Life-changing lessons from The Psychology of Money

we all know that money is an emotional topic but  what we don't realize is that these emotions play   a huge part in our bad money decisions so in  this video I'm going to share with you five of   the biggest emotional traps that I've learned  from the psychology of money and how you can   avoid falling into them number one pay the price  this is one that very few people understand that   everything you have and do comes at a price  whether it's a monetary price in dollars or   cents or an emotional price like fear or doubt or  stress nothing is free and this is especially true   when it comes to investing because the price  you pay isn't just the price of the stock or   the amount you invest in it's also the emotional  volatility and the fear that comes with it which   isn't always intuitive in other areas of your  life for example if you go to the gym today it   may hurt a bit tomorrow you'll feel sore and then  three months six months nine months down the line   you will see results but people tend to take these  short payoff periods and apply it to investing you   think that by checking back at three months or in  six months time the results will show but that is   where the emotional trap comes in let's say you  bought an S P 500 Index Fund in the 1980s yes   one can argue that it went up 11 000 since then  but you would still have needed to face about   13 years combined where your Investment Portfolio  was down 20 from its high and eight months when it   was down 50 it's only after paying that emotional  price and sticking it out through those downfalls   that you would have then benefited from the  compounded results and the longer you're able   to ride out that volatility the fear the worry the  doubt and stay invested the more your money would   work for you and as housel says good investing is  not necessarily about earning the highest returns   because the highest returns tend to be one of  hits that can't be repeated it's instead about   earning pretty good results that you could stick  with which can be repeated for the longest period   of time number two the magnitude of chance this  was a bit of a difficult one for me to digest that   first but once you understand it you'll change the  way you think about earning and who to learn from   when it comes to making money there are so many  elements that come into play that are outside of   your control and they have a bigger impact on  the outcome than what we would have done even   intentionally for example our upbringing our  ethnicity gender which part of the world we   live in and housing states that one of the main  reasons we fail to become financially successful   is because we underestimate the role chance  plays in our financial lives ignoring chance   or luck is dangerous because many people try to  gain wealth by imitating the most exceptional   successful people if we see someone make a lot of  money very quickly we tend to look at that person   and say okay how does she or he do that and how  can I copy that to be just as successful but due   to the fact of chance locked the right place  at the right time the odds won't necessarily   stack up in our favor he uses the example of  Bill Gates Ultra successful huge net worth   and you can say he achieved his success because  he was a super smart and super hard-working but   what we don't always think of is the fact that he  also went to the only high school in America with   a computer and he was literally one in a million  teenagers who had access to a computer so having   that accessibility was the chance element in his  story that contributed massively to his financial   success forget to look at the wider picture what  were their circumstances when did they do it what   was the wider market like how long have they done  it for so house explains instead of focusing on   the individual it's better to focus on broader  patterns to maximize your probability of success   so if one person did X to get wealthy but many  people did why to get wealthy doing why will   have a bigger probability of you gaining financial  success number three wealth is what you don't see   this is probably the most important one on the  list and one that as a society we often fail to   see we are social beings so it is no surprise that  we need social validation but actually craving for   social validation makes us worse off and a reason  why so many of us failed to achieve financial   success is because we confuse use being wealthy  with being rich rich people can lack wealth but   we can't see that they do their current income is  high so they have the money available to be able   to spend on expensive items and tangible items  and so we confuse perception with reality whereas   on the other hand it's hard to identify a wealthy  person because they save their money you can't go   into their bank account and see the money that  they're not using Hope from the book that says   rich is what we see what we are wearing the bag  we're holding the jewelry we're wearing and on   the other side wealth is what we don't see it's  the cause not purchased the diamonds not bought   to the renovations postponed the clothes will  gone and the first class upgrades declined so   knowing the difference between being wealthy and  being rich is really important because we learn   by imitation and so knowing who to imitate and who  not to imitate can help us grow our money and grow   our wealth you understand the difference between  being rich and being wealthy and start learning   the habits of what a wealthy person does you can  prevent yourself from draining away your money and   protect it number four use money to buy control  this is the lesson that has probably resonated   the most with me and whenever someone asks why  I'm not spending money on buying this or buying   that it's because my sole focus is to use that  money to create a life that I want using your   money to buy time and options has a lifestyle  benefit few luxury goods can compete with and   money buys you optionality and control of your  life more than our salary our corporate title   or Prestige of our job instead to do what we want  when we want with the people we want that is one   of the things that brings the most happiness that  comes with the privilege of having wealth it may   come with sacrificing on other things for the  time being and I also have a specific video on   the things that I no longer buy to and my plan  to get to this stage but it's all in the name   of focusing on what is really the best value for  your money and the big ticker items and that is   to create a life that you have always wanted  and having the freedom and control over your   time number five contrasting narratives we're  all very familiar with this one but very few of   us implement it we all know having money and and  being able to manage it gives you control but how   much money should you have well there are studies  that show how your income has diminishing returns   on your personal life satisfaction and Beyond  a certain point more money stops buying you   further increases of Happiness Until you realize  that the goal post on how much you want to earn   will keep moving the advice in the book is to  know when to say enough there is a limit to the   value that money can bring into our lives it's  about finding the balance between accumulating   wealth and preserving what truly matters things  like our relationship health and your overall   well-beings too often people get caught up  in the pursuit of more and more money more   possessions more success without taking a step  back and considering the potential consequences   and this can cause sacrificing our physical  and mental health the damaging relationships   or even risking what we already have and our  financial stability in the pursuit of making   more and in the book he gives examples of how  Ultra successful people risk everything they   have in the pursuit to get more and damage their  reputation and everything they have they risk it   all just to get more money that they didn't even  need it's easy to forget this when you're seeing   people around you spending their money and all  the marketing messages telling you how you should   be spending yours on one side you'll get the  messages saying you need to live frugally to   be rich and you'd save to be rich and on the  other side you need to quit your job and be   traveling and be living your best life and with  these contrasting narratives it's very easy to   Lose Yourself within that money up to a certain  point will buy you freedom and control and then   after that that value needs to come intrinsically  know who you are and what matters the most to you   so those are the five most important lessons  that I've taken away from this book highly   recommend it and I've been applying it to many  parts of my life I'm interested to know if you   have fallen into one of these emotional traps  either subconsciously or consciously and now   that you're aware of the trigger what you'll be  doing to come out of this cycle thank you for   watching don't forget to subscribe if you haven't  already and I hope to see you in my next video

Channel: Nischa

Views: 323,923

Keywords: the psychology of money, morgan housel, book summary, book club, nischa, investment banking, lessons from the psychology of money, best book, book review.

Id: tmTysUZN36M

Length: 8min 2sec (482 seconds)

Published: Sun Apr 02 2023