The Psychology of Money
Important takeaways from "Psychology of money":
1) Financial success is a soft skill- how you behave is more important than what you know. Sadly, how we behave with money is shaped mostly by the time and place we're born in, making our intuition unreliable. Patience, frugality, and planning about the plan not going according to the plan are important qualities to have.
2) A good savings rate makes you wealthy, not a high income. If you already live a comfortable life, don't inflate your lifestyle when your income rises. Instead, save and invest the extra money.
i) Have an emergency savings fund (EMS). When something unexpected happens (like corona), you're prepared and won't be forced to sell your assets prematurely.
ii) EMS also lets you sleep properly at night.
i) Have an emergency savings fund (EMS). When something unexpected happens (like corona), you're prepared and won't be forced to sell your assets prematurely.
ii) EMS also lets you sleep properly at night.
3) Compounding is a powerful force in investing, so:
i) Start as early as possible. If I put 3K into something with an average return of 8% at age 25, it will have grown to 6.477K by the time I’m 30. At age 60, that 3K would be worth 44.356K. But, if I waited till 35 to invest that 3k and got the same returns, I’d only have 20.545K by age 60 - which is 54% (23.81K) lesser. Time is literally money.
ii) For compounding to work, you need to maintain moderate returns for a long period of time. Therefore, endurance is more important than high returns.
a) Do the average thing when everyone else is losing their mind. Don't stop investing even when the market isn't doing well.
b) Have room for error. Everything has a fine/fee. You will lose some money, think of it as paying a fine/fee.
i) Start as early as possible. If I put 3K into something with an average return of 8% at age 25, it will have grown to 6.477K by the time I’m 30. At age 60, that 3K would be worth 44.356K. But, if I waited till 35 to invest that 3k and got the same returns, I’d only have 20.545K by age 60 - which is 54% (23.81K) lesser. Time is literally money.
ii) For compounding to work, you need to maintain moderate returns for a long period of time. Therefore, endurance is more important than high returns.
a) Do the average thing when everyone else is losing their mind. Don't stop investing even when the market isn't doing well.
b) Have room for error. Everything has a fine/fee. You will lose some money, think of it as paying a fine/fee.
4) You're more likely to get respect and admiration with humility and kindness than with buying luxury goods.
5) Money is important because it gives you control over your life. It grants you the ability to move out of shitty conditions in your life and the patience needed to stick around until a good opportunity comes by.
5) Money is important because it gives you control over your life. It grants you the ability to move out of shitty conditions in your life and the patience needed to stick around until a good opportunity comes by.
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