The Psychology of Money
Ever wondered why some people seem to just know what to do with money and make more of it while others who follow similar paths do not?
Ever wondered why people who had it all manage to throw it all away and end up with nothing?
Well according to Morgan Housel it is all down to the psychological or emotional response we have to money and finance and very little to do with technical skill or ability.
Our response and attitudes to money will very much reflect our background, the values of our parents and the early experiences we have with money.
For example, most people over 55 can remember the interest hikes of the late 1970s and 1980s when interest rates topped 17%, so we are more likely to be cautious when borrowing, building in protection from inflationary hikes. However, on a positive we did see good rewards for any savings we had.
However, today’s 20–30-year-old house buyers have only ever known very low interest rates but equally poor savings rates. But for them the challenge is getting on the property ladder at all with the need for large deposits and a feeling that they will never be able to buy their own home.
Housel discusses the difference between being rich and being wealthy and defines wealthy as “what you don’t see” It is the things that have not been bought, it is knowing you could have bought something but deciding not to. He also goes on to talk about how hard some people find it to stay wealthy!
Throughout the book Housel gives many examples which are mostly American, which is a little annoying for us Brits but doesn’t take away from the validity of his points.
My main takeaways from the books are as follows;
Nothing is as good or as bad as it seems – with money it is always best to keep a more even approach.
Manage your money so you can sleep at night – do what works for you, we all have different levels of comfort with risk and reward.
Things will go wrong – factor in a little room for error in your expectations.
Start young – the longer you have the more likely you are to be successful – success rarely happens overnight.
Definitely worth the read especially for those who find the world of money a little daunting.
Get the book: https://www.amazon.co.uk/Psychology-Money-Timeless-lessons-happiness/dp/0857197681
Mhairi is also a coach with a strong SME background, a focus on the detail, a high level of emotional intelligence and a strong desire to develop talent and grow high performing teams.
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