The Psychology of Money - 4

My takeaways from the book “The Psychology of Money” 

Money & Health 

There are two topics that will affect your life whether you are interested in them are not: Money & Health. While health issues tend to be individual, money issues are more systemic. Our finances play a huge role in our lives. Yet, people rarely discuss them or educate themselves on this topic. “Work to learn” instead of “Work to earn.” Out of all your efforts, only a small minority of things account for the majority of outcomes.  

Saving Money 

Saving money is the gap between your ego and your income, and wealth is what you don’t see whereas rich is what you see. Life is a continuous chain of surprises; savings are the hedge against life’s surprises that bring the hell out of you. Don’t try to impress others with your possessions, what you really want is respect and admiration, which can be gained through kindness and humility.  

Luck & Risk 

Respect the power of luck and risk and you’ll have a better chance of focusing on things you can control. You should like risks because it pays off over time, but you should be paranoid of ruinous risk because it prevents you from taking future risks that will pay off over time. Life is about playing the odds, and we all think about the odds a little differently. Building wealth lies in the mindset of “managing risks” instead of “avoiding risks” as there is always risk. Learn to build networks, as everyone else is trained to work. 

Financial Decision 

Any financial decision should always be backed up by sound analysis, reliable facts, and a mind open to new perspectives and constructive criticism. You should work on your ability to adapt to trends and destroy your phobia of new ones, even if it contradicts your inner beliefs. The money market leaves no room for subjectivity, biases, or impulsive decisions. Rushed investments can wipe off years of savings, while valuable ones can speed up your journey to financial freedom. 

Price of success 

In investing you must identify the price of success - volatility and loss amid the long backdrop of growth – and be willing to pay. Uncertainty, doubt, and regret are common costs in the finance world.  

Independence should be your financial goal 

Not having control of your time is such a powerful and universal drag on happiness. True success is exiting some rat race to modulate one’s activities for peace of mind. Independence is the grandmother of all financial goals. Independence here means doing the work you like; with people you like at the time you want for as long as you want. This independence can be achieved if and only if you keep your expectations in check and live below your means. Define the game you’re playing, and make sure your actions are not being influenced by people playing a different game. Understand what works for you.