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In a modest attempt to read more books in 2023, my friends and I decided to start a nonfiction book club. Each month, one member got to pick a non-negotiable book for the group to read. The first non-negotiable book selected was The Psychology of Money by Morgan Housel. 

In The Psychology of Money, Housel explores our behavior with money. Each chapter is a financial lesson, offering research-backed insights and financial advice. 

Depending on your level of financial literacy, some of the lessons within the book may seem like common sense. However, no matter how obvious the lessons may seem, they can still be good reminders to anyone, regardless of existing knowledge.  

With that said, here are my top 3 timeless lessons that I learned from the book:

Lesson #1: Always leave room for error

When making any decision, it’s essential to leave room for error. As Housel puts it, “The most important part of every plan is planning on your plan, not going according to plan.” In other words, always have a backup plan if things don’t work out in your favor. 

Investing in a savings account (preferably with high interest) is one way to leave room for error. I personally like to bucket my savings: one for the short term, one for the long term, and one for investments. By bucketing my savings, I understand which areas I can make riskier decisions and which ones I should be more risk-averse in.

Lesson #2: You’ll change — and so will your financial goals

Your financial goals are going to change throughout your life. You might be more open to making riskier financial moves when you’re younger because your responsibilities are minimal. However, you may be more risk-averse as you age and take on more responsibilities. The best thing that you can do for yourself is assess your financial goals yearly and make any adjustments where needed. 

Lesson #3: Getting Wealthy vs. Staying Wealthy – know the difference

When accumulating wealth, it’s important to note the difference between getting wealthy and staying wealthy. There are various ways that one can become wealthy. Moreover, becoming wealthy requires risk, trial and error, and a degree of blind optimism. Conversely, staying wealthy requires the complete opposite; to stay wealthy, you need a healthy dose of frugality and paranoia.

It can be easy to get cocky when you’ve amassed a lot of wealth. However, overconfidence can become your fatal flaw if you’re not careful. Getting wealthy is only one piece of the puzzle; staying wealthy is the other. After accumulating wealth, reflecting on your investment strategy, money habits, and mindset is crucial to minimize potential financial risks in the future. 

Conclusion

Money plays a significant role in our lives. It affects our decisions, actions, and the world around us. Therefore, it’s essential to have a basic understanding of its behavioral and financial aspects. This knowledge will help you make better financial decisions in the future. The more you know about money, the better equipped you’ll be to handle it.