3 lessons I learned from ‘The Psychology of Money’ – Business Insider

I consider myself somewhat financially savvy. But the emotional side to dealing with money is something that most of us including me struggle with.

"The Psychology of Money" by Morgan Housel helped me work through some of the mental aspects of money management that I didn't have a handle on. Here's what stood out to me the most.

You don't have to look far beyond your immediate circle of family and friends to notice that different people interact with their money differently. Some seem to be diligently saving and investing for the future, while others are living in the present without a financial game plan at all.

I fall on the saving and investing end of the spectrum. But I've often been tempted to try my hand at keeping up with the Joneses. With the help of this book, though, I realized that there is no right or wrong way to manage your money. You simply have to do what aligns with your values.

For me, that means saving a large portion of my income with the goal of achieving financial freedomat some point in the future. But everyone has to find what works for them. Not everyone wants to pursue FIRE (financial independence/retire early). Likewise, not everyone wants to spend the majority of their income on material items.

The "right" way to spend is different for everyone. I've realized that no one is making crazy money decisions everyone just makes the best decisions they can based on the information they have available and their values.

When you dive into the weeds of efficient money management, you will likely encounter questions that pit dollars-and-cents logic against peace-of-mind priorities.

A hotly debated question that comes to mind is whether you should invest more or pay down your mortgage early. Personally, I was always a little conflicted about this.

I could see the logic that I could potentially be better off in the long run if I prioritized investing as opposed to paying off my mortgage with a low interest rate attached. But my heart told me that I'd sleep better if I were making more progress on clearing my mortgage debt for good.

Chapter 11 of the book, titled "Reasonable > Rational," helped me clarify this internal debate. I realized that it is a reasonable choice for me to pay off my mortgage early if it helps me sleep better, regardless of what the numbers say. Either way, I'm making a smart decision with my money.

Have you ever been surprised when an undeniably rich person decides to do something seemingly crazy in pursuit of more money? Tax evasion and Ponzi schemes come to mind. I had never understood why someone who seemed to be set for life would risk everything for just a little more cash.

Housel explains in the book why rich people take these greedy actions they never determined how much money was "enough" for them. No matter how much money you have, it will never be enough unless you've decided that you have enough. If you never have enough, then you'll never be able to stop chasing the next dollar.

With that in mind, I took some time to explore what "enough" means to me. As someone who is pursuing financial independence, I decided to set a number that is reasonable and would provide my family with "enough." But I don't plan on chasing every dollar forever.

If you are looking for a thought-provoking read that will help you question the way you approach money, I highly recommend "The Psychology of Money." Although you won't learn the basics of personal finance, it is a useful read for anyone trying to figure out the best ways to interact with money in their unique personal financial situation.

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3 lessons I learned from 'The Psychology of Money' - Business Insider