The Psychology of Money by Morgan Housel [Actionable Summary]

This is a comprehensive summary of the book The Psychology of Money by Morgan Housel. Covering the key ideas and proposing practical ways for achieving what’s mentioned in the text. Written by book fanatic and online librarian Ivaylo Durmonski. Members get full access and a deluxe printable of this summary.

The Book In Three Or More Sentences:

Managing your money is not easy. But here’s how the author of the book thinks you should approach cash: It’s not about what you know about money, it’s about how you behave with money. Financial freedom is not about learning everything related to the stock market. It’s about patience and persistence. In this book, Morgan Housel walks us through the major behavior patterns we should adopt if we want to become good with our cash flow so we can finally develop financial literacy.

The Core Idea:

Our behavior patterns prevent us from having good financial health. We accumulate debt and fail to meet our investment goals not because we don’t know what to do, but because we’re too greedy or deeply involved in social games where we compare ourselves to the people around us. To become better and smarter with your money, you don’t need to study new investment strategies. You need to examine how you behave with your money and make adjustments.

5 Key Lessons from The Psychology of Money:

Lesson #1: Don’t Mimic Specific Successful Individuals. Adopt Broad Patterns

If you are not sure how to manage your money, you’ll do what everyone else in the world is doing: You’ll check how the wealthiest people are using their cash. You’ll read the big covers. Check the famous sites. Digest the stories covered by the news.

Sadly, this is not a very good strategy for two main reasons:

Firstly, different people have different backgrounds. If you were raised in a middle-income family, you will have a very different approach to the way you handle your money than someone who grew up in a mansion, for example. For you, spending $1000 on a seminar might seem like a crazy idea. For others, though, that’s a lifestyle.

Secondly, we rarely consider the role luck plays in other people’s lives. As the author writes, “The line between bold and reckless can be thin.” Sometimes, turning your small company into a big corporation can be caused by events you can’t predict nor measure. Or in other words, you simply got lucky.

How do these two points translate to us?

Don’t obsess over super successful people and don’t try to mimic their every move. In most situations, their fame and “greatness” is pure luck – something you can’t emulate – or something caused by their social circle – something that depends on many things. Focus on the common behavior patterns that are present in most people. Things like patience and self-control.

Or put differently, not all success is due to hard work. Also, failure is not always related to laziness. There are a lot of factors involved. A lot of moving pieces that are hard to measure.

Look at different people. Observe situations where individuals and companies did good and adopt the repeatable patterns. Usually, these are patience, avoiding reckless behavior, and focusing on the long-term goal.

“When things are going extremely well, realize it’s not as good as you think. You are not invincible, and if you acknowledge that luck brought you success then you have to believe in luck’s cousin, risk, which can turn your story around just as quickly.” Morgan Housel