The Psychology of Money, the book

The Psychology Of Money argues “happiness is just results minus expectations,” during a chapter emphasizing the importance of “enough.”

While the statement has good intentions and is on the right track, I did not think that it was true. Pleasure comes from unexpected (positive) results, but the pleasure from that sort of achievement is temporary. Happiness is a different beast. Happiness is a frame of mind that is more permanent and unaffected by external circumstances. Happiness comes from contentment and gratitude; which comes from recognizing that you have enough, which was the point the chapter was trying to make.

The book said “the hardest financial skill is to get the goalpost to stop moving,” after citing several stories about hedge fund investors being exceptional greedy to the point of ruin.

In the stories, the investors already have $100,000,000, but still scheme for more, being willing to break the law for another dollar, and then end up in prison with their finances and reputation ruined.

The book used an example of scale, where:

a rookie baseball player earns $500,000 per year.

He’s jealous of his teammate, who has a contract for $430,000,000 over twelve years ($34,000,000/year).

He’s jealous of a top ten hedge fund manager who gets $340,000,000 per year

Who’s jealous of someone in the top five, who gets $770,000,000 per year

Who wants to be Warren buffet (in 2018), who made $3,500,000,000 ($400,000/hour, 24 hours a day)

Compared to Jeff Bezos (in 2018), who made $24,000,000,000 ($2,700,000/hour, 24 hours a day). Bezos makes five times more per hour than the rookie makes per year.

The point was that even if you’re already making an obscene amount of money (half a million per year) you’ll be unsatisfied if you compare yourself to others because there’s always a bigger fish. And half a million every year is more than enough.

Thinking about the scale of wealth at the top is repulsive. That is a disgusting amount of money. No one person or family should sit on that much money while people in their community struggle. The level of greed to make half a million dollars per hour, and still deny your workers minimum wage for working their ass off in your warehouse is morally a crime and should be punished.

The chapter ends on a good note:

-Your reputation is invaluable

-Freedom and independence is invaluable

-Family and friends are invaluable

-Being loved by those who you want to love you is invaluable

-Happiness is invaluable

Risking those things for “more” when you already have “enough” is foolish.

The most important takeaways from the book are:

To be humble with yourself when things are going well, and lenient when things are going awry, because investing is a complex task that revolves around luck. Your success is likely not due to your decisions, but more likely because of luck.

Wealth is created by not spending all of your money. If you can save, over time (!), your money will lead to success. Not buying things today leads to more available tomorrow, so don’t buy things you don’t need.

Manage your finances in a way that makes sense to you and helps you sleep at night. There isn’t one right answer. Some people like risk, some people are more conservative, so don’t try to play the game by the same rules as someone who’s playing a different game.

The most important part of investing is compound interest, which needs time. The biggest gains are felt much later.

Use money to gain freedom over your time. The ability to do what you want, when you want, with whoever you want is the most important thing in life. Investing yourself into money-making while neglecting your free time or relationships will end up being a major regret.

Be modest. If you buy a fancy car or nice watch it’s because you want to be respected by your peers, but it’s more easy to be respected by your peers because you’re a good person (kindness and humility) than by flaunting your wealth.

Have a rainy day fund for unexpected costs. Life is unpredictable and it’ll help you feel more secure to be able to cover yourself when something unpredictable happens.

Make sure your behavior isn’t being influenced by people who are playing a different game.

People used to have to barter specific items. You would trade the bread you made for the cobbler to fix your shoes. But say the cobbler already has bread. That makes your bread useless. So instead people can exchange their goods for a currency that can be exchanged for other people’s goods, because that person can use that currency to buy whatever they need, instead of just being overloaded with bread.

You invest your time and effort into making the currency (i.e. money). That money now symbolically represents your “time spent.”

If you spend 8-hours today, working at $25/hr, those eight hours will be worth $200.

You can’t get those eight hours back. Your time was exchanged for money, which can now be used to buy anything you want.

When you spend that money, you are trading that time invested for the thing you purchase.