The Psychology of Money
Doing well with money isn't necessarily about what you know. It's about how you behave. And behavior is hard to teach, even to really smart people.
The One Key Takeaway
"Wealth is what you don't see."
Spending money to show people how much money you have is the fastest way to have less money. True wealth is the option to buy things later. It's the cars not purchased. The diamonds not bought. The watches not worn. Wealth is financial assets that haven't yet been converted into the stuff you see.
Core Lessons
No One's Crazy
Your personal experiences with money make up maybe 0.00000001% of what's happened in the world, but maybe 80% of how you think the world works. People from different generations, raised by different parents who earned different incomes and held different values, in different parts of the world, born into different economies, experiencing different job markets with different incentives and different degrees of luck, learn very different lessons.
Luck & Risk
They are siblings. Nothing is as good or as bad as it seems. Bill Gates went to one of the only high schools in the world that had a computer. If he hadn't, there would be no Microsoft. But for every Bill Gates, there was a Kent Evans—Bill's friend who was just as smart but died in a mountaineering accident before high school graduation. Luck and risk are the reality that every outcome in life is guided by forces other than individual effort.
Getting Wealthy vs. Staying Wealthy
Getting money requires taking risks, being optimistic, and putting yourself out there. But keeping money requires the opposite of taking risk. It requires humility, and fear that what you've made can be taken away from you just as fast. 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.
Tails, You Win
Long tails—the farthest ends of a distribution of outcomes—have tremendous influence in finance, where a small number of events can account for the majority of outcomes. You can be wrong half the time and still make a fortune, because a few big winners will pay for all the losers and then some.
Freedom
The highest form of wealth is the ability to wake up every morning and say, 'I can do whatever I want today.' Controlling your time is the highest dividend money pays.
Notable Quotes
"Money's greatest intrinsic value—and this can't be overstated—is its ability to give you control over your time."
"Planning is important, but the most important part of every plan is to plan on the plan not going according to plan."
"Use money to gain control over your time, because not having control of your time is a powerful and universal drag on happiness."
"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."
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