Psychology of Money

“History never repeats itself; man always does.”

This calls for an understanding of the thoughts, emotions and lifestyle of individuals that make or break wealth and that is what Morgan Housel in his book, The Psychology of Money, has addressed. I bet many of you have added this to the ‘Want to Read’ list, but not everyone has actually done that. So here are a few lessons that one really needs to understand to take educated financial and life decisions. 

#1: Put a Cap

In a world where we work hard and party harder, order food and subscribe to all OTTs, there is one question that we forget to answer. 

Is there a cap?

Is there a limit on our spending?

Morgan rightly said “No matter how much you earn, you will never build wealth unless you can put a lid on how much fun you can have with your money right now, today”. Maybe, as students, our pocket money is limited. But what happens when we start earning? With high income comes high responsibility. It is important to build a frugal mindset and take calculated risk and live below our means. 

#2: Become OK with a lot of things going wrong. 

Even Investment gurus do not run on profits on every single stock chosen by them. It is the overall portfolio return and not just the performance of the individual stocks that we should give more importance to. So it’s all about how comfortable we are with things going the wrong way. That’s how the world is. 

Let’s have an open mindset towards all the available investment opportunities and not sink in with just one loss or one wrong decision. 

#3: Be Nicer and less flashy. 

Recall the ones whom you respected for their knowledge, wisdom and character even when they wore simple clothes and owned the most basic cars and stuff. It is the inner qualities that gain true respect and not the Gucci bags or branded shirts. Next time, let’s be mindful about what we buy and why we buy it. 

#4: Pay the price

With markets, as in life, we have to pay the price that comes along with the decisions we take or the goals we set. By price, it is not just the college fee you pay for the education or the price you pay for the food in the restaurant. It is time we realize that sacrifice, uncertainty, stress and so on are also the costs incurred in our journey. 

If our goal is to invest for the long term, we should also be willing to accept rainy days when our portfolio is red and volatility is at its peak. It is easier said than done. When it comes to money, there are emotions. When there are emotions, only experiencing them first hand will help us fully understand what they are. It is the ability to stick around, pay the right price when needed and be patient that reaps fruit. 

Does it all sound like too much Gyaan? Maybe yes. 

But it is these changes in mindset that actually differentiates a person between freedom and peace and a person who toils all day looking for the payday.