Money Talks?

When we hear the word money – we all have unique thoughts and emotions attached with it. Success with money isn’t about knowledge, IQ, or mathematical prowess. It’s about behaviour. Our passions, fears and dreams are different. Understanding the psychology of money helps us be aware of our thoughts, emotions and behaviour. Once we are aware of our tendencies we can harness the power of our minds, thoughts and will and change our life

I am really inspired by the book Psychology of Money. The Author, Morgan Housel, shares 19 short stories it that explore the strange ways people think about money and teach us how to make better sense of one of life’s most important matters and make life better. It’s not about buying luxury goods with money but about gaining control over life and time and achieving the ultimate form of freedom.

In the real world, people don’t make financial decisions on a spreadsheet involving many mathematical calculations. In fact, they are made at the dinner table or in a meeting room where personal history, your unique view of the world, ego, pride, marketing, and odd incentives are scrambled together. 

The key to managing a relationship with money and having a happy and fulfilling life is two-fold

• Get clear on your financial goals
• Design your game plan that achieves those goals and stick with it. Don’t try to impress others. It’s not worth it.

 Finance books focus on the technical aspects of money and investment to optimize portfolios. However, financial success depends more on one’s soft skills ( psychological and emotional) than on technical (financial) skills.

Lesson 1No one’s crazy – people have different views about money	we must learn to make investment decisions based on our goals and investment options rather than experiences.
Lesson 2Nothing is as good as or as bad as it seems	Bill Gates was smart, hardworking, and fortunate enough to attend a high school with a computer. He eventually founded MICROSOFT. On the other hand, Kent Evans, who had the same skills and passion for computers, could not make a mark as he died in a mountaineering accident before he graduated from school. .When things are going well, know that you’re not invincible. When things are going bad, know that you’re not a disaster.
Lesson 3Never enough- learn to stop shifting the goalpost	“There is no reason to risk what you have and need for what you don’t have and don’t need” Countless rich individuals have lost everything because they felt the millions they had were not enough. (Greed) Once we achieve our Goals, we look towards the next goal, and the cycle never ends. This is often driven by comparing ourselves to others who are above us on the ladder that we benchmark ourselves against. When it comes to money, someone will always have more of it than us. It’s completely ok. Enough doesn’t mean that we stop the pursuit of financial success. Enough means that we know when to avoid doing something we will regret later. Many things are not worth the risk, regardless of the gains – reputation, freedom, family and friends, love and happiness.
Lesson 4Confounding Compounding – leverage the power of compounding	Good investing is about earning pretty good returns that you can stick with and that can be repeated for the longest period of“ $81.5 billion of Warren Buffett’s $84. time.” That’s when compounding runs wild. Billion net worth came after his 65th Birthday” Warren Buffett may be a brilliant investor but his biggest secret isn’t his investment strategy or formula. Its Time. Unlike most people, he started investing when he was 10 years old, so by the time he was 30 he already had a net worth of $ 1 million. Even then $81.5 billion of his $84.5 billion net worth came after his 65th birthday.  Investing consistently from age 10 to at least age 89 is what made compounding work wonders. But compounding only works when you give an asset years to grow Dont take big risks in hope for the highest possible returns. Go for decent returns that can be sustained over a long time. Start investing as early as possible and wait for the money to grow.
Lesson 5Getting Wealthy vs Staying Wealthy – both take different skillsets	In Investment, the ability to stick around for a long time without wiping out or being forced to give up is what makes the biggest difference. Applying the survival mindset to the real world comes down to appreciating three things:More than having big returns first become financially unbreakable and with compounding enjoy the wonders.Planning is important and the important part is to plan on the plan not going according to the plan.Be Optimistic. Sensible optimism is a belief that the odds are in your favour and that over time things will balance out to a good outcome.
Lesson 6Tails, You Win – Be okay with Failures because they are inevitable	“You can be wrong half the time and still make a fortune” Warren Buffet has owned 400 to 500 stocks during his life. He’s made the majority of his money on 10 of them. Always measure your progress by looking at your full portfolio rather than individual investments, and let compounding work its magic.
Lesson 7Freedom	Money’s greatest intrinsic value is its ability to give you control over your time. In fact this is the highest form of wealth – the ability to wake up every morning and say “ I can do whatever I want, when I want, with who I want, for as long as I want”
Lesson 8Man in the Car Paradox – Money Does Not Buy Respect	“ No one is impressed with your possession as much as you are” The man-in-the-car paradox is that people rarely think somebody is cool if they see them driving a nice car. Its a Paradox  Kindness and humility are more likely to earn you respect and admiration than horsepower. No one is as impressed with your possessions as you are.
Lesson 9Wealth is What you Don’t See – the difference between rich and wealth	“Spending Money to show people how much money you have is the fastest way to have less money” We tend to judge wealth by what we see because that’s the information we have in front of us. People buy nice cars, diamonds….  This reflects current income. But wealth is hidden. Those who decide not to buy something now to buy something later will stay wealthy for longer.
Lesson 10Save Money – Your savings rate is key	“The only factor you can control generates one of the only things that matters” Just Save. Building wealth has little to do with your income or investment returns and a lot to do with your saving rate. Savings gives you flexibility,the  ability to wait and the opportunity to pounce and think about life with a different set of assumptions
Lesson 11Reasonable>Rational-being rational is draining	“Aiming to be mostly reasonable works better than trying to be coldly rational” A rational investor makes decisions based on numeric facts. A reasonable investor makes decisions in a conference room surrounded by co-workers who think highly of you. The optimal portfolio allows you to sleep at night. It allows you to generate reasonable returns while also maximising your quality of life and control over your life. It will stand the test of recession.
Lesson 12Suprise- things that have never happened before happen all the time	“History is the study of change, ironically used as a map for the future” History helps us calibrate our expectations, study where people tend to go wrong, and offer a rough guide of what tends to work. But it is not, in any way, a map of the future as it doesn’t account for structural changes relevant to today’s world, like recessions and wars, or great events like innovations….
Lessons 13Room for Error- Have a margin of safety	“The most important part of every plan is planning on your plan not going according to plan” One needs to realize that there doesn’t need to be a specific reason to save. But its important to save for things you can’t possibly predict or even comprehend. Save as much as you can because you have no idea what you’ll use the savings for in the future.
Lesson 14You’ll Change – expect your future self to have different goals and desires	Long-term financial planning is hard as people’s goals and desires change over time. When thinking about the investment strategy, try to accept the reality that we are prone to change as individuals. What matters to you today may be inconsequential in ten years. At every point in your life, aim to be moderate—moderate savings, moderate free time, moderate commute… all this helps you stick to your plan and avoid regret in the future.
Lesson 15Nothing’s Free – be willing to pay the price for success	When you invest in the long term, you need to be willing to accept the short-term price of market fluctuations They are worth paying. You should view them as fees ( a price worth paying to get something nicer) rather than fines ( a penalty) “There’s no such thing as a free lunch”
Lesson 16You and Me – find your financial identity and play your own game	One should understand one’s time horizon and not be persuaded by the actions and behaviour of people playing different games than you are. When a commentator on CNBC says, “ You should buy this stock,” keep in mind that they do not know who you are. Are you a teenager trading for fun, an elderly woman with a limited budget, or a hedge fund manager…..

Bibliography

Book – The Psychology of Money by Morgan Housel

https://www.linkedin.com/pulse/book-summary-psychology-money-morgan-housel-tanvir-ahmed-shaikh

https://www.artsy.net/artwork/barbara-kruger-untitled-money-talks