My top 10 lessons from the book “Psychology of Money” by Morgan Housel.

I have always loved reading books. Growing up, my dad had a huge library, and I devoured the books in it. Some of the biggest genres in my dad’s collection were finance and mindset. So I grew up reading books like ‘Think and Grow Rich’ by Napoleon Hill, ‘The Billionaire Next Door’, ‘Why We Want You to be Rich and other books with similar titles.

When I turned 16, I gave up on these kinds of books altogether. In my opinion, they only made you dream big and gave you false hopes. My dad was neither a billionaire nor a millionaire , so I never understood the point of such books.

I only started reading books about finance after watching Ali Abdaal’s youtube channel and other YouTubers I admire, especially Ali Abdaal, because I love, love, love him. That’s a lot of love, but I really think he’s something great. Whenever he recommends a book, I want to read it. So when he said this book by Morgan Housel was one of his best books of 2020. I thought— sure, why not!!. So I went out and got it.

From the first chapter, this book captivated me. I have to warn you: I read my books in a weird way, with markers and pen, writing side notes like “preach,” “omo,” “burst my brain,” and many other funny things whenever a word hits home. So I find myself highlighting every minute with this book, taking mental notes and reevaluating my life choices. But I will not bore you with so much detail. So grab a cup of coffee and let us dive right in.

1. Risk and luck are doppelgangers.

This is one of my favorite lessons from this book, and for good reasons. It teaches us to be less judgemental and more kind to ourselves and others. According to Morgan, luck and risk affect every outcome in life, not just individual efforts. Sometimes businesses or investments fail not because we did not try our best but for some unforeseen circumstances beyond our control.

Let’s take those into crypto trading, for example. Someone might get all the analysis right, study the market and finally buy a coin that would just still make losses. Some other amateur might just randomly choose a coin to invest in, and the god of luck smiles at him, and he makes a fortune. And we end up praising the amateur. This concept of luck/risk also extends to those born to a wealthy home and those who were not. Those girls who are forced into early marriages and those whose parents valued education. Morgan was simply trying to say we should not assume every outcome was as a result of efforts and decisions — sometimes, life happens.

Morgan could not have penned it any better when he said, “…….I want you to be successful, and I want you to earn it. But realize that not all success is due to hard work, and not all poverty is due to laziness. Keep this in mind when judging people, including yourself”.

If I could highlight this quote a million times, I will.

2. It is okay to deny opportunities and say no to a potential dollar.

The main takeaway for this point was to have a sense of enough. Reading this book made me know that while I might want so much from life, having a sense of enough will spare me a lot of heartaches. Before reading this chapter, I felt bad turning down a job offer because I wanted to earn more, even if it was killing me or I had made a really good amount for the month. There was this insatiable appetite for money that I always felt was a good thing — It meant pushing myself but reading this book, I understood the dangers that come with wanting more money or power without a sense of satisfaction. While I was running a legit hustle, I did not want to get to a stage where I resort to doing unethical things because every dollar becomes worth reaching for regardless of consequences. For example, every time I took an extra job offer, even when I knew my health was declining and I needed rest, I was choosing a dollar over my health. This chapter got me wondering how much more I would give up for a potential dollar. I decided to reevaluate my choices and do better because, according to Morgan, “whatever it is, the inability to deny a potential dollar will eventually catch up to you.”

3. Growth is driven by compounding, which takes time.

I think the principle of compounding is one basic tenet of money everyone should know — but even better, understanding that this takes time. I am in my 20’s, and I really don’t have an investment portfolio. But I now understand the earlier I start, the better.

The skill to Warren Buffet’s success, according to Morgan, is investing, but his secret is time. The compounding principle goes even deeper than simple investing to how much it can be repeated and how much you can hold on to.

4. No risk that can wipe you out is ever worth taking.

I think it is time to drop the coffee and pay attention. I think this point is so important. Even before this book, I would never take a risk that would leave me with nothing, but I have seen people who do. When they play the game of making money, they go all in. They believe in the Mantra ‘go big or go home. But according to Morgan, more than wanting big returns, being financially unbreakable is better.

Getting wealthy and staying wealthy are two different things. Many people will disagree with Morgan’s approach of compounding, which relies on having your good returns sustained uninterrupted over time as a way to win in this money game, and that’s okay, but As Nassim Taleb said in the book, “you can be risk loving and yet completely averse to ruin .”

It is important to talk about calculated risk. Before investing all your money in a venture that guarantees you high gains, think about the other part of the coin. What if it fails? Do you have an alternative? As Morgan puts it, “you have to survive to succeed .” Investing, crypto, and many ventures that can make you much money can be highly volatile, and you have to keep this in mind. What I have learned over the years is to invest the money I won’t need in over a year or two. So I have something to survive on if things don’t work out as planned.

5. The ceiling of social comparison is so high that virtually no one will ever reach it.

Thanks to LinkedIn and Instagram, we would forever feel like we are not doing enough. But the truth is there is always a bigger fish. It is not unusual to compare ourselves with others. I find myself doing that on many occasions. I compare myself to other girls my age that seem to do better. I compare and compare, and honestly, while sometimes I put this into positive use, it is a tiring way to live. The truth is I am doing much better than I was a few years ago. A striking point was made in the book when it said the only way to win this battle of comparing our achievements with others is not to begin in the first place. What we need to do is simply accept. Accept that we might have enough, even if it is less than what other people around us may have. That is a refreshing thought because it is all about me at the end of the day. Once I can meet my needs and be happy, there is no need to compare my life with someone else with a different need and perception of happiness.

6. Controlling your time and options is the highest dividend money pays.

When I was younger, I viewed certain luxuries as a waste of money. But, as I got older, I realized I was willing to pay more if it would save me time and stress.

Having money is more about freedom and independence, and the author agrees with me on this. When I first started freelancing, I would take any job at any time because I needed the money. However, over the last few months, I got better clients and earned well — even better, I got freedom. If I don’t like a client. I turned down the Job or If I don’t like what it feels like. This freedom imbibed the need to save in me. I don’t want to get to the point where I feel stuck and accept anything thrown at me because I don’t have a choice.

Morgan, in this chapter, buttressed how having an emergency fund or money saved up for a rainy day might give you better options. If, for example, you are laid off from your job and have 6 months worth of savings in place, you might be more patient and have more control over the kind of jobs you take on compared with someone with no money, and everything depends on accepting that job offer — even if they hate it.

According to the book, and I totally agree, “when you don’t have control over your time, you are forced to accept whatever bad luck is thrown your way. But if you have flexibility, you have the time to wait for no-brainer opportunities to fall into your lap. This is a hidden return on your savings”.

7. Avoid single points of failure.

This lesson got me nodding and reflecting. It explains why many Nigerians live way below the poverty level. An average Nigerian has one job. All their money in one savings account and their whole life is hinged on that one source of survival. If anything happens and that job is lost, that is almost the end. Unfortunately, many people are comfortable with this lifestyle, purposely ignoring the fact that life is full of surprises, thus leaving no room for error.

You might say you have things figured out. Maybe you have plans to sort pending bills, food, water and light, but what about emergencies. What about accidents happening or losing all the money in your crypto wallet? Crazy things happen all the time. We can’t help it. But to be equipped to deal with the damages, we have to avoid single points of failure.

According to the book, “the biggest single point of failure with money is the sole reliance on a paycheck to fund short term spending needs, with no savings to create a gap between what you think your expenses are and what they might be in the future”

What I picked up from this chapter was the need to build multiple income streams and save not just for a particular reason but for nothing at all because anything can happen.

8. To increase your savings, raise your humility.

How often have you gotten something you don’t need just to look good to others? It’s not uncommon to hear stories of people spending up to a million dollars on drinks at the club so they can appear “rich” and be hailed. Two people can earn the same amount of money, and one would end up in a lesser financial class than the other all because of their saving/ spending ratio.

It is common financial advice to live below your means. It doesn’t mean you should be a miser. It simply means you are committed to a higher saving rate. I love the good life — I mean, half of my gallery is filled with screenshots of nice things I want to buy from Pinterest. But, I know I can’t try to spend the same way as those dope tik-tok videos on Pinterest of girls living their best lives because even if I could afford some of such luxuries, I would get bankrupt doing so, and that would just be sheer stupidity. So when I see something nice that I may be able to afford but would take a toll on my income, I write it down in a book for when I would earn better, and it wouldn’t be a big deal buying the same thing. What matters is I am happy and not just trying to keep up with the trends of others doing the same.

Here is what Morgan had to say, “savings can be created by spending less. You can spend less if you desire less. And you will desire less if you care less what others think of you.”

9. People are poor forecasters of their future selves.

This point led me to get a new book titled ‘Stumbling on happiness’ by Harvard psychologist Daniel Gilbert. Hopefully, I get to review that soon too.

This hits home because 16-year-old me would accuse me of being money conscious and ignoring my dreams. I have been battling with a lot of these changes — still am. But, the truth is we all change. Some of these changes we might never have imagined would be us. My brother, for example, has always dreamt about being a doctor all his life. Suddenly he is tilting more into tech and building a brand. Some women have always dreamt of working in corporate jobs and find themselves loving being a sit-at-home mom.

Morgan was simply trying to let us keep this point in mind when making long-term decisions. According to him, due to our changing nature, we should avoid the extreme ends of financial planning. We should not assume we would always be happy with a low income or work at all hours to ensure we earn a high income, as we can only end up with regrets. The one with a low income may get to a point in her life and wish she had more money saved up. The other might get to a point where she wishes she had used her time doing more of the things she loved.

“Embracing the idea that the financial goals made when you are a different person should be abandoned without mercy vs. put on life support and dragged on can be a good strategy to minimize future regret.”

We have to come to terms that we are allowed to change our minds and not stay loyal to a path because that’s what our younger self wanted.

10. Be careful when taking financial cues from people playing a different game than you are.

This is going to be framed. This point would come in handy for investors. I am just trying my feet on investing waters. After reading this, when I ask/ hear about an investment opportunity, I ask myself how it fits into my plans and time horizon. People trade and invest for different reasons; you need to understand this when taking financial advice from them.

This point also extends how I spend my money or fund my lifestyle. I can’t budget my finances like an influencer who gets better gain from projecting a particular lifestyle. The rules are different. We are not even on the same path.

“Few things matter more with money than understanding your own time horizon and not being persuaded by the actions and behaviors of people playing different games than you are.”

Okay, finally, I am done. There was a recurring saying in this book, and it is the fact no one is crazy. We all have different reasons for doing things, and we cannot judge people for their choices, especially when it is money-related.

There are many lessons to be gotten from this book, but these are my favorites. Have you read the book? What were your most important lessons?