Introduction:
Reading book is a significant activity for individual growth and expansion. Books provide wealthiest knowledge and insights that can help persons learn new aids, new viewpoints, and understanding of the world. Financial literacy and financial decisions can be make easier and quicker if we read books that provide mindful knowledge on personal finance.
Individuals have their own relationship with money, this can be stronger if we read books like “Psychology of money”. Their financial decision-making can be more informed. Emotional and intellectual both benefits can be gained by reading books on money.
Highlights of the book:
The book named “Psychology of Money” is written by the author Morgan Housel. The book is mainly written to discover complex relationship between people and finance. To understand the concept of money with ease, the book is divided into three portions. Name of those three parts are as follows:
- Money and Happiness,
- Money and Time,
- Money and Mind,
- Money and Luck.
Important points from the storyline:
The story of “Psychology of Money” deals in four main parts. In the primary section, happiness connection with the money is highlighted, in the second part of the book time relationship with the money is shown, whereas in the third of the book indicates how money and human minds are linked, and last portion showcase connection of luck with the money.
First part – Money and Happiness:
In the primary section of the book, the author Housel observes the knowledge that money does not necessarily bring happiness. If the person is rich, does never mean he/she is happy. There is also one saying that money does not buy happiness, our author underlines the same concept to the readers. Moreover, author argues that money may provide security and freedom to human being but it can also lead to greed and dissatisfaction. To give understanding on this topic, the author give example of individuals who have achieved great wealth but still struggle with happiness, as well as those who live with modesty are satisfied with their lives.
Second part – Money and Time:
In the second part of the book, the author focuses on relationship between money and time. The relationship between money and time is given importance. There is relationship between valuable financial decisions and time. If decisions are made in right time, one can get advantage of timely decision. Here opportunity of cost is also taken under consideration. Material possession is taken under consideration where proper use of materials such as cloths, furniture, electronics, and other tangible items are part of it. If items are purchased in right time, the owner can get opportunity cost of money. Material possession influenced by personal values, cultural norms, and financial circumstances.
Time value of money, opportunity cost must be taken into account for considering Money and Time.
Third part – Money and Mind:
In the third section of the book, the core of book lies where psychology of money is made very strong. In this section of book, various concepts regarding how people think about money and how they handle their money is dictated with different tendencies and biases. Here author highlights concepts such as loss aversion (it is mentality where people tend to avoid losses to acquiring gains. In this mentality people are more likely to take risks to avoid losing something they already have rather than taking risks to gain something new), confirmation bias (confirmation bias is a cognitive bias where people tend to seek out information that confirms their existing beliefs and ignore information that contradicts those beliefs), and herd mentality (herd mentality is groupthink of large group thinking) on financial decision-making.
Fourth part – Money and Luck:
Luck is important in every human beings life. Even when we talk about money, luck is of similar importance as the other object in our lives. Luck plays bigger role in our financial success than we think. The author mentions that luck plays a important role in shaping financial success is ignored in favor of attaching successes solely to individual effort and ability. The outlines suboptimal outcomes.
Heart of the book:
The book “psychology of Money” offers a thought-provoking explanation of relationship between people and their finances. It provides insights and also some or more practical advice for anyone who reads a book, whether working or not working. The book helps for financial well-being of an individual.
Conclusion:
Author, Morgan Housel emphasizes the importance of understanding one’s own values and priorities when it comes to money. He also encourages readers to pay attention on long-term goals rather than short-term goals. The author also suggest life lessons such as not to compare oneself with others. And suggests to be mindful of their own biases and tendencies.