The Psychology of Money 🧠
Highlights from the book
The 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.
Power of habit
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.
Psychology of happiness
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.
Leave room for error
Room for error lets you endure a range of potential outcomes, and endurance lets you stick around long enough to let the odds of benefiting from a low-probability outcome fall in your favor.
Getting money vs. keeping money
Getting money requires taking risks, being optimistic, and putting yourself out there. But keeping money requires the opposite of taking risk. It requires humility, and fear that what you’ve made can be taken away from you just as fast.
Being rich vs. wealthy
If you’re rich, you have a high current income. But being wealthy is something different – wealth is not visible. It’s the money that you have that’s not spent. It’s the optionality to buy or do something at a future time. Being rich offers you opportunities in the short-term, but being wealthy provides you the flexibility of having more of the items you want – freedom, time, possessions – in the future.
What’s the optimal portfolio?
The optimal portfolio is one that allows you to sleep at night. It allows you to generate reasonable returns, while also maximizing your quality of life and control over your life.
The price of investing
Like everything else worthwhile, successful investing demands a price. But its currency is not dollars and cents. It’s volatility, fear, doubt, uncertainty, and regret – all of which are easy to overlook until you’re dealing with them in real time.