but saving less or more money is more important. This Book comprises of
20 chapters in fact 20 principles and I will touch upon all of them one by one.

What seems perfect for me may sound absurd for others

3. Our perspective of finance is usually different from each other. When JFK US
President was asked about great depression of 1930, he replied that he had no
knowledge of this disaster until he studied in Harvard University. Moreover, he only
remembered his father employed more gardeners to give jobs to people. Likewise,
the entire US economy crippled but everyone was effected differently. In US over
millions of people buy lottery ticket for a dream with 400 dollars, an amount most of
them don’t have for medical emergency. So we all do the things with money that suit
us and that might not work for someone else. What makes sense to me might look
crazy to you.
Luck and Risk

4. Nothing is as good or as bad as it seems. Bill Gates, Allen and Kent were
three friends in US at Lakeside school. All were 3 close friends working on only
computer at that time. Taking leap of faith from lakeside school, both Allen and Bill
gates later developed Microsoft to become billionaires. However, Kent was killed in a
mountaineering expedition. In US it’s one in a million case to be that unfortunate and
unlucky like Kent Evan to be killed during mountaineering and also one in a million
opportunity and lucky to become a Gates and Allen. So we never know, what nature
has kept in bucket for us, either its luck or bad luck. Therefor Risk and Luck are both
siblings. We must focus less on specific individuals and broad stories and patterns
along with case studies. Success is a lousy teacher. It seduces smart people into
thinking they can’t lose. It’s more important for us to recognize role of luck in our
lives and success as well as role of risk/. We should forgive ourselves and leave
room for understanding when judging others.
Never Enough
5. When rich people do crazy things which doesn’t make sense. Rajat Gupta
was born in Calcutta in slums and later in his 40s became CEO. By 2008, Gupta was
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100 million dollars owner while at the same time Madoff also made monumental and
towering fortunes worth 786 Million dollars. But both had no sense of enough and
they wanted more to become part of billionaires club thereby entrenched in Ponzi
schemes. Both were jailed and they lost their businesses slipping to ground zero
where they started.
The Hardest financial skill is getting goal post to stop moving. Social
Comparison is the problem here. Enough is not too little. Enough is realising
that the opposite - an insatiable appetite for more will push you to the point of
regret. It’s dangerous when the taste of having more, more money more
power, more prestige increase ambition more than the satisfaction. Modern life
has given birth to envy and wealth. But there isn’t any sense without sense of
enough. Happiness is result minus expectations. For every millionaire there
will be a billionaire richer than him and for every billionaire there will be warren
buffet and for every warren buffet there will be Jeff Bezos. So never compare
yourself with others.

Confounding / Compounding
6. Out of $84 Billion, $81.5 Billion of warren Buffet came after his 65 th Birthday.
Our Minds are not built to handle such absurdities. The skill of warren buffet is not
investing but it is Time. The counter intuitive nature of compounding leads even
smartest of us to overlook its power. The investments takes time not days not
months not years but decades. Investments must not be needlessly disturbed and
interrupted.
Getting wealthy Vs Staying Wealthy

7. Good investing is not necessarily about making good decisions. It’s about
consistently not screwing up. If I had to summarize money success as a single word
it would be “Survival”. Getting money is one thing but keeping money is another
thing. The ability to stick around for a long time, without wiping out or being forced to
give up, is what makes the biggest difference. Always keep a margin of safety in
money. You should have a safety margin while dealing with money. Getting wealthy
doesn’t make an inevitably staying wealthy. You may crash anytime.

Tails, you win

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8. You can be wrong half of the time and still make a fortune. All your efforts,
investments will not pay you always and every time. The experts say out of many
investments, few pay off very big while remaining doesn’t do much. Napoleon said
“The man who can do the average thing when all those around him are going crazy”.
A good definition of an investing genius is the man or woman who can do average
thing when all around them are going crazy”. Going wrong is OK, when you accept
that tails drive everything in business, investing and finance you realize that it’s
normal for lots of things to go wrong, break, fail and fall. Success rate in finance and
any other field is 30-40 %.

Freedom

9. Controlling your time is the highest dividend money pays. The highest form of
wealth is the ability to wake up every morning and say “I can do whatever I want
today”. Then there is retiring when you want to instead of when you need to. Part of
what happened here is that we have used our greater wealth to buy bigger and
better stuff, but we have simultaneously given up more control over our time.
At the best, those things cancel each other. Compare to the generations prior,
control over your time has diminished. And since controlling your time is such a key
happiness influencer. We shouldn’t be surprised that people don’t feel much happier
even though we are on average richer than ever. Take it from those who have lived
through everything: Controlling your time is the highest dividend money pays.
Man in the Car Paradox
10. No one is impressed with your possessions as much as you are. If respect
and admiration are your goal, be carried how you seek it. Humility, kindness and
empathy will bring you more respect than horsepower ever will. Your cars do not
impress others not force others to think how can they achieve it.
Wealth is what you don’t see
11. Spending money to show people how much money you have is the fastest
way to have less money. When most of people say they want to be millionaire what
they actually mean is they’d like to spend a million dollars. And that is literally the
opposite of being a millionaire. But the way to be rich is to not spend money you
have and the actual definition of wealth. The only way to be wealthy is not to spend
the money that you have. It’s just one way to accumulate wealth, it’s the very
definition of wealth. Wealth is income not spent. Wealth is an option not taken to
buy something later. Its value lies in offering you options, flexibility, and
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growth to one day purchase more stuff that you could right now. Take example
of gym workout, when you burn calories but after workout you consume more
calories than you burnt in gym, resultantly outcome is zero. Likewise, all the
money you earn, if you spend it than result and outcome is zero. So, to save
workout, you have to keep yourself in calorie deficit and in case of money don’t
spend what you earn.
Save Money
12. The only factor you can control generates one of the only things that matter.
How wonderful. The first idea is simple but easy to overlook. Its building wealth has
little to do with income or investment return and lot to do with your saving rate. The
world energy needs grew exponentially while production of oil was stagnant and
fixed in 1970s. The world adjusted with oil crises by minimizing the consumption
since production was static. So when we have to adjust with savings we have to cut
and down size the expenses. Wealth increases by decreasing spending’s both are
conversely related to each other. A high saving means having lower expenses that
you would otherwise could and having low savings go farther than they would if you
spent more. Money relies more on psychology than finance. Savings are created
through spending less, and you can spend less if you desire less and you will desire
less if you care less what others think of you. The flexibility and control over your
time is an unseen return on wealth. What is the return on cash in bank that gives you
options of changing carriers or retiring early or freedom from worry? If you have
flexibility you can wait for good opportunities. Having control over your time and
options is becoming one of the most valuable currencies in world. That’s why more
people can, and more people should save money.

Long Term Planning

13. Long term planning is harder than it seems because people’s goal and
desires change over time. Long term financial planning is essential but both gaols
and world around you change. It’s essential to keep it intact. Rule of compounding
says that it should not be interrupted unnecessarily. Compounding works best when
you can give years or decades to grow. This is not only true for money but also for
relationships and careers. Endurance is key
Nothing is free in this world.
Everything has a price. You must pay the price in terms of time, doubts, uncertainty
and frustration.
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Seduction and Pessimism

14. This world allure pessimism more quickly than optimism. If an attack happens,
entire world would know it just moments later. But when wright brothers made a
flying machine, no one trusted them for 5 years. So when there is something
negative, it will attract attention quickly, unlike positivity which is less appreciated.
However, important lessons extracted out of book are as fol ;
15. Go out of the way to find humility when things are going right, and
forgiveness and compassion when they go wrong, because it's never as good
as or as bad as its looks. The word is big and complex. So take risk and
respect the power of luck and risk when you'll have a better chance of
focusing less ego, more wealth.
16. Saving money is the gap between your ego and your income. Wealth is
what you don't see. So wealth is created by suppressing what you could buy
today in order to have more stuff or more options in the future. No matter how
much you can earn, you will never build wealth unless you can put a lid on
how much fun you can have with your money right now today. Manage your
money in a way that helps you sleep at night.
17. If you want to do better than an investor, the single most powerful thing
if you can do is increase your time Horizon time is the most powerful force in
the investing. It makes little things grow big and big. It can neutralize luck and
risk, but it pushes results closer toward what people deserve.
18. Become okay with a lot of things going wrong. You can be wrong half of
the time and still make a fortune because a small minority of things account
for the majority of outcomes. No matter what you are doing with your money,
you should be comfortable with a lot of stuff not working. That’s just how the
world is. So you should always admire how you have done by looking at your
full portfolio rather than individual investments.
19. It's fine to have a large chunk of poor investments and a few
outstanding ones. That's actually the best case scenario. Judging how you
have done by focusing on individual investments makes winners look more
brilliant than they were, and losers appear more regrettable than they should.
20. Use money to gain control over your time because not having control
over your time is such a powerful and universal drag on happiness. The ability

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to do what you want, when you want, with who you want for as long as you
want to pays the highest dividend that exists in finance
21. Be nicer and less fleshy. No one is impressed with your possessions
such as cars, watches and fancy things as much as you are. You might think
you want a fancy car or a nice watch, but what you probably want is respect
and admiration, and you are more likely to gain those things through kindness
and humility than horsepower and chrome save.

22. Just save. You don't need specific reasons to save. It's great to get and
save for a car or a down payment or a medical emergency, but saving for
things that are impossible to predict or define as one of the things reasons to
save everyone's life is continuous changes of surprises.
23. Savings that are not earmarked for anything in particular is a hedge
against life's inevitable. Ability to suppress the hell out of you at the worst
possible moment.
24. Define the cost of success and be ready to pay it because nothing
worthwhile is free. And remember that most of the financial costs don't have
visible price tag. Uncertainty, doubt and regret or common costs. In financial
worlds, they are often worth paying.
25. Worship room for error. A gap between what could happen in the future
and what you need to happen in the future in order to do well is what gives you
endurance. And endurance is what makes you compounding magic over time.
Room for error looks like a conservative hedge, but it, if it keeps you in the
game, it can pay for itself many times over...
26. Avoid the extremes. End of the financial decisions. Everyone's goals
and desire will change over time and the more extreme your past decisions
will. The more you may regret them as you evolve. You should like risk
because it pays off over time, but you should be paranoid of the ruinous risk
that it prevents you from taking future risk that will pay off over the time.
Define the game that you're playing and make sure your actions are not being
influenced by people playing a different game. Respect the mess. Smart,
informed, and reasonable people can disagree in finance because people have
vastly different goals and desires.
There is no right answer, just the answer that works for you.

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