The Psychology of Money

“No one is impressed with your possessions as much as you are…”

In The Psychology of Money Morgan Housel looks at the behavioral economics of investing and personal finances in bite-sized chapters. Most personal finance books treat the reader as a dispassionate, rational being. Housel acknowledges and examines the human as an imperfect, emotional, often irrational agent. He forces the reader to change their perspective by looking at the motives and affects of financial decisions from lottery tickets and expensive cars to investing. Housel says we should make financial decisions that work for us as individuals (reasonable instead of rational) and ultimately enable us to live with the greatest benefit money can provide: not material wealth, but control of our own time. Predictably, we should take advantage of compounding: earning pretty good returns that you can stick with and which can be repeated from the longest period of time. If we, for example, invest in low-cost index funds that we never touch we can ensure that we don’t miss the “tails” — as few variables account for the majority of returns. This I can get on board with.