The Psychology of Money- Morgan Housel (Book review)

The times we live in today are more uncertain. Since the aspect of recession is difficult to predict with inflation, the main issue -the world economy is going through a tricky phase. This is fair to say that understanding the stock markets and the central banks' fluctuations may be difficult to understand since volatility plays an important role. Deep diving into the history of how the markets function and how it influences human thinking and psychological changes, I found this book by Morgan Housel, “The Psychology of Money” an apt read.

Key Learnings

The use of money- basically in terms of spending and saving is mostly determined by an individual. Be it a rich individual or a poor one, the pattern of savings and investments is different. The advice of a rich individual may not be suitable. The goal of a rich individual is very much different from that of a middle-class or poor individual.

Survival is always the key in terms of living a successful life. The ability to sustain a standard of living is an important piece of advice the book gives to its reader. Decisions that people make, in terms of investments, the purchases of it come into play, to keep up with the existing standard of living for an individual. 

To all individuals, the aspect of freedom, mostly financial freedom, is highlighted on a greater scale. The aspect of controlling the levels of spending activity would help us achieve independence. The more we can do with our money is basically prioritize our needs and aspirations. This way one can maximize by investing and understanding the savings. 

Many individuals when they start earning, tend to get items that they don’t require, in order to show their elevated standard of living. It does more harm than good to the individual. Spending money basically shows the money you have and basically shows how quickly you lose out as well. Saving, aspect must be developed to lead a good life and maintain our current living standard. The goal is to move forward and not deteriorate by making thrifty purchases. The purchases we make should be more reasonable and realistic in approach at the present time. It's much better than being ‘coldly- rational’ as Morgan Housel states in his book. 

The book also highlights the fact that individuals, in general, are- 'bad forecasters'. Considering the kind of tools we have to predict our stock markets and the economic cycles like a recession, we always miss it by a sliver. But looking forward, we do plan on the long term which helps to overcome many unknown elements which will affect us. Humans have kind of got the knack for changing the realities in the long run. This makes us better equipped. 

In all this, there is a chance of error in every decision we make. The errors we make, are human and we need to accept the fact. 

One of the important learning in this book is that when there is more optimism flooding the markets and economy, should be taken with a pinch of salt. Never an economy remains positive, and some amount of pessimism is needed. This is very much needed to create a true picture of the economy. An individual should not be surprised and bear heavy losses, this helps in preparing for the worse. This will help to keep one prepared for anything. Being prepared for anything is what the book highlights. 

Overall, the book is a wonderful read, with a good weave of financial history and anecdotes added to make the book one of a kind.