Book-Summary: The Psychology of Money

  • Most money decisions are made by personal experiences.
  • Something that makes sense to one, might sound crazy to another.
  • We don’t have much data/experience with money and we are just working with our experiences.
  • “I want you to be successful, and I want you to earn it. But realize that not all success is due to hard work, and not all poverty is due to laziness. Keep this in mind while judging people, including yourself.”
  • “Success is a lousy teacher, it seduces smart people into thinking they can’t lose.”
  • “Failure can be a lousy teacher, it seduces smart people into thinking their decisions were terrible when sometimes they just reflect the unforgiving realities of risk.”
  • “The trick when dealing with failure is arranging your financial life in a way that a bad investment here and a missed financial goal there won’t wipe you out.”
  • Luck and Risk play a huge role in your success/failure story.
  • All success/failures are not 100% dependent on your efforts.
  • You should have a sense of “enough”.
  • Don’t risk something that is important to you for something that is unimportant to you.
  • “The ceiling of social comparison is so high that virtually no one will ever hit it.”
  • The hardest financial skill is to make the goalpost to stop moving.
  • Problem is social comparison.
  • Learn that “enough” is sufficient and not little.
  • “You don’t need tremendous force to create tremendous results.”
  • Compounding is very very powerful.
  • Be consistent and patient.
  • “Getting money is one thing, keeping money is another.”
  • “Getting money requires taking risks, being optimistic and putting yourself out there.”
  • “Keeping money requires the opposite of taking risk.”
  • “Getting and keeping the extraordinary growth requires surviving all the unpredictable ups and downs that everyone experiences. "
  • “Compounding doesn’t rely on earning big returns. Merely good returns sustained uninterrupted for the longest period of time.”
  • “Room for error is one of the most underappreciated forces in finance.”
  • “Most plans fail because they were mostly right in a situation that required things to be exactly right.”
  • Change strategies periodically.
  • “Some projects work and some don’t. Just get on to the next.”
  • “Military genius : The man who can do the average thing when all around him are going crazy.”
  • “Your success as an investor will be determined by how you respond to punctuated moments of terror, not the years spent on cruise control.”
  • You can be wrong 50% of the time and still be successful.
  • Mass portfolio.
  • The “tails” can cover up bad investments and give good returns.
  • “The highest form of wealth is the ability to wake up every morning and say ‘I can do whatever I want to do today’ .”
  • “Using money to buy time and options has a lifestyle benefit few luxury goods can compete with.”
  • The best thing that money can buy you is independence.
  • You can control your time.
  • Happiness relies on independence.
  • Expensive stuff won’t buy you admiration.
  • “Humility, kindness and empathy will bring you more respect that horsepower ever will.”
  • “Spending money to show people how much money you have is the fastest way to have less money.”
  • “We should be careful to define the difference between wealthy and rich.”
  • Don’t spend the money you don’t have
  • Being wealthy requires self control and patience.
  • Richness can be flaunted but wealth is hidden.
  • “Building wealth has little to do with your income or investment returns, and lots to do with your savings rate.”
  • “Past a certain level of income, what you need is just what sits below your ego.
  • “You will desire less if you care less about what others think of you.”
  • Save money without any reason
  • “You are not a spreadsheet, you’re a person. You make decisions based on your conditions and emotions.”
  • “Aim to just be pretty reasonable. Reasonable if more realistic and you have a better chance of sticking with it for the long run, which is what matters most when managing money.”
  • “Things that have never happened before, happen all the time.”
  • Don’t use the past as a hardcoded guide for investment in the present/future.
  • “You have to give yourself room for error”.
  • “We must make sure that we have enough money to withstand any swings of bad luck.”
  • It is the only effective way to safely navigate a world that is governed by odds, not certainties.
  • “Pursuing things where a range of potential outcomes are acceptable is the smart way to proceed.”
  • “Room for error lets you endure a range of potential outcomes, and endurance lets you stick around long enough to let the odds of benefiting from a low-probability outcome fall in your favour.”
  • “Use room for error when estimating future returns.”
  • “You can plan for every risk except the things that are too crazy to cross your mind”
  • Don’t take risks that will ruin you if they didn’t work.
  • Avoid single points of failures at all costs.
  • “You yourself don’t know today what you will even want in the future”
  • “We should avoid the extreme ends of financial planning.”
  • “We should also come to accept the reality of changing our minds”
  • Moderate plans last longer than extreme plans.
  • Market losses can be viewed as a fee we pay to the market, not a fine.
  • Don’t take dirty shortcuts.
  • “Beware of taking financial clues from people playing a different game than you”
  • Identify which game you’re playing short or long.
  • Invest according to the game you’re playing, not the current trend.
  • “There are two topics that will affect your life whether you are interested in them or not: money and health”
  • “Progress happens too slowly to notice, but setbacks happen too quickly to ignore.”
  • “We focus on what we know and neglect what we don’t know, which makes us overly confident in our beliefs.”
  • “It’s find to have a large chunk of poor investment and a few outstanding ones.”
  • “The first rule of compounding is to never interrupt it unnecessarily”
  • Do what makes you sleep well.