The Psychology of Money

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🎯 The Book in 3 Sentences

Everyone is unique in his choices about money and they can be explained.
We have to find the point where enough is good for us. We don’t need more.
Don’t spend money to show others that you have money. That’s the best way to lose money.
Don’t focus on success/failure stories of outliers.
Don’t take financial cues from people playing a different game than you, i.e. short-term investors vs long-term.

Life isn’t any fun without a sense of enough. Happiness = results - expectations.

Saving money is the gap between your ego and your income.

Stories are the most powerful force in the economy.

Enough is not too little.

No one is impressed with your possessions as much as you are.

Every decision people make with money is justified</mark> by taking the information they have at the moment and plugging it into their unique mental model of how the world works.
People behave based on the experiences they have lived.

Assuming that 100% of our outcomes can be attributed to effort and decisions is wrong.
Focus on broad patterns and not outlier individuals.
Risk pays off over time.

Good investing is when you consistently not screwing up.
Learn to survive during a crisis.
Staying wealthy requires humility.
Planning is important, but the most important part is to have a plan when the plan is not going according to plan.

The highest form of wealth is the ability to wake up every morning and say, ‘I can do whatever I want today.’
More than your salary. More than the size of your house. More than the prestige of your job. Control over doing what you want, when you want to, with the people you want to, is the broadest lifestyle variable that makes people happy.
Money’s greatest intrinsic value—and this can’t be overstated—is its ability to give you control over your time.

Savings can be created by spending less. You can spend less if you desire less. And you will desire less if you care less about what others think of you.
You don’t need a specific reason to save.

An underpinning of psychology is that people are poor forecasters of their future selves.
We should avoid the extreme ends of financial planning.
We should also come to accept the reality of changing our minds.

Bubbles form when the momentum of short-term returns attracts enough money that the makeup of investors shifts from mostly long-term to mostly short-term.
It’s hard to grasp that other investors have different goals than we do because an anchor of psychology is not realizing that rational people can see the world through a different lens than your own.
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.
There is no single right answer; just the answer that works for you.

Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you.
Money is ubiquitous, so something bad happening tends to affect everyone and capture everyone’s attention.
It’s easier to create a narrative around pessimism because the story pieces tend to be fresher and more recent.
Progress happens too slowly to notice, but setbacks happen too quickly to ignore.