Knowing finances will make you rich, right? Not always! Financial know-how is not enough to earn and manage money in the real world. The key financial decisions we make are not even affected by math and theories. There's something else at play. Us! The actual players playing the money game. Our personal history, behavioral traits like ego and emotions, and even the way we respond to sneaky marketing tricks, all shape our financial behavior. And that's what the book investigates...
Our Experiences Shape Our Financial Decisions.
You are made with the money you knew growing up! As simple as that. Just like parenting, culture, education, etc. etc. impacts who we are as a person, money does, too. Here's a practical scenario: compare the experiences of a struggling farmer's son and a wealthy doctor's son living in New York. They are not merely from different backgrounds but will have totally different perceptions of the world. And this contrast was stark. Even people belonging to the same class...
Theories Of Economists Rarely Motivate Our Financial Decisions.
Do you ever notice how economists almost always fail to consider the 'human factor' in their theories? Reality is a bit different than their ideal. See, whenever we make financial decisions, we are rational and motivated by self-interest, but we are also intuitive. We do things because we have a "good feeling" about it. Typical humans! Take a look at the lottery system in the US. Are you aware that a low-income household in America spends $411 on the lottery each...
Economic Concepts We Use Are New To Mankind.
Why are the majority of people bad at handling money? Looking at historical context gives amazing answers. Money is only an infant in evolutionary history. We are actually at the beginning of understanding money and economic concepts.Did you know that the first currency was issued around 600 BCE in modern-day Turkey? It was King Alyattes of Lydia who minted the first-ever coins. If we compare this to thousands of years of human evolution, the last 2500 years are negligible. Even...
Are You Feeling Lucky Enough?
Do you believe in luck? Very few people will outrightly deny the role of luck in business. But here's the catch: we can't measure its role. So, what do we do? Underestimate it? Overestimate it? This is what we do: underestimate luck's role in our success yet overestimate it for others. If someone fails, laziness! If they succeed, lucky them! But if it was you? You attribute your success to hard work and blame the bad luck for your losses....
Learn To Recognize Broad Patterns Of Success And Failure.
We've all heard it a million times - failure is a great teacher. But does that mean success is a lousy teacher? Bill Gates says, "Yes!" We see success stories all around and get overconfident. We get tricked and ignore the role of luck, which then leads us to make bad financial decisions in the future. But behind every rich superstar is a backstory full of lucky breaks. Change your approach a bit when you follow stories of these so-called successful...
The Dangers Of Envy
Ever Feel Like No Matter How Much You Have, It's Never Enough? Haven't we all been there before? You work hard, achieve success, and make good money. But then you look over at your friend or co-worker who has a little more and think "Wish I had what they have." Next thing you know, you're taking dumb risks trying to get more, more, more. Sound familiar? Well, you're not alone. Envying what others have can totally lead us to make...
Earning Money And Managing Money Are Two Different Things!
Well, life is a bitter teacher. Especially painful are the lessons that teach you the difference between earning a fortune and managing the same. The life story of Jesse Livermore is one such painful lesson. Born in 1877, Livermore was one of the few who ruled Wall Street. He possessed $100 million by the time he reached 30. Before the big crash of 1929, Livermore bet correctly on declining stocks and made a big fortune ($3 billion in today’s monetary value)....
The Power of Persistence Through Failure
Success loves persistence. To get rich or to come up with something world-changing, you are gonna fail. Lots of times, before finally winning big. That’s just the nature of success. Look no further than Walt Disney and his early animation studio for a prime example. For years, Disney poured resources into animated films and cartoons, over 400 productions in total. The vast majority lost money and were commercial flops. The studio even went bankrupt at one point. Can you imagine...
Chapter 11
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Summary
The true picture of financial decision-making is completely different from what a textbook on the economy might present. A majority of financial decisions are determined by human factors like personal experiences, family, luck, pride, and so on. Even a person's risk-taking ability for investments or stocks is motivated by the state of the market economy during their formative years. Simply put, financial behavior is entangled with multiple psychological factors. So, the best way to proceed ahead is to accept the...
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About the Author
Morgan Housel is a partner at The Collaborative Fund.
He's the New York Times Bestselling author of The Psychology of Money and Same As Ever. His books have sold over 4.5 million copies and have been translated into more than 50 languages.
He is a two-time winner of the Best in Business Award from the Society of American Business Editors and Writers, and winner of the New York Times Sidney Award. In 2022, MarketWatch named him one of the 50 most influential people in markets. He serves on the board of directors at Markel.
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