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The Psychology of Money by Morgan Housel (Never Missed It)


Key Takeaways 

  1. Money’s greatest intrinsic value—and this can’t be overstated—is its ability to give you control over your time.

  2. Spending money to show people how much money you have is the fastest way to have less money.

  3. Things that have never happened before happen all the time.

  4. Planning is important, but the most important part of every plan is to plan on the plan not going according to plan.

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


"The Psychology of Money" by Morgan Housel is a captivating exploration of the human relationship with money. With clear and engaging insight, Housel delves into the emotional and psychological factors that influence our financial decisions, providing valuable lessons on how people perceive, manage, and grow their wealth. 

Through real-life examples and relatable anecdotes, the book offers a fresh perspective on the complexities of money. Housel's compelling narrative makes "The Psychology of Money" a must-read for anyone seeking to understand the intricate connection between mind and money.

    1. Use your people skills to become rich

    Have you ever wondered why some people seem to do so well with money while others struggle to make ends meet? According to Morgan Housel, author of "The Psychology of Money," the key to financial success often lies in developing strong people skills.

    So, what exactly are people skills and how can they make you rich? People skills refer to the ability to understand and effectively interact with others. This includes skills such as communication, empathy, and negotiation. When it comes to money, strong people skills can translate into better job opportunities, successful business ventures, and wise investment decisions.

    Here are some practical examples of how people skills can lead to financial success:

    1. Networking: Building a strong network of professional connections can open doors to new opportunities. Whether it's landing a new job or finding potential business partners, the ability to forge meaningful connections with others can greatly enhance your financial prospects.

    2. Negotiation: Being able to negotiate effectively can result in better salaries, lower prices on purchases, and favorable terms on contracts. By understanding the needs and motivations of the other party, you can leverage your people skills to secure better financial outcomes for yourself.

    3. Emotional Intelligence: Understanding the emotions and motivations of yourself and others can lead to more effective decision-making, whether it's in managing your own finances or working with others in a professional setting. This can result in fewer costly mistakes and more fruitful collaborations.

    The psychology of money is deeply intertwined with our ability to understand and interact with others. By honing our people skills, we can create opportunities for financial success that go beyond mere number crunching. So, if you want to become rich, start by investing in your people skills—they may just be the key to unlocking your financial potential.

    2. Not everyone gets rich just by working hard, and not everyone is poor because they're lazy

    Morgan Housel's "The Psychology of Money" sheds light on the misconception that wealth is solely a result of hard work, and poverty is solely due to laziness. In reality, the factors influencing financial success and struggle are far more complex.

    Here's a breakdown of this concept, along with practical examples:

    Hard Work and Wealth: While hard work is undeniably important, it is not the sole determinant of wealth. Consider two individuals working equally hard in different jobs – one as a janitor and the other as a software engineer. Despite their equal efforts, the engineer's higher income potential may lead to greater wealth accumulation over time.

    Practical example: A janitor who diligently works long hours to provide for their family may still struggle financially due to the limitations of their job's earning potential, despite their hard work.

    Poverty and Laziness: Similarly, attributing poverty solely to laziness overlooks the complex systemic and societal factors at play. For instance, individuals born into underprivileged communities may face significant barriers to accessing quality education and job opportunities, regardless of their work ethic.

    Practical example: A talented individual growing up in an economically disadvantaged neighborhood may face challenges in pursuing higher education or securing stable employment, impacting their ability to break the cycle of poverty.

    In essence, "The Psychology of Money" highlights the interconnectedness of factors influencing financial outcomes, such as education, social environment, and systemic inequalities. By acknowledging the multifaceted nature of wealth and poverty, we can work towards creating a more equitable society and address the root causes of financial disparity.

    3. How much is sufficient?

    In "The Psychology of Money," Morgan Housel delves into the intriguing question of how much money is truly sufficient for a satisfying life. Housel emphasizes that sufficiency is not solely determined by a specific dollar amount, but rather by a combination of financial security, personal values, and contentment.

    Here’s a simple explanation with practical examples:

    Financial Security: Sufficiency encompasses having enough resources to cover essential needs, such as housing, food, healthcare, and other basic necessities. Once these fundamental needs are met, additional wealth may contribute to comfort but does not necessarily equate to greater happiness.

    Practical example: Imagine a person who has built an emergency fund to cover living expenses for six months. They have achieved a level of financial security that provides peace of mind, even if they don't possess extravagant wealth.

    Personal Values: Sufficiency is also influenced by individual values and priorities. Different people derive satisfaction from various aspects of life, such as experiences, relationships, or pursuing meaningful work. Understanding one's unique preferences and aligning financial resources with those values contributes to a sense of sufficiency.

    Practical example: Consider a person who prioritizes spending quality time with loved ones. They may find sufficiency in having the means to plan regular family vacations and create cherished memories, regardless of exceeding certain statistical benchmarks of wealth.

    Contentment: Ultimately, sufficiency is tied to a sense of contentment and understanding the diminishing returns of wealth on overall happiness. Acknowledging that endless pursuit of wealth may not lead to greater fulfillment can guide individuals toward defining their own version of sufficiency.

    Practical example: A person recognizes that past a certain point, accumulating more wealth does not significantly enhance their well-being. They make peace with their current financial position and focus on non-monetary aspects of life that bring them joy and fulfillment.

    "The Psychology of Money" encourages a shift in perspective from chasing endless wealth to defining sufficiency based on financial security, personal values, and contentment. By embracing this holistic approach, individuals can cultivate a more fulfilling relationship with money and ultimately lead more satisfying lives.

    4. The Car Paradox: A person in a car can teach us something interesting

    In "The Psychology of Money," Morgan Housel introduces the concept of the "Car Paradox," using a person in a car to illustrate an intriguing lesson about human behavior and decision-making. Here's an explanation of the Car Paradox, along with practical examples in simple words:

    The Car Paradox: Imagine a person driving a luxury car while stuck in traffic. Despite owning an expensive vehicle, they find themselves in the same predicament as everyone else on the road. This scenario captures the essence of the Car Paradox, highlighting the way we often overvalue status symbols and material possessions, assuming they will provide a significant advantage or enhance our well-being.

    Practical Examples:

    Status Symbols: The Car Paradox reflects our tendency to associate material possessions with status and success, often overestimating their impact on our lives. For instance, someone might believe that owning a prestigious car will elevate their social standing or bring them a heightened sense of accomplishment.

    Practical example: A person decides to purchase a luxury car, assuming that it will garner admiration from others and elevate their social status. However, they soon realize that the feeling of status derived from the car is fleeting and doesn't significantly alter their overall quality of life.

    Expectations vs. Reality: The Car Paradox challenges our assumptions about the fulfillment and advantages that material possessions can provide. It suggests that our expectations of a possession's impact on our lives often outstrip the tangible benefits it actually delivers.

    Practical example: A homeowner anticipates that purchasing a larger, more luxurious house will substantially increase their overall happiness. However, after moving in, they realize that the initial excitement fades, and the additional space and amenities only marginally improve their daily satisfaction.

    Ultimately, the Car Paradox serves as a thought-provoking reminder to reevaluate our relationship with material possessions and to consider the true significance of wealth and status. By recognizing the potential disparity between our expectations and the actual impact of possessions on our lives, we can cultivate a more balanced and mindful approach to decision-making and financial well-being.

    5. Don't save too much!

    In the book, Morgan Housel discusses the importance of finding a balance between saving for the future and enjoying the present. He emphasizes that excessive frugality or an overly aggressive focus on saving every dollar can potentially lead to missed opportunities for meaningful experiences and personal fulfillment.

    Housel's insights suggest that while prudence in saving is crucial for financial stability and security, it's equally important to consider the value of enjoying life in the present. By striking a balance between saving and spending, individuals can create a sustainable financial plan that aligns with their long-term goals while allowing for enjoyment and experiences along the way.

    The concept of "Don't save too much!" embodies the idea that financial prudence should not come at the expense of experiencing life and deriving joy from the present. Instead, it encourages thoughtful consideration of how to allocate resources to both secure the future and derive fulfillment from the present moment.

    6. Having control over your time is the greatest form of wealth

    Having control over your time is the greatest form of wealth, according to "The Psychology of Money" by Morgan Housel. This concept underscores the notion that true wealth extends beyond monetary riches and encompasses the freedom to allocate one's time in alignment with personal priorities and fulfillment. Here's a simple explanation of this idea with practical examples:

    1. Pursuing Personal Passions: When you have control over your time, you can dedicate it to activities that bring you joy and a sense of purpose. Whether it's pursuing a hobby, spending quality time with loved ones, or engaging in meaningful causes, the ability to structure your time according to your passions represents a form of wealth that transcends financial assets.

    Practical example: Imagine having the flexibility to volunteer at a local animal shelter, mentor aspiring entrepreneurs, or immerse yourself in artistic endeavors without the constraints of a rigid work schedule.

    2. Work-Life Balance: Control over your time allows for a harmonious balance between professional responsibilities and personal well-being. It enables you to prioritize self-care, relaxation, and recreation, leading to a more fulfilling and sustainable lifestyle.

    Practical example: A person who has autonomy over their schedule can allocate time for regular exercise, meditation, or leisure activities, fostering a healthier and more balanced approach to life.

    3. Freedom of Choice: Having autonomy over your time affords the freedom to make conscious decisions about how you want to live each day. It means being able to structure your days in a manner that aligns with your values, goals, and aspirations.

    Practical example: Being able to take extended vacations, explore new interests, or simply enjoy leisurely mornings without the constraints of a rigid timetable exemplifies the freedom that comes with controlling one's time.

    In essence, the concept of having control over your time as the greatest form of wealth emphasizes the immeasurable value of autonomy and the ability to shape your life according to your preferences and priorities. By recognizing this form of wealth, individuals can strive for a balanced existence that transcends mere financial accumulation and embraces the richness of a fulfilled and purpose-driven life.

    The Psychology of Money: Timeless Lessons on Wealth, greed, and Happiness

    Doing well with money isn’t necessarily about what you know. It’s about how you behave. And behavior is hard to teach, even to really smart people.

    Money―investing, personal finance, and business decisions―is typically taught as a math-based field, where data and formulas tell us exactly what to do. But in the real world people don’t make financial decisions on a spreadsheet. They make them at the dinner table, or in a meeting room, where personal history, your own unique view of the world, ego, pride, marketing, and odd incentives are scrambled together.

    In The Psychology of Money, award-winning author Morgan Housel shares 19 short stories exploring the strange ways people think about money and teaches you how to make better sense of one of life’s most important topics.


    "The Psychology of Money" by Morgan Housel leaves readers with a profound understanding of the impact of psychology on financial choices. By emphasizing the importance of long-term thinking and embracing simplicity, Housel encourages a shift in mindset that can lead to financial success and peace of mind. Through relatable stories and practical wisdom, the book empowers readers to navigate the complexities of money with clarity and confidence. "The Psychology of Money" is a timeless guide that sparks introspection and inspires positive change in our financial behavior.

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