Book Review: The Psychology of Money

The Psychology of Money by Morgan Housel is a must-read book on personal finance. A lot of times decisions on personal finances, investments are done using the historical data of the market analyzed on a spreadsheet. But what we forget to consider is the human intervention in the functioning of these markets. This human intervention can often lead to unpredictable markets and unexpected catastrophes which badly affect the market.

So it is important to factor this human intervention, the human emotions associated with the markets. This is where this book does a brilliant job. It teaches finances the way psychology ought to be taught i.e looking at the emotional, behavioral aspects of investments. And it has been aptly titled “The Psychology of Money”.

This is a highly recommended book for anyone who has just started earning because the author speaks highly of investing early and investing regularly. The compounding effects of the investment over decades eclipses any market crashes seen during the period. Also an important read for all of us. Better late than never for starting our investments,

These are some of the important ideas presented by the author:

  • Cut down on unwanted spending and increase the savings
  • have a corpus cash saved for emergencies so that you dont have to withdraw from your investments
  • keep your investments over a long period. Dont try to withdraw them.
  • Dont go too much into historical performance of the market because you cannot predict what will happen in future. Consider COVID-19 for example. No one predicted that it would happen and leave the world in a mess.
  • Invest in things that works for you.
  • Long term investors v/s short term investors – they both have different prespectives on making money and hence different investment strategies.
  • invest early

The book is filled with anecdotes and real-life stories to keep you engaged and associate the ideas learned more easily. The author uses US market as an example for all his ideas but that should be generally applicable to the markets world wide.

So what are you waiting for? Go grab your copy today.

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