The Psychology of Money Book Summary I Morgan Housel

Share with:

Book – The Psychology of Money (Summary)

Author – Morgan Housel

Genre – Self-help Book

Published in – 2020

We all Know mathematical facts about money, but the problem is that knowing what to do tells you nothing about what happens in your head when you try to do it.

The psychology of money talks about what goes on in our head when we read and apply what we learn about money, which is way more important. We are not as rational as we like to think when it comes to money.

Morgan believes that we think about and are taught about money in ways that are too much like physics (with rules and laws) and not enough like psychology (with emotions and nuance).

To grasp why people bury themselves in debt you don’t need to study interest rates; you need to study the history of greed, insecurity, and optimism and that’s what The Psychology of Money discusses and teaches valuable money lessons.

Morgan housel photo

About the Author

Morgan Housel is a partner at Collaborative Fund and a former columnist at The Motley Fool and The Wall Street Journal. He is also written other books 50 years in making and everyone believes it.

About the Book

The Psychology of money is less about the technical aspect of money and more about how we make decisions when it comes to money, which is less to do with facts, numbers, and logic.

The premise of this book is that doing well with money has little to do with how smart you are and a lot to do with how you behave. And behaviour is hard to teach, even to really smart people.

The psychology of money is a detailed version of 20 points report Morgan published in 2018 about important flaws, biases, and causes of bad behaviour he has seen affect people when dealing with money.

Few Key Points From The Book

1) No One’s Crazy

woman shopping online
  • As, they say we are best judge of other’s action and lawyer of our own. We judge people from how we perceive things. And what looks extravaganza to some, may look normal to others.
  • We go through life with different beliefs, goals, and forecasts, than others. That’s not because one of us is smarter than the other, or has better information. It’s because we’ve had different lives shaped by different and equally persuasive experiences.
  • Every decision people make with money is justified by taking the information they have at the moment and plugging it into their unique mental model of how the world works.

2) Never Enough

Unless you know what is enough you’ll never have enough. This is very personal and you should take your own time to decide what is enough for you. Please note that it’s your life and you don’t want others to tell you what is enough.

There are a couple of points you may consider while working on what is enough.

  • Don’t let goalpost move as soon as you reach there.
  • Social comparison is a problem – Don’t set your goal to be better than anyone else.
  • Enough is not too little – we often mistake enough with too little, however enough means you are comfortable others judging the way they want.
  • There are more valuable things like family, friends, reputation, freedom and happiness. It’s not worth risking these no matter what we gain.

3) Getting Wealthy vs. Staying Wealthy

  • Getting money is one thing. Keeping it is another. Most of us who have been in work for a while can resonate with this. Especially if you have increasing consumer debt with rise in income.
  • Getting money requires taking risks, being optimistic, and putting you out there.
  • But keeping money requires the opposite of taking risk. It requires frugality and an acceptance that at least some of what you’ve made is attributable to luck, so past success can’t be relied upon to repeat indefinitely.

4) Tails You Win

  • We underestimate how normal it is for a lot of things to fail, which causes us to overreact when they do. What seems like overnight success has had many causes and effect in creating overnight success.
  • Finance is no different be it venture capitalist, mutual funds, other investments and so non-finance matters. Most of the projects fail, and few that succeed make it up for all losses and make big fortunes.
  • Don’t wait for hack, and tricks. Every big success is tail of lot of fail attempts. That’s where we learn to make good decisions, recognize opportunities.
  • Warren Buffett has been quoted many times in book. He had around 400 to 500 stocks in his lifetime and made most of his money from 10 of them. That’s tail effect.

5) Freedom

Man jump in the air

This is my favourite point from the book.

The ideas explained the level of freedom –

  • A small wealth can enable you to take a break from work when you are sick without breaking the bank.
  • A bit more means waiting for good job to come around when you get laid off. This can be life changing.
  • Six month’s expense in saving accounts mean not being terrified of boss, as you won’t be ruined if you lose job and get time to find better work place. This can be liberating and can save ton of stress, anxiety.
  • Then there’s retirement when you want to, rather than when you need to.

Loved these two lines from the book on Freedom –

  • Using your money to buy time and options has a lifestyle benefit few luxury goods can compete with.
  • Doing something you love on a schedule you can’t control can feel the same as doing something you hate.

6) Save Money

Money saving pot
  • This one is drummed in our ears since the time we start earning and yet few are able to save and whoever saves also have some goal in mind for saving like, putting down payment for house, car or child education, marriage etc.
  • Morgan offers different view point (Don’t wait for any reason to save) and convinces with amazing simplicity to save for the sake of saving. Only saving for a specific goal makes sense in a predictable world. But ours isn’t.
  • You can build wealth without a high income, but we have no chance of building wealth without a high savings rate.

Consider below three points when you think of saving –

  • Savings can be created by spending less.
  • You can spend less if you desire less.
  • And you will desire less if you care less about what others think of you.

Benefits of savings without specific Reason –

  1. Saving is a hedge against life’s inevitable ability to surprise the hell out of you at the worst possible moment.
  2. Savings without a spending goal gives you options and flexibility, the ability to wait and the opportunity to pounce.
  3. It gives you time to think. It lets you change course on your own terms.
  4. The flexibility and control over your time is an unseen return on wealth.

7) Few Lines for Starting or Boost Saving Money

Morgan summarizes a couple of general rules to handle money and it applies no matter what your goals –

  • Less ego, more wealth. Saving money is the gap between your ego and your income, and wealth is what you don’t see.
  • No matter how much you earn, you will never build wealth unless you can put a lid on how much fun you can have with your money right now, today.
  • If you want to do better as an investor, the single most powerful thing you can do is increase your time horizon.
  • Time is the most powerful force in investing. It makes little things grow big and big mistakes fade away.
  • Use money to gain control over your time, because not having control of your time is such a powerful and universal drag on happiness.
  • Respect the mess. Smart, informed, and reasonable people can disagree in finance, because people have vastly different goals and desires. There is no single right answers; just the answer that works for you.

I have also created a video of a few quotes from the book – Hope you like it. Please do subscribe to my YouTube channel – Myread4change


This is the best book I have read on money so far. It helped me in understanding why I behave the way I do with money and get better at it.

I highly recommend this book for everyone, who knows money rules and yet not getting better with it.

You may download The Psychology of money free E-book here.

If you like this book, you may also like Mind Over Money.

Thank you for reading.


Share with:

1 thought on “The Psychology of Money Book Summary I Morgan Housel”

  1. Everything is very open with a precise explanation of the challenges. It was definitely informative. Your website is very helpful. Thank you for sharing!


Leave a Comment