The Psychology of Money

I got interested in personal finance and investing after reading the book Rich Dad, Poor Dad. I invested some time learning things from Youtube and other mediums. But soon I start seeing burnout keeping it up with my work. And hence it chucked out.

On reading this book, I realized how wrong my approach towards investing was and why there was burnout. I was trying to be actively involved in the market and busy with speculation. And these I feel is not a good long-term investment strategy.

This book motivated me again to start looking into my personal finance and investment portfolios. It is an amazing book. But I think it is more appreciated by people who are actively involved in managing their finances or like me who have failed to start it once.

Key takeaways from the book:

1. Everyone makes decisions related to money based on their own experiences. What might be crazy to one might be brilliant to another.

2. All success stories factor lots of risk and luck. So, focus less on individuals and case studies and more on the broad patterns

3. Learn to know when it is enough and stop comparing.

4. Understand the power of compounding.

5. Factor in the risk while planning. Be optimistic towards the future but paranoid about what will prevent you from getting to the future.

6. No one is right all the time. There are only a few investments that will give you decent returns and that will cover the failures.

7. The best thing money offers is the control over doing what you want when you want, and with people, you want to.

8. No much is impressed with your possessions as much as you are.

9. There is a difference between rich and wealthy. Rich is the current income but wealth is hidden. Wealth is an option not yet taken to buy something later.

10. Building wealth is less to do with income and returns and more with your savings rate. Past a certain level of income, what you need is just what sits below your ego. And you don’t need a specific reason to save. The flexibility and control over your time is an unseen return on your wealth.

11. In terms of investment, aim to be mostly reasonable than trying to be coldly rational.

12. History can be misleading. You’ll likely miss the outlier events that move the needle most.

13. Always keep the margin of error.

14. Avoid the extreme ends of financial planning. Your goals and desire will change over time.

15. Define the cost of success and be ready to pay it. Treat them as fees rather than fine.

16. Beware of taking financial cues from people playing a different game than you are.

17. Be optimistic towards the future but be paranoid of ruinous risk.

18. No one has a complete view of the world. The more we want to believe something to be true, the more likely we will believe the story the estimate the odds of it being true.