4 Insights from Morgan Housel's "The Psychology of Money"

People don't really want to be millionaires, historians are not prophets & Charlie Munger's non-financial goal

Hi friends,

I turned 29 today. Yay!

This marks the 10th anniversary of when I start writing online. In honour of this, I decided to restart my blog and share notes from the books I read. A labour of love for my friends. ❤

Here are 4 insights from Morgan Housel’s “The Psychology of Money”.

Enjoy.

I. People don’t want to be millionaires. They want to spend $1M.

… And this is the total opposite of being a millionaire.

Investor Bill Mann wrote that there is no faster way to feel rich than to spend. But that the way to be rich is to spend money you have. And to not spend money you don’t have.

According to Housel, the very definition of wealth is to not spend the money you have.

Rich is your current income. But wealth is how much you have saved up.

II. Historians are not prophets.

Housel quotes investor John Templeton as saying,

“The four most dangerous words in investing are ‘it’s different this time.’”

To balance this, he tacks on this one from Michael Batnick:

“The 12 most dangerous words in investing are, ‘The four most dangerous words in investing are ‘it’s different this time.’”

What does this mean?

1. Don’t use history as a way to predict the future.

2. At the same time, don’t ignore history and blindly move forward.

This is especially relevant for people like me who love reading to make better decisions in the present.

Housel suggests a more nuanced way of learning history:

1. The farther back the event was, the more general your takeaways should be.

2. The closer to our time it was, the more specific your takeaways can be.

III. The secret to saving more

In the book Housel writes,

“Savings can be created 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.”

So what if you’re not rich, income-wise?

Remember: People don’t want to be millionaires. They just want to spend $1M (or look like one). This also means that there are so many people who seem rich — i.e. spend a lot, live a luxe lifestyle, buy designer… and post it all on IG — who are just living, paycheck to paycheck.

You don’t want that.

Instead Housel advises, the key to saving more and becoming rich is to care less about what others say.

“Others” also means Instagram and Tiktok influencers and YouTube vloggers. Care less about what they say you should buy. How you should dress. How you should live.

Those influencers are not gonna tell you this.

Care less = Desire less.

This means that you end up spending less over all. And when you do buy something, you can be certain it’s something you really want.

Win-win.

IV. What was Charlie Munger’s non-financial goal in life (that also made him rich)?

Charlie Munger was Warren Buffet’s business partner at Berkshire Hathaway. He once said:

“I did not intend to get rich. I just wanted to get independent.”

In Psychology of Money, Housel reframes this goal for himself writing, “I mostly just want to wake up every day knowing my family and I can do whatever we want on our own time.”

Optimize for freedom and independence. And the money will follow.

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Thanks for reading! Hope this made you think.

— Rox

P.S. No set schedule for now. I’ll post whenever I finish taking notes.