The Psychology of Money: Understanding Our Complex Relationship with Money
Welcome back to another installment of #AJsBookClub! Here we summarize some of our recent reads & dive in to the take aways to help enhance an aspect of our lives. Specifically, an aspect of our own definitions of success.
If you haven’t already, consider joining the discussion on facebook. We’re a growing community of people who like to share & discuss books that are what I consider to be “Success Focused”. In the mean time, feel to check out other reviews & summaries on the blog page (quick link here to make life easier!)
Intro
Most people’s definition of success often revolves around money and financial status. But at the end of the day is that really the most important thing? How does our ability to make money really tie in to our ability to be happy?
If you haven’t read my initial blog for this website on success I highly recommend reading it. Money & Finance are absolutely one of the pillars of success, but is it the most important?
This might seem strange, but this was a book i was SUPER excited to read. Our relationship with money is unbelievably complicated and based on a variety of different emotions and personal backgrounds.
Housel does a great job of packing his book with great insight to our own personal psychology and how it impacts the way we view money. I could probably spend a dozen blog posts reviewing this book and giving some other examples for each chapter, but what I’d really like to do is focus on 5 key takeaways I had from this book.
The last one in the list is probably the most important!
5 Take Away’s From Psychology of Money:
Getting Wealthy vs. Staying Wealthy
“Good Investing is not necessarily about making good decisions. It’s about consistently not screwing up”
It always amazes me the number of times you hear about a musician, athlete, or a lottery winner who has gone flat broke after a few months. We’re taught to get money and go spend it. And when we get a lot of it? We spend it even faster.
Just because you have the ability to make money now does not mean you should assume that will continue in the future. Make your financial situation bullet proof. Live below your means and save accordingly. Some of the wealthiest people are the ones who are the most frugal.
Housel describes money success in a single word: “SURVIVAL” & outlines 3 steps to help:
Be unbreakable so you can be around long enough for compounding to work wonders
Planning is important, but more importantly plan on your plan not going to plan
Be optimisic about the future, but paranoid about what will prevent you from getting there
Good News is that you can actually be wrong quite often and still be incredibly wealthy. It’s all about protecting & minimizing loss while being consistent on growth.
Robert Kiyosaki talks a lot about the importance of taking risks, but bounding that risk so you protect yourself. There is always a way to take risks without being risky.
Account for surprises
This may seem obvious based on the previous topic, but it bears repeating. Hope for the best, but assume the worst.
The past can be a bit of a misleading teacher. It is good to generalize things and understand the trends, but don’t get caught up too much in big “black swan” events. Just because a friend of yours lost a lot of money in the housing crash of 2008 doesn’t mean that real estate is a bad investment. It just means that there are lessons to be learned and things to look out for to make sure you are bullet proof for the future.
In general, as humans, we are very poor at planning. No matter how good you think you are, always good yourself a buffer to account for the wild things that can happen in life & business.
Money can sometimes be more art than science. Always leave yourself a margin of error.
Man In The Car Paradox
When as the last time you saw your dream car driving along on the road? Take a minute & picture that moment in your head. Was it clean? Was it shiny? Was it driving as fast as you’d love to drive it?
Now picture something else for me…
What did the person driving it look like?
Much harder question right? This is the man in the car paradox.
We work hard for the material things we want because we think we will look so cool with them. Truth is that the material things are seen, not the people.
You just become a billboard for another fancy brand.
Does this change your view on these items? Consider that next time you want to buy a fancy new pair of shoes or shiny new watch. Is this a better use of money than making an investment for you future?
The Seduction of Pessimism
Consider all of the technological advances in your life time.
There’s a good chance you’re reading this on a laptop or maybe even a cell phone. When I was a kid, those things didn’t exist like they do now.
Artificial intelligence, biomedical improvements, engineering advances. All of these have made EXPONENTIAL improvements over the past few years and decades.
We are constantly on the brink of new discovery & advancement
Then why is everyone so upset with the world at all times?
“Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you.”
Psychologically, we have a much easier time saying “NO” than we do saying “YES”. Pessimism is the same way.
Housel outlines a few reasons for why this is:
Money is ubiquitous, so something bad happening tends to affect everyone and capture everyone’s attention
Pessimists often extrapolate present trends without accounting for how markets adapt
Progress happens too slowly to notice, but setbacks happen too quickly to ignore
On the path to success you need to be focused on the loving the process and not get caught up in the events.This is why it is important to take advice from people who are successful in an area of interest. They can provide you a real view of the world and what REAL concerns are.
Freedom Should be the Goal
Money can purchase a lot of material goods, but when we see a rich person, someone who is truly wealthy, the thing we really envy most is their freedom.
What sounds better to you:
“I work 90+ hours a week, never see my family, but I own my dream car!”
“I can do whatever I want today”
We always have the ability to get back money lost, but lost time is lost forever.
Out lives are spent laboring more in our heads than with our hands. Mental exhaustion, stress, anxiety, and general depression have sky rocketed in recent years.
I truly believe this is because we spend all of our time laboring to survive and do not allow ourselves the balance of having freedom to disconnect.
I’m probably one of the last people who should write about this because I KNOW I work too much, but I'm also very fortunate to have a creative outlet through DJing.
When you consider your financial goals, make freedom a part of it. Consider ways you can buy back your time to better invest in your self & your own future.
Conclusion
Our relationship with money is unbelievably complex. Money is not just a means to an end, but a source of identity, security, and meaning in our lives. Our financial choices are influenced by our past experiences, social connections, and cultural values, and these factors can lead to both positive and negative outcomes.
This is what makes it such a difficult and sometimes taboo conversation. Frankly, we’re not all on the same page.
In “The Psychology of Money” Housel offers practical advice for managing money and making smart financial decisions, including the importance of saving and investing for the long term and avoiding the pitfalls of consumerism and short-term thinking. He also explores the role that luck and chance play in financial success and the importance of cultivating a growth mindset and a healthy relationship with money.
Overall, "The Psychology of Money" is a thought-provoking and informative read that provides insight into the complex psychological factors that shape our financial decisions. Whether you are a financial professional or simply looking to improve your financial literacy and well-being, this book is a must-read!
Until Next Time!
- A.J. Zampella