Investing, personal finance, and business can be intimidating. There is a lot of complicated technical advice out there for how to save and invest. But Housel makes the argument that everybody makes decisions with their emotions, even financial advisors and executives. The way we personally think about money can cause us to make some very bad financial decisions, but we can’t make our decisions without emotions. Housel shares simple common-sense tips to grow your money, while taking your psychology into account.
The reason this book works is because it’s simple, some might even say obvious. Mostly, humans are complicated creatures, and we all have emotional relationships with money. The major tenets of this philosophy have been expounded elsewhere, but if you’re new to reading about money, like myself, this is a good place to start.
So let’s get into it. It may make you feel better to know that professional stock traders are about as good at their job as random non-professional investors. The best way to grow your money in the stock market is to invest in something broad like the S&P 500, and invest in it as early as possible. Compound interest is the secret to the storied wealth of Warren Buffet, who started investing as a teenager. Even when the market crashes, it’s best to keep your money in, and take advantage of the future growth, even when it’s scary. Be psychologically ready, but the market will down-turn again.
The rest of the advice is mostly about understanding what you want from wealth. Many of us think we want big homes and flashy cars, but what we really want is security, admiration, and respect. Housel argues that true wealth is freedom. Freedom to leave a job you hate. Freedom to move. Freedom to fix your house or buy a new car when your old one breaks down. Freedom to take off work when a loved one gets sick, or freedom to travel. And, one day, freedom to retire.
In order to gain that freedom you have to save, save early, and save consistently. Wealth is less about how much you earn, and more about how much you save. Spending your money on stuff only means you have less money, so fighting the psychological treadmill of keeping-up-with-the-Joneses is key. Showing people you have money is the fastest way to have less of it. This is the hardest financial goal we all face.
However, it’s ok to make a less-than-ideal financial decision if it gives you peace of mind. For example, paying off student loans or a mortgage with a 4% interest-rate early, even though you could make more by reducing payments and investing some of that money in the market. It’s your life and your money after all, and we all need to sleep better at night.
The last bit of advice is to not listen to all the pessimism out there. Pessimism is persuasive, easy to sell, and easy to believe. Assuming that something bad will stay bad is an easy forecast to make because it doesn’t require imagining the world changing. But things do get better over time. Change is inevitable.
Recommended as an introduction for anyone trying to grow your wealth. This little book is a great example of how everyone has different goals, and just because someone on the internet says you should do something, it’s probably at best advice that doesn’t fully apply to you or at worst is trying to sell you something.