Many of us have either lost money or simply not made as much as we could have due to our degeneracy.
I recently read a book called Psychology of Money where he offered a really simple but useful framework for thinking about money.
Thought 1: → Don’t underestimate the importance of luck when making money. People make money by a combination of luck, skill, and unfair advantages.
If you look up to someone, look at their patterns, not the person. Malcolm Gladwell's book Outliers talks about this.
Thought 2: → Learn to say Enough.
This one should be obvious but it’s hard to put into practice. He gives the example of Madoff.
"There is no reason to risk what you have and need for what you don't have and don't need."
Thought 3: → Try and save as much as you can even when you don’t have a specific reason to save.
“Building wealth has little to do with your returns and more to do with your natural savings rate.”
We think of savings as,
Savings = Income - Expenses
But another way to think about it is
Savings = Income - Ego
Thought 4: → Focus on not screwing up, don't focus on making big gains. (Don’t blow up)
This is the one constant piece of advice I've gotten from traders who have 20+ years of experience in markets.
Getting it wrong is worse than doing nothing and not getting it right.
Thought 5: → Use Money to buy Freedom.
“Money’s greatest intrinsic value- and this cant be overstated-is its ability to give you control over your time. Using your money to buy time and options has a lifestyle benefit few luxury goods can compete with.”
Buying freedom is a much more efficient use of money if optimizing for happiness than buying stuff you don’t need.
Thought 6: → Getting wealthy is different to staying wealthy.
"Getting money requires taking risks, being optimistic, and putting yourself out there. but keeping money requires the opposite of taking risks. It requires humility, and fear that what you have can be taken."
Thought 7: →Leave room for error.
Make sure you can survive, emotionally, if things go wrong, or not as right as you thought. Watching your savings dwindle without any cash flow takes an emotional toll. Spend less, save more, be prepared.
Thought 8: →Don't be Flashy.
"People don't actually admire the person in the car. They are admiring the car itself, and picturing themselves in it."
Wealth is not about a Lambo, it's about buying your time back, retiring your parents, and homeschooling your children.
Thought 9: →Be reasonable rather than rational.
If paying off your house helps you sleep at night then do it. It might not be the most rational thing to do, but it's reasonable if we are optimizing for happiness and that's what makes you happy.
End
The book is nothing revolutionary, but crypto Twitter tends to distort reality and sometimes it's nice to re-center. Let me know if you want me to keep doing these book reviews in the comments!
Please keep doing these book reviews!