10 Lessons I Learned From “The Psychology of Money” That Changed the Way I View My Finances Forever.

And how they can help you too.


Teronie Donaldson

3 years ago | 8 min read

Every so often, a book comes along that challenges your viewpoint. I thought I knew a lot about Finance, then I read “The Psychology of Money” by Morgan Housel, and it made me realize I had a lot to learn. Finance is more than saving and investing; it is predominantly about your psychology and behavior. And the actions you take as a result become the cornerstone to your financial success.

Here are 10 lessons I learned from “The Psychology of Money” that changed the way I view my finances forever.

Photo by Christine Roy on Unsplash
Photo by Christine Roy on Unsplash

#1. Every decision we make with money is justified by taking the information we have at the moment and plugging it into our unique mental model of how the world works.

“The world is full of obvious things which nobody by any chance observes” — Sherlock Holmes.

I often fell victim to impulse shopping. So many objects I wanted and didn’t need, and I regretted spending money on them. I went against better judgment to satisfy a quick urge.

The items were harmless enough, but all the little things add up. I grew up in New York City, the world’s fashion capital, where even in the hood, you had fresh gear. And I followed suit. My family and friends impulse shopped all the time. No wonder it felt so natural to me. I was conditioned, and I kept the cycle going into adulthood.

How this lesson changed my view on finances forever?

It made me understand the origin of my impulse spending. I will change the behavior and mental model from now on, so my next 20 years will be financially better than my previous 20.

Photo by Priscilla Du Preez on Unsplash
Photo by Priscilla Du Preez on Unsplash

#2. Be careful who you praise and admire; be careful who you look down upon and wish to avoid becoming.

Superior wisdom as we get inundated with the usual success examples of Jeff Bezos, Warren Buffett, Elon Musk, Oprah Winfrey, or whoever is in the billionaires club. It becomes a high standard set and makes us believe we have to be like these guys.

Realistically you can be as financially savvy as your local banker or your budget-friendly neighbor. It is easier to strive towards a closer goal than one that is far out.

How many more articles we see titled “Warren Buffet invested in XYZ company and to become rich you should too.” Or “Jeff Bezos read these five books, and they will make you rich.” That is not the case. The books they read may be great, but there is much more than meets the eye.

What doesn’t get captured in these articles is the hard work, connections, disappointments, discipline, luck — all the behind-the-scenes stuff that forged them into who they are.

We only see the headlines and believe we can do the same. Conversely, society looks at some with steady careers and no financial issues in a less glamorous light.

How this lesson changed my view on finances forever?

In the future, I won’t be overly impressed with the people on the Forbes list. I can admire and celebrate their successes; however, I will look to the stories of how they rose to that position — the path instead of the result.

Photo by Henley Design Studio on Unsplash
Photo by Henley Design Studio on Unsplash

#3. Having Enough.

There was a story in the book about greed that goes;

“At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs Powell Joseph Heller that their host, a hedge fund manager, has made more money, in a single day, than he’s earned from his novel over its history. Heller responds, Yes, but I have something he will never have — Enough.”

One of the most challenging financial skills in the world is to get the goal post to stop moving; this is evident in our consumer-driven lifestyles. Our Capitalistic system makes it easy to feel good with the latest gadget or item, and you have to keep getting them.

Though it is not a new phenomenon, it is an ever-present one. My earliest memory of not having “enough” was at 17. I worked and saved up money to buy a pair of Jordans that cost $175 (That’s probably a steal nowadays as sneakers flipping is a whole industry).

I already had two decent pairs of sneakers. However, I had to have these Jordan’s too. I’m not going to lie; I felt great after purchase, but the long-term result didn’t serve me as my feet grew out of those sneakers within the year.

How this lesson changed my view on finances forever?

Enough is enough. It is okay to be satisfied with what I have.

“The art of being happy is to be satisfied with what you have.” — Fortune Cookie Wisdom.

#4. Compound interest is a mighty force.

I first learned about compound interest at 16 years old. My math teacher passionately explained it to my class, but I couldn’t care less. Then at 19, my Economics teacher spoke about compound interest. He passionately implored us to invest, at the very least, in mutual funds and wait till we were his age to see the results. Again I didn’t care.

Now at 39, I see the wisdom in both of those teachers’ advice. If I invested at 19 over 20 years, there is a strong likelihood I would have been more financially sound.

The book mentions Warren Buffett’s investment success often as he has been investing for decades. However, suppose you compared Buffett to Jim Simmons, founder of Renaissance Technologies (a quantitative hedge fund based in New York). In that case, Simmons is technically the better investor as he started in his fifties and became insanely wealthy.

However, Buffett is known as the legend as compound interest, over decades, was an advantage.

How this lesson changed my view on finances forever?

I finally understand you must let your money compound naturally and stay out of its way.

Photo by Diggity Marketing on Unsplash
Photo by Diggity Marketing on Unsplash

#5. Planning is essential, but the most important part of every plan — is to plan on a plan, not going according to plan.

A famous saying goes, “When you plan, God laughs.” A valuable lesson because I fall victim to it constantly. I’m naturally optimistic, yet reality doesn’t go to my liking.

Nothing goes according to plan, and a lot of our plans seem to be rigid.

The book mentions;

“Many bets failed not because they were wrong but because they were mostly right in situations that required you to be exactly right. There was no room for error or margin of safety.”

How this lesson changed my view on finances forever?

Essentially it would be best if you had NASA Precision for your plans not to fail. So I will make my financial plans and hope for the best, but prepare for the worst and always leave room for errors because you never know.

Photo by Michal Matlon on Unsplash
Photo by Michal Matlon on Unsplash

#6. You can be wrong half the time and still make a fortune.

“Here’s the thing about luck…you don’t know if it’s good or bad until you have some perspective.” — Alice Hoffman

Usually, when you hear finance experts speak, you assume they know what they’re doing, but there is a good chance they may not. You cannot predict how the market may go, even on a good day, but it doesn’t stop them from making money.

Warren Buffett once mentioned in a shareholder’s annual meeting that many of his investments didn’t work out. However, the few that did well paid for all the bad assets, so he keeps investing.

How this lesson changed my view on finances forever?

The lesson taught me to play the long game in finances and reminded me of a vital lesson in content creation. As long as you consistently put out material, you have a better chance of a few pieces of content doing well; just don't stop.

#7. Controlling your time is the highest dividend money pays.

My favorite lesson from this book. This lesson is also mentioned in the bible.

Prov 22:7: “The rich rules over the poor, and the borrower is the slave of the lender.

It’s funny this book made me fully understand the concept better. The intrinsic value of money is its ability to give you control over your time. Unspent assets give you greater control over what you can do and when you can do it.

How this lesson changed my view on finances forever?

I understand that my best form of retirement is becoming financially independent. Financially independent is being able to take care of all my family’s needs without any issues and wake up daily and do whatever I want whenever I want.

Photo by jaikishan patel on Unsplash
Photo by jaikishan patel on Unsplash

#8. One of the most potent ways to increase your savings isn’t to raise your income but raise your humility.

This one cuts to the core. There were times I could have cashed in on opportunities, but I thought I deserved to have a higher stake in the opportunity. I wasn’t arrogant about it, but there have been some jobs I wasn’t going to do.

How this lesson changed my view on finances forever?

Ego can be the enemy because you feel you deserve to have all the accolades instead of being financially prudent. In the future, taking the ego out of my decisions will be wiser, mainly if it results in completing a long-term goal.

Photo by Xan Griffin on Unsplash
Photo by Xan Griffin on Unsplash

#9. True wealth is what you don’t see.

When someone tells you advice, they may not know what’s best for you.

We all see massive spending daily. Take a tour through social media feeds, and you’ll see Ferraris, cash on display, and people living their best life. One can quickly feel like a piece of s*** if you compare lives. However, what you don't see is the truth, whether they are renting luxury items or how many years of work they put into actually afford those items.

How this lesson changed my view on finances forever?

Modern capitalism makes helping people fake until they make it a cherished industry; that’s why there is so much flossing for the “Gram”(Instagram). From now on, I won’t get lured by people’s display of wealth. I will be more concerned with what they did to earn the wealth and see how I can apply those principles.

No one is impressed with your possessions as much as you are, as they don’t mean s*** if you have to sell them.

Photo by Dennis Anderson on Unsplash

#10. A good rule of thumb in life is “everything that can break will eventually break.” Avoid the single points of failure.

How this lesson changed my view on finances forever?

This rule is necessary for our lives from here on. If you have only one source of income right now, you are looking at catastrophe. We have seen what Covid-19 done to businesses and industries. People working for a long time weren’t anymore, and those without other income faced financial calamity.

The companies that flourished were E-commerce and specific essential services. So an important lesson as we advance is to diversify your income streams and your skillset ASAP.

📷Photo by Clay Banks on Unsplash

There were so many more lessons that I could have added, but I honestly didn’t want to spoil the book for others who wish to read it.

These 10 lessons were game-changers for me at this point in my life, and I hope these lessons will help you as well.

Take Care

This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.


Created by

Teronie Donaldson

Writer | Motivator | Reading Habits Coach | Content Creator. Around Me, Everyone Wins!







Related Articles