The book The Psychology of Money by Morgan Housel is a wonderful book on money and finances. It teaches us that financial success is more about behavior and mindset than knowledge or skill. Below are a few of my favourite things that I learnt from this book:
Controlling your time is the highest dividend money pays.
If you have money, you can use it to control your time. Why do you go to your job every day? To earn money that pays your bills and covers your expenses. You have to work even if you don’t enjoy your job. Now imagine having savings that can cover all your expenses for a year. In such a situation, you can take a break from your soul-sucking job while you look for a more favourable offer. The money in your savings account provides you with the flexibility to do so.
And if you save enough, you can retire early. You don’t have to work until you’re 60 years old. This way, your money helps you gain control of your time—the time that you would otherwise spend in a job you don’t love.
Wealth is what you don’t see.
We often use the words “rich” and “wealthy,” but they are very different. We can easily spot a rich person, but it is very difficult to spot a wealthy person.
A rich person is someone who drives a big, nice car, lives in a large house, and owns expensive gadgets. We see people buying costly things and consider them rich. But we don’t know if they bought those things with a large loan from the bank. Such a person is definitely rich because, even if it’s on finance, they can still afford the EMIs. But are they wealthy? We can’t be sure. We don’t know their bank balance or their other assets. Richness is visible.
On the other hand, wealth is not visible. A person who lives modestly may also be wealthy. Wealth is the money saved by not spending on everything. It consists of the financial assets that haven’t been turned into something everyone can see.
We should all strive to be a wealthy person rather than just a rich person.
Save money.
We all save money for different purposes—buying a car, going on a vacation, making a down payment for a house, etc. Saving for a specific purpose is important, and everyone should do it. But we should also save without any specific purpose because we live in a very unpredictable world. You never know when an unexpected, large expense will arise, putting a dent in your savings. In such an event, your savings without a purpose can bail you out, allowing you to cover unforeseen expenses without dipping into funds earmarked for other goals.
Time is the most powerful force in investing.
If you want to be a successful investor, the single most important thing you can do is stay invested for the long term. Only then will compounding work best for your investments, allowing you to get the returns you expect.
Favourite quote
Controlling your time is the highest dividend money pays.
Click here to buy ‘The Psychology of Money‘ on Amazon.