What is the Psychology of Money?

7 min readSep 13, 2022

“Hey, John, Congratulations on your new job..!! Bagged a nice package, huh ?! Good for you pal.”

“ Ohh, wait, Emily, …You got promoted right, Well done girl.”

“Chris, I heard you got some good savings from your part-time job, isn’t it? I knew it. Oops, totally forgot about the good amount of money that you made from your YouTube videos. Bravo👏”

Let me guess, if this title has grabbed your attention, then you may be like one of the above-mentioned John or Emily or Chris or Rahul or whoever it may be. Deep in your mind, you have either one of these thoughts — “I wanna buy that super expensive watch I saw in the store yesterday”. Or “I need a plan”. So if you are the latter type, then please continue your reading. No offense against the people having the first thought. You go and get it, dude, you have earned it. Just this article might not be of your type. But definitely, you can also continue, what if you change your mind after reading this 😜.

You might be thinking that I am going to share some crazy and easy steps to get rich. But this is going to be a book review that made sense to me. You must get and read this book if you have serious spending issues or a pile of money in a bank account. I’ll give the book details at the end of this article.

Nothing is as good or as bad as it seems

Success & failures are not the exact indications of what you gain or lose. If you succeed in a mode of investment today doesn’t mean that you will succeed again in the same coming days too. Like the same way for failures as well. Once failed doesn’t mean that you are out of the game. We must understand the role of luck & risk in life and give equal importance to both. Success shouldn’t stop your capability to do more; failure must not wipe you out. Also, one specific strategy bringing success to one person doesn’t mean it will work for you too. Because each of us has different goals and wants different things in our life. So learn from everyone and find the pattern and apply it to yours in a way that can balance out success and failure without any damage.

Less ego, more wealth

If you use your money to satisfy your ego, then you are on a losing game. Even if you earn millions and don’t understand the gap between ego and wealth, then those millions come down to pennies in a glimpse of time. Wealth is created by suppressing what you could buy today in order to have more stuff or more options in the future. If you use your money just for your needs and not for satisfying your ego, then you can build your wealth easily. Wealth is what is hidden and that’s the reason it is difficult to build as well.

The hardest financial skill is getting the goalpost to stop moving

Once you start investing and making returns, your urge to make more money gradually increases. It is human nature. But once this urge captures you or the “more” invades you then the game gets dangerous. You will forget about the unpredictable nature of the market, your risk mindset explodes and the expectations spikes 10x fold. You might have a goal set to achieve ‘X’ amount in ‘Y’ years and someday you will attach that. Then due to peer pressure or the need for more luxury in your life, you will try something bigger and may risk everything you gained. In this process, if you lose everything you consider yourself a loser, or to compensate for the loss you may try something illegal or unethical or you may totally quit investing. Thus always makes sure before taking any step in investment that “whether this one comes at a cost of my sleep at night?”

Give it some time and experience the magic of compounding

When I am writing this blog, the stock market isn’t in a good shape. Sometimes my friends say that I am unpredictable. But the current market is twice as unpredictable as me right now. It might recover sooner or later. When we invest the fruit of our hard work in any of the stocks or mutual funds, it is quite normal to get panic and read the reviews of market analysts and get distracted. It is totally an individual's choice whether to keep the money invested or withdraw it during a bear market. Because everybody’s investment goal is different. But if you have the flexibility or freedom which we discussed in the first paragraph, then you shall wait and let the compounding do the magic.

Money can give control over your time

We all like to be in control of our own life. It gives us immense happiness when we can do whatever we want, whenever we want and with whomever we want. So if we have enough saved up for a vacation or to take a break from careers or to fund our children’s education, then you can imagine how much happiness we can get by being able to achieve all of those. That’s the freedom money gives us. On the other hand, if you are not planning what you should do with the money you currently earning and just spending it off for your social status and other stuff, then I would say you are questioning your own freedom.

You don’t need a specific reason to save

If you can build a habit of saving for no reason, then you are having a solution for all the future surprises that can come on your way. This will come in very handy in your worst moment. You don’t have to stare at the roof to get an answer to “What do I do now ?”. Just save as much as you can for the items on your bucket list as well as for those items that you least expected.

Success always comes with a cost

Nothing in this world is free. If you want to grow your investment, then you must be ready to accept the loss that it can give you at certain times. Don’t consider that as a penalty or a loss of money. Just consider it as a charge that you are paying to get the best out of your earnings. Understand your investment goal, take that risk, trust the process and keep on investing right.

Provide room for error

Always keep options or a backup plan. If you take any team, there will be always a Plan A & Plan B. Because they accept that errors can occur at some point in time. There must be always a replan for your plan. If we are wise to keep room for error in anything, not just in investment it helps to cope with a wide range of potential outcomes and also allows us to stick around for a long time. People say that we have to take risks in our life and it’s true. But never take a risk that can or has the possibility to wipe you out. Surviving is the key to success.

Avoid extreme ends of financial planning

At every point in your life, aim to have a moderate plan for everything. Keep moderate savings, spend some moderate time with family, work for moderate hours, and moderate free time and thus we can avoid regrets of any one of the mentioned falling to extreme ends. We must keep this in mind while making a long-term decision on investing. Endurance is the key.

Everything has a price

When we invest in something and we get a loss for few times then we consider it as a fine rather than a bill or a fee that we pay for compounding our money. Successful investing demands a price. It is not dollars but volatility, fear, doubt, uncertainty & regret. Nothing comes free in this world. Market returns are never free and never will be. If you want to be successful in a long-term investment then you must have a mindset of being ready to pay the fee.

Identify your game

The trend in investment is that most people follow the portfolio of a successful investor. There is nothing wrong with analyzing such portfolios. But we must realize that their game is different. Their target, source, and even their goal will be distinct from ours. If someone is selling their stocks in a bear market doesn’t mean that we also have to follow the trend. It is as much as important to know your own time horizon and not blindly follow the investment patterns.

Spell of pessimism

What?! You might be thinking I did a typo in the title. Even though the whole world tries to sell optimism and it works most of the time, but the pessimistic output is a quick attention seeker than the other one. It takes minutes and days to build anything whereas it gets destroyed overnight. If we don’t expect much from something, then we are opening the door to some pleasant surprises.

“There is no single right answer; just the answer that works for you”

By now many of you might have already guessed the book. This is one of the best books which I read so far. Thanks for your patience to read the review of the book “The Psychology of Money — Morgan Housel”.