Book: Morgan Housel - The Psychology of Money
Last week I finished the book Psychology of money. The post date is the date, that I finished the book, while I am writing this on the 14th of March.
There was nothing specifically new in the book, but sometimes I need to be reminded of the things, that I cognitively know, but I am not 100% living yet. it helps, that I liked the style, it is written it.
It starts with the lesson, that we each have a different goals in life, and that is why there are no money-related decisions, that are irrational. Just because the decision would be bad from our point of view, that does not mean that it is bad for the person doing it. We can not judge or blindly copy them, if we do not know their situation and goals.
The main lesson of money part was the power of compounding. Consistency of one way of investment beats constantly jumping from one scheme to another.
I think the most important lesson for me was, it is to think of the opportunity cost of money not in the relation to money, but to freedom. The money in the back account can be valuable, as it can provide the freedom, that some more non-liquid investments can not. Also, if the money in the back can stop you from stopping the investment in the worst time, then it can most likely recoup the difference.
This lesson is important for me, because I am one of these people, that actually do have most of my money in the back account. It is part laziness, that I did not really start anything else. But it is also part the feeling, when I know that I can cover my lifestyle for more than a year with no problems.
The third lesson, that I am mostly already living in, is knowing when is enough. The only way to build wealth is to spend less then one earns. In order to to this, one needs to decide, what is enough.
From the environmental perspective, I already try to make the things last as much as possible. And from the minimalist perspective, I try to not buy the things, that I do not really need. Sometimes I think I might try to live without for too long, though. :)
I did not came to this thinking with intention to build wealth. I first wanted the freedom to be entrepreneur (which I never became), and then to have the power to walk away at any point. But since the wealth can by one options and freedom, I guess I just did not concentrate on the middle step.
The last lesson connected to this is to take bets, that do not have the power to bury you. Only take the bets, where the worst case does not have the power to bury you. Be only as risk seeking, to still be able to sleep at night.
There were also some small lessons, like how we treat the positive and negative prediction differently. Or how we really relate to people in expensive cars. And so on. Overall, an interesting read.