The Psychology Of Money – Book Summary

The Psychology Of Money – Book Summary


The Psychology Of Money is written by Morgan Housel, who is a partner at Collaborative Fund and who was previously a columnist at The Wall Street Journal…and this book shifted my entire perception of money, which is why I want to share the value of this book here, knowing that statistically, less than 10% of people read books like this, and those that actually do read them, less than 10% finish reading that book.

Here is an outline of each chapter and the brief value offered in each, paired with my thoughts and how this has impacted me.


2 x Core Messages that Really Stood Out to Me:

  1. Doing well with money has less to do with how smart you are and more to do with how you behave
  2. Financial Success is not a ‘hard science’. It’s a soft skill determined by how you behave, and the meaning you give to your decision, largely based on your experiences during your teens and early adult years
My Thoughts:
  • It’s interesting how being born in the late 70’s in Australia, I haven’t really experienced a recession or true financial hardship compared to many other countries through my 40 years of life.
  • And therefore to reflect my own financial decisions, even ones that now seem crazy in hindsight, but were what I thought were the ’right’ decisions at the time.
  • I had over $1,000,000 in net worth before the GFC in 2008. Within a week, I lost it all and actually owed $300,000 for which I had to get a loan out to repay. Went from $1M+ in net worth to -$300K in approx a week.
  • That was my wake up call to recognise that I didn’t really know enough about money, and became more consciously aware of how fallible my own decision-making skills actually were. Sure I made some good decision to create the $1M, but lost it all, plus more.
  • So what is very apparent from the intro’s content is just how susceptible we ALL are to making financial decisions based on our psychology, not just what logically makes sense.


3 x Core Messages that Really Stood Out to Me:

  1. Your personal experience of the world make up approx 0.00000001% of what has actually happened in the world, but is approx 80% of the way you think the world works.
  2. Some Lessons need to be experienced before they can be understood. You don’t develop emotional scars and resilience without actually experiencing some things.
  3. Your personal history regarding money will determine your willingness to take risks and how you perceive opportunities when they present themselves.
My Thoughts:
  • This chapter helps remind me to stay in perspective of how I perceive the world and the opportunities that present themselves. It reminds me that my perception is not true for most other people and therefore my perception could be wrong…and therefore to seek further information & evidence to counter this or confirm this.


4 x Core Messages that Really Stood Out to Me:

  1. Luck & Risk are siblings. Every outcome in life is guided by these forces. Not just individual effort.
  2. Your success might be due to luck and chance. Your failure might be due to bad luck (risk) and have nothing to do with your approach.
  3. Bill Gates was lucky enough to attend one of the only schools that had a computer. His good friend, who equally was skilled in computers died in an accident in his late teens (bad luck/risk). 2 completely different outcomes due to luck/risk.
  4. The line between ‘Inspiringly Bold’ and ‘Foolishly Risky’ is millimeters thin and only seen in hindsight.
My Thoughts:
  • The key point I’ve taken from this chapter is not to get too focused on specific approaches by individuals. (they might have gotten lucky). Instead, focus on broader principles and approaches that are proven to work for larger numbers of people. E.g. Don’t try to invest like Warren Buffet (individual). Invest like the top 20 Investors (Group)


3 x Core Messages that Really Stood Out to Me:

  1. Don’t risk something important to you for something that is lower importance to you. E.g. Don’t risk losing $100 for $10 increase.
  2. Never feeling like you have enough can cause you to keep moving the ‘goal posts’ and reduce your happiness for what you actually have.
  3. There are some things not worth risking, no matter the potential gain.
My Thoughts:
  • It’s such an interesting idea to become aware of the ‘trap’ of continually wanting more and more, and not feeling like you have enough, as well as risking so much for so little.


4 x Core Messages that Really Stood Out to Me:

  1. The ice ages are proof that you don’t need tremendous force to create tremendous results. Using compounding, a small base can lead to extraordinary results.
  2. To generate Warren-Buffett-like results, you’d need to invest when you were 10 years old, like WB did. His skill was investing, but his secret was time & compounding.
  3. Most people discount Compounding Effect because it’s ‘Exponential Thinking’ which seems to defy logic.
  4. Good investing is about earning ‘good’ returns that you can stick with and repeat over the longest period of time, to allow compounding to run wild.
My Thoughts:
  • It’s a sobering idea to realize that my lack of financial literacy in the first half of my life, has reduced the opportunity for compounding to work its best for me, however, it’s still a valuable idea to understand what is truly going on for people and how they generate wealth, so as to instill this into my daughter, and still make the most of compounding as much as I can.
  • This also explains why WB still drives the same old car, and lives in the same house despite his huge wealth. He wants to keep that money compounding.


4 x Core Messages that Really Stood Out to Me:

  1. Getting Money is one part of the equation. Keeping money is the other part.
  2. Very few gains are ever worth risking so much that you get wiped out.
  3. Learn what Warren Buffet DIDN’T DO:
    🚫 Didn’t get carried away with debt
    🚫 Didn’t panic sell during 14 recessions he lived through
    🚫 Didn’t risk his business reputation trying to cut corners
    🚫 Didn’t attach himself to ONE world view or one belief.
    🚫 Didn’t rely on others for money decisions
    🚫 Didn’t burn himself out or quit or retire.
  4. Have a Survival Mindset:
  • Be Financially Unbreakable more than chasing big gains
  • Planning is important but also have a plan for when your plan doesn’t work.
  • Optimistic Future Outlook, with paranoid short-term view.
My Thoughts:
  • It’s good to get this reminder again. I remember going to an event in 2017 where I got to speak to a Billionaire, (Not a famous celebrity billionaire), who said that Wealth creation is really about wealth preservation. This message is repeated in Tony Robbin’s ‘Unbreakable’ book. I enjoy the approach of looking at things with ‘paranoia’ in the short term, whilst being reassured by the longer, optimistic outlook.


5 x Core Messages that Really Stood Out to Me:

  1. ✅ You can be wrong half the time and still make a fortune. Don’t underestimate how normal it is for most things to fail.
  2. ✅ Walt Disney made 400 cartoons before one, “Snow White” was a success that paid all his debts and bought a new studio. 400 failures: 1 success.
  3. ✅ Your success is largely determined by how you react when everyone else around you is going crazy and in those moments of ‘terror’.
  4. ✅ Expect to make some bad decisions. No one is capable of making good decisions all the time.
  5. ✅ It’s not whether you are right or wrong with your decisions. It’s more about how much money you make when you are right, and how much you lose when you are wrong.
My Thoughts:
  • This was a really simple yet powerful chapter to expect and plan for failure and getting things wrong. It also helped to remind myself not to harshly judge failures because these can often be stepping stones to the big successes as long as your loses don’t take you out of the game.


4 x Core Messages that Really Stood Out to Me:

  1. ✅ The highest form of wealth is waking up each morning and saying “I can do whatever I want today”
  2. ✅ Having a sense that you can control your time is the greatest predictor of happiness and well-being than objective conditions in life such as money in the bank or income level.
  3. ✅ Money’s greatest intrinsic value is its ability To give you control over your time.
  4. ✅ Reactance – doing something you love on a schedule you can’t control can feel the same as doing something you hate.
  5. ✅ Your kids don’t want your money. They want you and your time.
My Thoughts:
  • This was a really sobering chapter that helped me to really take stock of how I’m using my time and the “demand creep” that has slowly started controlling more of my time. But perhaps the biggest heart-driven awakening was the truth that my 3 yo daughter wants to play with me all the time and doesn’t like it when I go into the office to work. She doesn’t want the money or the profile or the contribution. She just wants me and my time. This chapter will change some of my near future decisions to claw back control over my time, for her and my wife.


2 x Core Messages that Really Stood Out to Me:

  1. ✅ Rich car driver paradox – driver buys a rich car to seek significance from people, but most people ignore the driver and give significance to the car. We look at the car, not the driver.
  2. ✅ Respect & admiration comes from Humility, Kindness & Empathy. Not from having expensive things.
My Thoughts:
  • This was a short but poignant chapter on how to be so aware of our unconscious drive for significance, that might actually not achieve what we want.


4 x Core Messages that Really Stood Out to Me:

  1. ✅ Real wealth is unseen. It’s the assets and savings that hasn’t yet been converted into the things you can see. It’s not what you can see.
  2. ✅ Rich is income. Rich people like making themselves seen. Wealth is income not spent, which is why wealth is harder to conceptualize.
  3. ✅ It’s easy to find rich role models. Wealth role models are much harder to find because their success is hidden
  4. ✅ It’s much harder to learn something that is unseen and harder to imitate. Be wary of idolizing rich people as they may be on a razor edge to being insolvent.
My Thoughts:
  • This was a good reminder. I know how much of a showreel social media & media is for celebrities, influencers, and even avg people trying to seek that “look at me” feeling. Sometimes I too get caught up in that. And I’m also aware of how pervasive these “drip-feed” of influences can be to gradually eroding away our ideals and values for ideals and values that are more aligned with the ego, significance-driven “look at my fancy life and things”.
    So this chapter was a great reminder to connect back with what really matters, not what looks like it should matter.


5 x Core Messages that Really Stood Out to Me:

  1. ✅ Building wealth has less to do with your income and investment returns, and more to do with your savings rate.
  2. ✅ We can’t control many forces that influence our wealth but we have 100% control on our personal savings rate.
  3. ✅ You can build wealth without a high income by creating a high savings rate, by learning to be happier with less spending to create a larger gap between income & expenses.
  4. ✅ Your savings rate can be defined as the gap between your income and your ego to having material things to impress others or make yourself feel worthy.
  5. ✅ Flexibility and time control is the unseen return on wealth.
My Thoughts:
  • Such a great way to conceptualize savings. To challenge our ego and need for ‘things”, in favour of investing or savings rate. This chapter has motivated me to review where we can reduce our unnecessary spending even more to increase our savings rate even more.


3 x Core Messages that Really Stood Out to Me:

  1. ✅ Because we are human it’s unreasonable to expect to be completely rational and unemotional about Money decisions, so aim for ‘reasonable’ decision-making instead
  2. ✅ Rationally, a fever helps the body heal, but parents & even doctors often do what they can to quickly end a fever because fevers hurt. We naturally want to avoid hurt, even if it’s not rational to do so.
  3. ✅ The goal is to minimize ’future regret’
My Thoughts:
  • My wife and I currently use a ‘system’ for our money to avoid the variation of emotions that are caused by money fluctuations and unexpected events, but this chapter also explains the human ‘reasonable but maybe irrational’ responses we are trying to nullify using this system.


3 x Core Messages that Really Stood Out to Me:

  1. ✅ Historians as Prophets Fallacy – Relying too heavily on past data as a way to forecast future events. It’s not a failure of analysis. It’s a failure of imagination.
  2. ✅ Some of the biggest events that have changed the world were hard to predict. Very few people can IMAGINE the next widely disruptive event.
  3. ✅ Plan for surprises because the world is Surprising.
My Thoughts:
  • This chapter helps us to be humble and realise that anyone that claims to have an edge in knowing what will happen next likely doesn’t, because the unexpected could happen at any time. It helps us to prepare as best we can for surprises and layers into the previous chapter about being short-term paranoid and long-term optimistic.


4 x Core Messages that Really Stood Out to Me:

  1. ✅ We, as people, are poor forecasters of what our future needs will actually be. Approx only 27% of people use their degree in a relevant career.
  2. ✅ The First Rule of Compounding is to not interrupt it unnecessarily.
  3. ✅ When considering Long Term decision remember:
    – Avoid the extreme ends of financial planning – Endurance is the key
    – Accept the reality of changing your mind
  4. ✅ The devil in the world where people change their minds, is in anchoring decisions to past efforts that can’t be refunded. Avoid ‘sunk costs’.
My Thoughts:
  • This chapter helps to explain why we don’t always make the best decisions for our future, and why it’s inevitable that we’ll likely change our minds and change paths, which, unless we have flexible plans, may minimise the value of all previous efforts. So it raises the question of how can I develop a 5-year, 10-year and 25-year plan that caters to my future change of mind and path?


5 x Core Messages that Really Stood Out to Me:

  1. ✅ Every job looks easy when you aren’t the one doing it, because the full spectrum of challenges are often invisible to someone outside of the situation.
  2. ✅ Our biggest challenge is not being able to identify what the price of success really is from the sidelines, but everything we strive for comes with a price. E.g. Successful investing comes at the price of dealing with and handling volatility, fear, doubt, uncertainty & regret.
  3. ✅ The price of good investing is not immediately obvious and so because it’s not a price tag you can see, it doesn’t feel like a reward. Instead it feels like a fine, and we all try to avoid fines.
  4. ✅ If you view a decline in your assets as a ‘fine’ or ‘penalty’ that you didn’t expect from investing, then your future actions will likely be to avoid future fines, but if you think of the decrease in value of your assets as the ‘fee’ you pay to have the long-term success, and ride out the volatility, you’ll stick around long enough to see those gains.
  5. ✅ Just like paying for admission to Disneyland. It’s not a fine for having a great day with family. It’s the fee you pay, but also, there’s not guarantee that it won’t rain that day either. Find the price you need to pay and pay it.
My Thoughts:
  • I found that this reframe of experiences we encounter with investing and the volatility was uplifting and reassuring. It instantly changed how I felt about the ups and downs of my portfolio. Previously I was simply ignoring the ups and downs, which was more like sticking my head in the sand with them, instead of having the courage to see them as the ‘fee’ and price that is paid for the long-term benefits. Mind blown.


3 x Core Messages that Really Stood Out to Me:

  1. ✅ Don’t take cues about financial decisions from people who are playing a different game than you. Day traders play by different rules. Long-term investors play by different rules.
  2. ✅ Few things matter more with money than understanding your own time horizon, and not being distracted by others’ different time horizons.
  3. ✅ Write down your mission “I’m a passive investor optimistic about the world’s ability to generate real economic growth and I’m confident that over the next 30 years that growth will accrue to my investments” to determine which part of the game you are playing and not playing. Short-term fluctuations may not really matter to you.
My Thoughts:
  • This chapter helped me to gain clarity on the type of investor I am and how to put fluctuations and volatility into more perspective based on the type of ‘game’ I’m playing. It also made me question who I decide to take financial advice from and whether we are playing the same game or not.


5 x Core Messages that Really Stood Out to Me:

  1. ✅ Optimisim is the best bet for people, because the world does tend to get better over time, but Pessimism is more seductive, because it’s more captivating and is viewed as being less ‘risky’.
  2. ✅ Optimism is believing that the odds will fall in your favor over time, despite occasional set-backs along the way.
  3. ✅ Prophets of Doom are taken more seriously than forecasters of Outrageous Optimism.
  4. ✅ Pessimism sounds smarter and more plausible than Optimism, which makes it more compelling for people.
  5. ✅ Money and Health affect everyone. Improvements take time, but set-backs can happen overnight. Often progress happens so slowly we hardly notice it. But Setbacks stand out in our memory.
My Thoughts:
  • This is a great reminder not to get swept up in the sensationalism of doom and gloom news and outlooks, but instead to hold on to the optimisitic outlook for the future.


3 x Core Messages that Really Stood Out to Me:

  1. ✅ We are more likely to fill in the gaps of our knowledge and awareness with stories that tends to support what we want to think is right.
  2. ✅ When we want something to be true, we tend to think of the odds being in our favour, when this might not be the case.
  3. ✅ We like to think that much of the world is predictable, and certain, when in fact it’s unpredictable, uncertain, and any plans we make could easily be largely affected by luck, risk and even other people’s plans & actions.
My Thoughts:
  • This chapter helps to remind me to stay humble and aim to stay in perspective of how out-of-perspective I might actually be. We all tend to generalise, distort & delete the vast quantities of information that is presented to us every moment, in order to make sense of what we think is the objective world, even though this process of filtering & selecting information to give meaning to, is highly subjective.


10 x Core Messages that Really Stood Out to Me:

  1. ✅ Be humble when things go right, and be forgiving when they don’t.
  2. ✅ Control Your Ego to Grow Your Wealth – Avoid ego-driven spending.
  3. ✅ Manage Your Money in ways that help you sleep at night. There is no sense in taking risks to chase higher returns if you don’t sleep well.
  4. ✅ Extend Your Time Horizon to get bigger returns on your Wealth – The longer you can leave your money compounding, the better.
  5. ✅ Be Ok with being wrong a lot of the time.
  6. ✅ Use money to gain control back over your time. Getting your time back is what wealth is for.
  7. ✅ Save for the sake of Saving. Save for things you can’t even imagine.
  8. ✅ Define the cost of the success you want and be willing to pay it.
  9. ✅ Risk Pays off over time, so enjoy it.
  10. ✅ Always cater for Room for Error – May sure you can survive the times when you are wrong.
My Thoughts:
  • This chapter summarises most of the chapters into the key points. I love it when a book does that, wrapping it all together into a succinct format.


4 x Core Messages that Really Stood Out to Me:

  1. ✅ Don’t strive for Riches. Strive for Independence.
  2. ✅ Independence doesn’t mean you stop working. It means you only do work that you enjoy with people you enjoy.
  3. ✅ Every investor should pick a strategy that gives them the highest odds of the return they want in the timeframe they want.
  4. ✅ Your own investment approach doesn’t need to make financial sense if it makes emotional sense to you.
My Thoughts:
  • This has been a game-changing book that has clearly explained that in order to create wealth there is a huge psychological aspect as well as luck involvement that will determine the wealth and free time one has, when they want to have it. It has completely changed my perception of wealth, money, time and the periodic volatility of the various markets.



THE PSYCHOLOGY OF MONEY by Morgan Housel – 5 Stars ⭐️⭐️⭐️⭐️⭐️

To help put this book, ‘The Psychology of Money’ into context I’ve read (in order):

  1. Think & Grow Rich – Napelon Hill
  2. Rich Dad Poor Dad – Robert Kiyosaki
  3. The Richest Man in Babylon – George Clason
  4. Money – Master the Game – Tony Robbins
  5. Unshakeable – Tony Robbins
  6. Barefoot Investor – Scott Pape
  7. The Almanack of Naval Ravikant

…And for me The Psychology of Money explained things in more profound ways than similar concepts were conveyed in other, similar books.

Of course, maybe it’s because of where I’m at in life, and with this recent experience compounded together with the existing financial knowledge that I had gained, but I felt like the Psychology of Money, has significantly changed my relationship with money, and reminded me of many pitfalls to avoid, and what to aim for instead. Admittedly some of the concepts were challenging to accept, but this was simply just my mind wanting to go back to ‘fictional comfort’ instead of facing the ‘uncomfortable truth’.

I recommend this book to ANYONE that wants to ‘tune-up’ their ‘Money Mindset’.


TLDR: The Psychology of Money by Morgan Housel is a great book for anyone that wants to upgrade their money mindset, and discover some of the hidden mistakes that we all tend to make when it comes to money, wealth and riches