As the book’s title suggests, “The Psychology of Money” does not take the crunching approach to finance education and instead focuses on a study of what happens between the ears. As Housel so eloquently reminds us, “You’re not a spreadsheet. You’re a person. A screwed up, emotional person.”

Instead of giving you a playbook describing the do’s and don’ts of money management, this book gracefully introduces concepts of personal bias, emotional factors, and the psychological shortcomings we all fall victim to. In addition, its pages are filled with telling anecdotes of how and why even the smartest of us slip up when caring for our finances. 

Was It Any Good?

Rather than grade this book with a score based on some arbitrary metrics I’ve created, I will share with you the lessons I took away from the book. 

In many cases, I will rely upon direct quotes to get a feel for Housel’s writing style and his ability to convey complex topics in digestible terms. The quotes throughout this post are some of the highlights I made to the book during my first read. If they’re intriguing to you, then you might find this book to be worth the read.  

By all accounts, this book has been wildly successful. It is #1 ranking in various financial categories and #20 in books overall.

Although there were many things to ponder and take away from the book, my top four lessons are here.

#1. Embrace Complexity 

“We prefer simple stories, which are easy but often devilishly misleading.”

To the analytical mind, nuanced topics with insights stroked in shades of grey are more challenging to integrate into our lives than concrete solutions with black and white answers. Or, as Housel puts it, “We have brains that prefer easy answers without much appetite for nuance.”

This concept of being comfortable with the unknown was one I noticed Housel inserting many times in his book. As he says, “The illusion of control is more persuasive than the reality of uncertainty.”

“Everyone has an incomplete view of the world. But we form a complete narrative to fill in the gaps.” We like to think we’ve got things all figured out. Deep down, we know we don’t and can never possibly understand all of the complexity of our world. But accepting that and surrendering control is a scary feeling. So instead, especially in times of stress, we resort to closing the case on complex problems, making up our minds, and calling it good. 

“Coming to terms with how much you don’t know means coming to terms with how much of what happens in the world is out of your control. And that can be hard to accept.” 

#2. Learn How to “Have Enough”

“The hardest financial skill is getting the goal post to stop moving.” 

The more I learn about personal finance, the more I realize how important this concept is. Even the most wealthy of us all can find ourselves stuck on the hedonic treadmill, constantly trying to fill a void with spending on fancy and stimulating products and services. The temporary escape that we get from the feelings we choose to avoid in our fancy cars or otherwise will still be there for us after the pleasure dissolves. The purchase becomes just another row on our credit card statement.

“Independence, at any level of income, is driven by your savings rate. And past a certain level of income, your savings rate is driven by your ability to keep your lifestyle expectations from running away.” (215)

#3. Cultivate Patience

This stat blew my mind. 

“84.2 Billion of Warren Buffet’s, 84.5 Billion accumulated after his 50th birthday. 99.6% of his wealth.”

Compound interest takes time. Your most considerable returns are always going to be at the tail end of your investment career. This is why it is always emphasized to start as early as possible. If you’re like me, you’re just getting started in your 30’s. Take a breath, be patient. Starting late is infinitely better than never starting at all.

As Albert Einstein famously said, “Compound interest is the eighth wonder of the world. He who understands it earns it; he who doesn’t pays it.”

#4. Wealth is What You Don’t See

Last but not least, I will summarize my favourite concepts from my favourite chapter in the book – Chapter 9, “Wealth is what you don’t see.” 

Let’s kick this off with a tandem of two excellent quotes.

“When people say they want to be a millionaire. What they might actually mean is, “I’d like to spend a million dollars.”  

“It is so ingrained in us that to have money is to spend money that we don’t get to see the restraint it takes to actually be wealthy.” 

Um yeah. Guilty.

I have always thought that you were on cruise control once you were rich. And sure, that’s probably the case in sporadic cases, but for the everyday wealthy of us, they’ve done it the fundamental way through spending less than they make for an extended period. 

Just because you’re making six figures doesn’t mean you need a nice new car or taking four vacations a year. Conspicuous consumption does not indicate wealth; in fact, it may signal the opposite more often than we think.

“Wealth is hidden. It’s income not spent. Wealth is an option not yet taken to buy something later. Its value lies in offering you options, flexibility, and growth to one day purchase more stuff than you could right now.”

Last but not least, here is a quote that ties everything together. This is essentially the thesis of the book. 

“Academic finance is devoted to finding the mathematically optimal investment strategies. My own theory is that, in the real world, people do not want the mathematically optimal strategy. They want the strategy that maximizes for how well they sleep at night.”