3 Lessons from The Psychology of Money

The Psychology of Money by Morgan Housel is a book recommended by many. 

In this video by Ali Abdaal, he highlighted 12 key lessons but I want to highlight three.

1. Avoid financial commitments for your future self

The end of history illusion is the idea that when you ask people how much they've changed in the past 10 years, they're pretty good at describing it. But if you ask people to describe how they're going to change in the next 10 years, people are very bad at doing that. Knowing that we're bad at that, we're still going to need money 10 years from now so we should keep in mind not to make extreme financial commitments.

2. Don't be a flashy twat

Morgan wrote to his son, "You might think you want an expensive car, a fancy watch, a huge house. But I'm telling you, you don't. What you want is respect and admiration from other people, and you think having expensive things will bring it. It almost never does, especially from the people you want to respect and admire you." The man in the car paradox is the idea that people buy fancy cars and stuff like that because they think that this will get them respect and admiration. What they don't realise is that people don't admire the person in the fancy car or house but they're admiring the fancy car and imagining driving it. 

3. Save as much as you can

Morgan wrote that "Building wealth has little to do with your income or investment returns, and lots to do with your savings rate". We often think that Savings = Income - Expenses but Morgan gives another way of thinking. Savings = Income - Ego. 

What do you think of these points? Do they make you want to read the book? 

Which are your favourite? Share them with me. 


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