Learning about the financial world, stocks, real estate, and money overall can be complicated. Well, it is complicated. That is why I wrote down 8 rules you should always remember. How we think about money is far more important than how much we earn. Remember those rules, and before you make a big move on the chessboard, repeat them once again. All those rules come from a book named “The Psychology of Money” by Morgan Housel, and I explain every rule below. I also highly recommend you to read it.
“Accept that many things won’t work out.”
Remember: Nothing is as good nor as bad as it seems. What does it mean? It’s okay to have many bad investments and only a few excellent ones. But always measure your success by the performance of your whole portfolio, not by individual investments. If you judge by individual investments, you will see the successful ones in a better light than they deserve, and the unsuccessful ones will cause you more regret than is appropriate.
“Manage your finances so you can sleep calmly at night.”
Thousands and thousands of people can’t sleep at night because of their financial decisions. You should never risk to the level that can potentially harm your family’s standard of living or lead you to a state where you’ve lost pretty much everything. That is not investing; that is gambling.
“Be ready to pay the cost.”
Nothing valuable is free. Remember that in the financial world, the price is not always written on the price tag. You pay with doubts, insecurity, regret, and time. Try not to see them as penalties but as fees.
“Less ego, more wealth.”
Wealth is created when you resist your urges to spend money, allowing you to have more options in the future. You can earn as much as you want, but you will never accumulate wealth without resisting your urges to spend money. You’ve probably heard stories about rich people who spent so much that they ended up with nothing or bought expensive cars and houses they couldn’t sustain. All of this happens because of ego and not knowing when to stop.
“Avoid extreme financial planning.”
People change over time, as do their plans, visions, and goals. I’m not telling you to stop taking risks, but the more extreme decisions you make, the more likely you are to regret them later on.
“Define the game that you are playing.”
Don’t take as an example those who are playing a different game. The long-term investor is playing a completely different game than the daily trader.
“What to do when things don’t go as planned.”
The most important part of the plan is what to do when things don’t go as planned. We can’t fully know what is going to happen or completely predict situations, but we can plan more to mitigate the biggest losses. All plans should include this part to save you from the worst.
“Sanity is more than rationality.”
“Sanity is more than rationality.”
This one is hard to understand, but the main meaning is that investing your money solely based on numbers and charts is wrong. Sometimes, those numbers will lead us to actions that no wise person will ever do.
Invest in things you’re passionate about and understand. By doing so, you’ll maintain your investment, because there will be times when your income will drop 30% down. Now, you are likely to hold investments you believe in and understand, rather than those you don’t.
There is much more to talk about, but those rules are among the truly important ones. Lastly, I would like to tell you that people are not crazy. What do I mean by that and how does it connect with finances?
If you know or see a person doing something that seems foolish or illogical to you, that doesn’t mean the person is crazy.
Those people could have lived in completely different countries, at different times, with completely different lives, experiences, and information than you. They might perceive you as crazy just as you perceive them.
Thank you for reading, and I hope you gained some wisdom and information from this blog. If you have any prompts, questions, or anything else, please write us a comment down below. We are grateful for every response. If you enjoyed reading, check out my other works like “How much does your environment influence you? 3 main factors.“
Thank you, take care and spend your money wisely.
