Perception and Wealth: The Psychology of Money Summary Part 1

Hi, it’s been a while since my last writing about book summary. I never imagined that it would take me this long to finish one summary. Pretty much the same with the previous one, I will write the summary of this book into two articles, which split chapter 1-10 and 11-20. Be sure to read it till the end, it will be a little longer, but still way shorter than the original book 🙂
Hope you enjoy it!

1. Psychology of Money

How we deal with and handle money is 80% influenced by how we perceive the world. Our fear of uncertainty shapes the lenses through which we see and value everything around us. As Michael Batnick aptly put it, “Some lessons have to be experienced before they can be understood.”

Everyone views money differently, so we can’t expect the same responses, agreement, or trust. Regardless of our age, we are all still learning. Everyone’s decisions make sense to them in the context of their unique experiences and timelines.

2. Luck and Risk are Siblings

Luck and risk often simultaneously occur and are guided by forces beyond our control. These forces can have significant impacts on our lives.

Here are three similarities between luck and risk:

1. Hard to measure
2. Hard to accept
3. Often overlooked

Luck and risk are two sides of the coin. Luck is when outcomes are in our favor, while risk represents the potential for unfavorable outcomes.

Avoid quick judgments about others, as we don’t know the risks they took or the decisions they made to reach their current position.

• Be careful whom you praise and admire, and whom you look down on or wish to avoid. Not all success is due to hard work, and not all poverty is due to laziness.
• Look at the big picture. Luck can’t be replicated. When dealing with failure or misfortune, reorganize your financial life to ensure that setbacks won’t devastate you.

3. Never Enough

“Don’t trade what you have and need for what you don’t need and don’t have. Greed can blind us to realizing what’s truly important until it’s too late.“

• Avoid misconceptions about happiness.
  True happiness comes from having a sense of “enough.” It’s not about the amount of money, but about the balance between expectations and results. Ambition can drive us forward, but it can also lead to envy and dissatisfaction.
• Avoid social comparison. Don’t compare yourself to others with different backgrounds, wealth, or experiences. Just try to compete your history with the present you.
• A sense of enough helps avoid risky investments that we can’t sustain. Our current status or reputation might be a source of wealth, but life is unpredictable, so don’t get too attached.

4. Confounding Compounding

Focus on the consistency of your investment strategy rather than the size of your investment.
For those not engaged in trading, patience is the key. The true value of an investment portfolio becomes evident over the long term.

Small, consistent investments can lead to significant returns. We often overlook potential by focusing too much on immediate results. The best time to start investing is now. Instead of waiting for the perfect moment, take action today. Commit to your plan and stick with it until you see results.

No matter who you are or what challenges you face, valuing yourself helps you appreciate the significance of your life.

Support systems are crucial. “A healing journey can get very lonely when taken alone.”The people who are meant for us will make our life better in every single way, and they will always have a reason to stay.”

5. Getting Wealthy vs. Staying Wealthy: Frugality vs. Paranoia

Financial success is a journey of survival. The longer you stay in the race, the wealthier you become. It’s not just about getting wealthy but also about maintaining that wealth.

Staying wealthy requires more than finding new income sources. It’s about building character with humility, fear, frugality, and accepting that past success doesn’t guarantee future fortune.

Consistency is crucial. Learn from successful individuals like Warren Buffett:

• Use debt wisely. Debt can be beneficial if managed correctly.
• Stay calm during financial crises, you can overcome them.
  Because “there is no hurdle is bigger than your capacity.”
• Be adaptable. If one strategy isn’t working, find a new one. Fear of the unfamiliar shouldn’t keep you stuck in ineffective strategies.
• Never quit. Persistence is essential.

Finally, plan for the unexpected. Allow room for error in your plans.

6. Tails, You Win

Sometimes we blame unforeseen situations for our losses. However, this chapter reveals that our wrong decisions and failures can lead to a fortune. It’s easy to underestimate tail events or the power of small situations. On the contrary, anything significant, profitable, or influential doesn’t happen overnight, it’s often the result of a tail event.

A key lesson here is that the decisions we make today are not as important as how we handle a few critical days. Success often doesn’t stem from persistence or knowledge alone but from how we respond to moments of crisis. It’s normal for things to go awry, no one makes perfect decisions all the time.

How can we know if a strategy works unless we experience its failures?

“Try more crazy things, because we should have a higher cancellation rate.” Don’t be too picky or aim only for massive success from the start. Perfection is nearly impossible to achieve with just one attempt.

7. Freedom

A fundamental aspect of happiness is having a sense of control over one’s life. Sometimes, doing something we love on a schedule we can’t control feels as burdensome as doing something we hate. Being able to control our time is one of the biggest factors of happiness and provides the highest dividends money can offer.

Time control allows us to spend quality time on impactful tasks and with the right people. Although money can’t buy happiness, it plays a significant role in achieving it sooner or later.

8. Man In The Car Paradox

Many people believe that showcasing their wealth will earn them admiration. However, others are often more interested in the wealth itself rather than the person behind it. This creates a never-ending cycle of seeking approval through material possessions.

How many of us crave respect and admiration from others?

Fancy things can mislead us and create false expectations. True admiration and respect come from characteristics such as humility, kindness, and empathy.

9. Wealth is What You Don’t See

“To have less money faster, spend it to show how much you have.”

Using expensive items and flaunting wealth can lead to assumptions and judgments, well, it’s often negative. Judging others based on appearances encourages people to fake their conditions rather than embrace their true selves.

True wealth is not about spending what you have but accumulating it. Being wealthy is about building wealth over time, whereas being rich is about having the means to buy whatever you want immediately. Here are the differences:

Rich
Current income, visible status, and obvious wealth.
Wealthy
Hidden, unspent income, offering options and flexibility for the future. It requires self-control and shows the gap between what we can do and what we choose to do.

10. Save Money!

Building wealth has less to do with income or investment returns and more to do with the savings rate. Like conserving energy, we need to be efficient with what we have within our control. Buying cheaper products doesn’t mean you’re poor, sometimes, it’s about efficiency and financial conservation.

Wealth might mean different to each person. Learning to be happy and grateful with less money can widen the gap between what we have and what we want.

“One of the most powerful ways to increase your savings isn’t to raise your income, but to raise your humility.” Spending beyond our needs often reflects our ego rather than our actual needs. Raising humility in our financial decisions means focusing on managing money wisely, regardless of others’ opinions.

Here are three interconnected keys to saving:

• Savings created by spending less
• Spending less by desiring less
• Desiring less by caring less about others’ opinions

The key to saving is not merely to save up for purchases but to protect against uncertainty.

Wealth provides flexibility and control over our time. With control over time, we can avoid bad luck and seize opportunities as they arise.

That’s the end for the first part of the Psychology of Money summary. Soon, I’ll also finish and upload the second part. See you!

Reference:

Housel, M. (2020). The Psychology of Money. Harriman House Limited. http://books.google.ie/books?id=TnrrDwAAQBAJ&printsec=frontcover&dq=psychology+of+money&hl=&cd=1&source=gbs_api