The psychology surrounding money is complex. How we think about money and how much we know about it result in how we deal with it. This blog will elucidate the right mindset and some important rules when it comes to money. I was mostly inspired by the book “The Psychology of Money” by Morgan Housel. I definitely recommend reading the book because you will get an overview of how things really work. Let’s divide this blog into 5 pieces:
- People are not crazy
- Freedom
- Paradox of man in a car
- Save money
- Be ready to fail + bedtime story
People are not crazy
Remember this rule because it applies not only in the financial world but everywhere. Sometimes, people may look crazy or foolish to you when it comes to working with money, properties, people, or anything else. But remember this:
It means that your vision of how the word looks and works is created only by the things you have in your head. If you are young like me, you have a vision of how it works in a job or in a relationship, only by the stuff you know, somebody told you, or from your own experience. That is why some people make decisions you would not understand because, for example, you never experienced a world war or an economic crisis. Those people are different but not crazy. And of course, there are exceptions.”
Freedom
”The most valuable dividend money provides us with is control over our own time.”
To be able to do anything you want, with people you love, wherever and whenever you want, is the greatest dividend that money can provide you with. As you already know, this part is the most important. As you get older, you will understand why this is important because you will find things and habits that make you happy in life, and you will find out that they cost time. We are spending so much time trying to get rich, so we can later buy more time. In other words, with money, you can buy time. You cannot critically extend your life, but you can choose how to spend the rest of your
Paradox of man in a car
Luxury cars, houses, expensive watches, or clothes will not bring you respect and admiration, especially not from people whose respect you seek. Of course, everyone would like to have a nice car or house, including me. But this is a reminder that all people generally want to be respected and admired, and that ritzy stuff could bring you less respect and admiration than you would ever imagine. If you seek true respect and admiration, humility, kindness, and empathy will bring you more than horsepower under the hood. If you see a nice car driving by, do you think the man driving it is a good and kind person inside? Do you admire him or the car? Does he inspire genuine respect in you? Think about it.
”Splashing out money to show off how much you have is the quickest way to lose it.”
Save money
This one is simple but for most people hard to even think of. You for sure heard the stories about people who got rich, started squandering and spending money needlessly, and ended up completely broke. That is because wealth has more to do with saving money than with our income or return on investment.
“Savings can be achieved by spending less. You’ll spend less if you desire less. And you’ll desire less if you don’t care what people think of you.”
Be ready to fail
This part is more about working with money. There are jobs where you need to be absolutely perfect. Illustrative examples are pilots, doctors, or chefs. But investments and finance are something completely different. Nobody ever makes the perfect decisions and that is fine. It is okay to have many bad investments and only a few excellent ones. Let me tell you a bedtime story.
Take Amazon for example. You would think a company this big wouldn’t get away with coming up with a product that turns out to be a flop. We would expect the CEO to owe the shareholders an apology in such a case. But CEO Jeff Bezos said this, shortly after the catastrophic launch of the Fire Phone:
‘’If you think it was a terrible flop, then get ready because we are working on much bigger losers. I am not joking. Compared to them, the Fire Phone will seem like a minor biscuit.’’
Despite the significant losses incurred by the Fire Phone project, it wasn’t a tragedy for Amazon because they have a division, Amazon Web Services, that generates millions of dollars every year.
“Some of your projects will succeed, and some won’t. In both scenarios, it is not good to overthink it too much. Just move on and start something else.”
There is a lot to talk about, but unfortunately, I can’t make this blog longer. If you want to react to anything in this blog, write a comment below, and I assure you, I will answer. If you want to become more knowledgeable about the financial world, read my other blog: Top 8 essential rules to always remember when investing, which summarizes some important rules of investing.
Thank you, take care, and spend your money wisely.
