The Psychology of Money — Book Summary

Summary of Morgan Housel's book.

💡

As a reader-supported publication, when you buy through links on our site, we may earn an affiliate commission. Thank you for your support!

1-sentence summary: Financial success is contextual, individual, and entirely achievable (for those with patience).

This book has 20 chapters along with a very worthwhile Postscript.

No One’s Crazy
Luck & Risk
Never Enough
Confounding Compounding
Getting Wealthy vs., Staying Wealthy
Tails, You Win
Freedom
Man in the Car Paradox
Wealth is What You Don’t See
Save Money
Reasonable > Rational
Surprise!
Room for Error
You’ll Change
Nothing’s Free
You & Me
The Seduction of Pessimism
When You’ll Believe Anything
All Together Now
Confessions
Postscript: A Brief History of Why the U.S. Consumer Thinks the Way They Do

Big ideas

Money is a soft skill.

The crux of Morgan’s book is that by treating finances as only a hard science, we handicap ourselves from what is actually required to grow wealthy: namely, behavior. He writes, “how you behave is more important than what you know.”

The two behaviors that stand out through the text are saving aggressively and spending conservatively. We’ll cover both of these in more detail as we dive into the other big ideas present in the text.

A related, underlying theme is the author’s stance that no one is crazy because “every financial decision a person makes, makes sense to them at that moment and checks the boxes they need to check.” Whether that’s spending excessively on a new purchase or stingily saving every last penny.

Finances are meant to be contextual. The issue is that we allow social triggers to drive up our spending, down our savings, and push us towards lifestyle goals that will likely have no measurable impact on our happiness. The bottom line is that if you want to do better with your money, you’ll need to change what you do – not what you know.

Wealth is about endurance.

Morgan begins Chapter 4 of his book with a line that literally made me do a triple-take: “$81.5 billion of Warren Buffet’s $84.5 billion net worth came after his 65^th birthday.” For context, he was explaining the power of compounding and the need to make sure time is on your side when aiming for monetary goals.

The best way to get time to be on your side is to ensure your survival: “If you want to win, then you have to last.” This can be done by building and maintaining a significant margin of safety in every decision you make. Margins “render [forecasts] unnecessary.” They allow you to have “favorable outcomes” even with the smallest of edges.

By all accounts, Buffet is a good investor but far from the best. The author states, again and again, that “his secret is time.” This is good news for us because there are practical steps we can take to ensure time is on our side as well: save heavily, hold diverse investments for as long as possible, build emergency funds that will shield you from ever needing to interrupt the growth of your investments.

Money is a long game. The longer you play, the more certain your success.

Enough is the goal.

The postscript of Morgan’s book presents a historical explanation for why American’s relationship with money is the way it is. It was honestly one of my favorite portions of the book, and his ability to summarize 80+ years of financial history into a few pages was incredible.

The heart of his argument comes down to this: “The hardest financial skill is getting the goalpost to stop moving.”

Money doesn’t have to be complicated. Your earning potential and spending power don’t need to become never-ending treadmills of more. By defining what enough means for us, we regain the power in our lives.

There are so many things worth more than a higher paycheck, like reputation, freedom, independence, family, friends, time, and happiness. And “[our] best shot at keeping these things is knowing when its time to stop taking [financial/life] risks that might harm them.” Enoughness gives us now what we believe more money will grant us later.