The Book That Changed My Financial Life 🤑

Summary

In this episode of Book Club, the host explores 12 key lessons on money from Morgan Housel's 'The Psychology of Money.' The video is divided into four parts, discussing attitudes towards money, earning it, spending it, and protecting it. Key takeaways include the influence of luck and timing on wealth, the importance of recognizing 'enough,' the power of compounding, and the value of saving. The host also emphasizes the psychological aspects of financial decisions, such as the emotional benefits of paying off a mortgage and the diminishing returns on happiness from increased income. This insightful summary encourages viewers to consider both the rational and emotional sides of managing their finances.

Takeaways

• 🧐 Different attitudes towards money can affect financial decisions, and it's important not to judge others based on their financial choices.
• 🍀 Recognize the role of luck in financial success, as it often combines with skill and unfair advantages, as exemplified by Bill Gates' early access to a computer.
• 🎯 Learn to be content with what you have; constantly chasing more can lead to risky behavior and dissatisfaction.
• 🌱 Early and consistent investing can lead to significant wealth through the power of compounding, as demonstrated by Warren Buffett's wealth accumulation.
• 💰 Prioritize saving as much as possible, as your savings rate is more controllable and impactful on wealth building than income or investment returns.
• 🚫 Focus on avoiding financial mistakes rather than seeking to make large gains, as the consequences of loss can be more detrimental than the benefits of windfalls.
• 🛍 Use money to buy freedom and flexibility, as these are more valuable than material possessions in contributing to happiness and life satisfaction.
• 🛡 Understand the difference between getting wealthy and staying wealthy; the former requires risk-taking while the latter requires risk-avoidance and humility.
• 🏠 Avoid flashy spending to gain respect, as true wealth is often the money that remains unspent and respect cannot be bought with material possessions.
• ⚠️ Always leave room for error in financial planning to account for both potential changes in financial returns and emotional responses to those changes.
• 🔮 Avoid making extreme financial commitments based on current desires, as future goals and values are likely to change in unpredictable ways.
• 💖 Make decisions that are reasonable and consider emotional well-being, not just rational and financially maximizing choices.

Q & A

What is the main topic of discussion in the video?

The main topic of the video is the 12 lessons about money that the host learned from Morgan Housel's book 'The Psychology of Money'.

Why should we not judge people based on their financial behavior?

We should not judge people based on their financial behavior because everyone has different attitudes towards money, which are influenced by their own circumstances and life experiences.

How does the experience of different generations with the stock market affect their investment decisions?

Different generations have different experiences with the stock market, which shapes their views on investing. For example, those born in the 1970s, who saw the S&P 500 increase significantly, are more likely to invest in stocks compared to those born in the 1950s, who experienced a stagnant market.

What is the role of luck in making money according to the book?

According to the book, any outcome, including making money, is a combination of luck, skill, and unfair advantages. It emphasizes that we should not solely focus on the actions of successful individuals but also consider the broader patterns and the role of luck.

Why is it important to recognize when 'enough is enough' in terms of financial goals?

Recognizing when 'enough is enough' is important because it helps prevent continuous pursuit of growth for its own sake and the potential negative consequences that come with it, such as engaging in risky behavior to chase more wealth.

What is the significance of compounding in building wealth?

Compounding is significant in building wealth because it allows earnings to be made on previous earnings, leading to exponential growth over time. This is illustrated by Warren Buffet's wealth, most of which was accumulated after his 50th birthday due to the power of compounding.

What is the relationship between savings rate and building wealth according to Morgan Housel?

According to Morgan Housel, building wealth has more to do with your savings rate rather than your income or investment returns. He suggests that savings equals income minus ego, highlighting the importance of controlling personal expenses.

Why is it advised to focus on not screwing up rather than making big gains in investments?

Focusing on not screwing up is advised because making consistent, non-dramatic gains over time is more beneficial than trying to make big gains, which can lead to significant losses if the investments fail.

How does the true value of money relate to freedom and flexibility?

The true value of money lies in its ability to provide freedom and flexibility. It allows individuals to control their time and options, which contributes more to happiness and a meaningful life than material possessions.

What is the difference between getting wealthy and staying wealthy according to the video?

Getting wealthy often involves taking risks and being optimistic, while staying wealthy requires the opposite, such as humility and fear of losing what has been made. It emphasizes the importance of preserving wealth through cautious financial decisions.

Why is it suggested not to be flashy with wealth?

Being flashy with wealth is not suggested because respect and admiration cannot be bought with material possessions. People often admire the possessions themselves rather than the person owning them, and true wealth lies in the money that has not been spent.

What does the book suggest about the importance of leaving room for error in financial planning?

The book suggests leaving room for error to ensure both physical and emotional survival. It's important to plan for scenarios where financial returns may not be as expected and to consider the emotional impact of financial decisions.

Why should we avoid making extreme financial commitments for our future selves?

We should avoid making extreme financial commitments because our goals, values, and desires are likely to change over time. The 'end of history illusion' suggests that we are bad at predicting how much we will change in the future, so it's wise to maintain flexibility in financial planning.

What is the final lesson about being reasonable rather than rational in financial decisions?

The final lesson emphasizes that good financial decisions are not always rational but should be reasonable, taking into account emotional needs and personal comfort. It's important to make decisions that contribute to our well-being and peace of mind, even if they are not the most economically rational choices.

Outlines

00:00

📚 Introduction to 'The Psychology of Money'

The speaker introduces a book club series discussing 'The Psychology of Money' by Morgan Housel. The episode is structured into four parts: attitudes towards money, getting money, spending money, and protecting money. The first part addresses the varied attitudes towards money shaped by individual experiences and emphasizes the importance of not judging others based on their financial decisions. It uses the example of stock market perceptions among different generations to illustrate how attitudes can significantly impact financial behavior.

05:00

🤔 The Role of Luck and Contentment in Wealth

The speaker shares three key lessons from the book. Lesson two highlights the role of luck in financial success, using Bill Gates' early access to a computer as an example. Lesson three advises learning to recognize when 'enough is enough', cautioning against the endless pursuit of wealth and the risks associated with it, such as Bernie Madoff's pyramid scheme. The speaker relates this to their own life, discussing a decision not to move to Dubai for tax benefits, valuing stability and personal satisfaction over additional wealth.

10:00

💰 Understanding the Power of Compound Interest

The speaker discusses the magic of compounding as a means to build wealth, using Warren Buffett's financial growth as an example. It explains that the majority of Buffett's wealth was accumulated after his 50th birthday due to the effects of compound interest. The speaker also emphasizes the importance of saving and the concept that savings equals income minus ego, advocating for a high savings rate as a path to financial freedom and autonomy.

15:01

🚫 Avoiding Financial Missteps and Pursuing Freedom

Lesson six focuses on the importance of avoiding financial mistakes rather than seeking to make big gains, illustrating the point with the contrasting investment strategies of Sue and Jim. The speaker then transitions to spending money, with lesson seven emphasizing using money to buy freedom and control over time. Lesson eight contrasts the approaches needed for getting wealthy versus staying wealthy, noting that maintaining wealth requires humility and risk aversion. The speaker also touches on their own investment strategy in crypto, balancing potential gains with the need for stability.

🏡 The Illusion of Wealth and Protecting Your Money

Lesson nine warns against flaunting wealth, suggesting that respect and admiration cannot be bought with material possessions. The tenth lesson advises leaving room for error, considering both the physical and emotional aspects of financial planning. The eleventh lesson cautions against making extreme financial commitments based on current desires, as these are likely to change, a concept known as the 'end of history illusion'. The final lesson encourages making reasonable decisions over purely rational ones, taking into account emotional well-being and personal comfort.

🌟 Conclusion and Additional Resources

The speaker concludes by summarizing the 12 lessons from 'The Psychology of Money' and mentions additional lessons to be covered in an extended version available on Nebula, an independent streaming platform. They also promote Curiosity Stream, a documentary streaming service, as a sponsor and offer it as a bundled service with Nebula. The speaker encourages viewers to subscribe for more content and provides a link to another video on generating passive income.

Keywords

💡Psychology of Money

The 'Psychology of Money' is the central theme of the video, referring to the mental and emotional processes that individuals experience in relation to money. It's the title of the book by Morgan Housel that the video discusses, exploring how people's attitudes towards money shape their financial behaviors. The video uses the book's insights to discuss various money lessons, such as the impact of luck on wealth accumulation and the importance of recognizing when one has enough money.

💡Attitudes towards Money

Attitudes towards money are individual perspectives on the value and use of money, which can vary greatly and influence financial decisions. The video mentions that different generations may have different attitudes due to their experiences, like the impact of stock market performance on investment behaviors. It emphasizes the importance of not judging others based on their financial choices, as these are often a reflection of their unique attitudes towards money.

💡Compounding

Compounding is a financial concept where interest or gains are earned on both the initial investment and the accumulated earnings over time. The video illustrates the power of compounding through the example of Warren Buffett, showing how a significant portion of his wealth was accumulated after his 50th birthday due to the effects of early investment and long-term compounding.

💡Savings Rate

The savings rate is the proportion of one's income that is saved rather than spent. The video emphasizes that building wealth is more about maintaining a high savings rate than it is about income levels or investment returns. It suggests that savings are not just a function of income minus expenses, but rather income minus ego, highlighting the role of personal choices and restraint in wealth accumulation.

💡Risk Management

Risk management in the context of the video refers to the strategies and actions taken to minimize potential financial losses. It is discussed in relation to investing, where the video advises focusing on avoiding mistakes rather than seeking to make large gains. The idea is to protect one's financial stability by not taking unnecessary risks that could lead to significant losses.

💡Freedom

In the video, 'freedom' is associated with the non-material benefits that money can provide, such as flexibility and control over one's time. It suggests that using money to buy time and options is more valuable than purchasing material possessions. The script contrasts the pursuit of freedom with the pursuit of luxury goods, advocating for a more meaningful use of financial resources.

💡Wealth Preservation

Wealth preservation is the act of maintaining and protecting one's wealth over time. The video differentiates between getting wealthy, which involves taking risks, and staying wealthy, which requires caution and humility. It advises viewers to diversify investments and avoid putting all their assets into volatile markets to ensure the long-term preservation of their wealth.

💡Flashiness

Flashiness refers to the display of wealth through expensive possessions like cars and houses. The video argues against being flashy, stating that true respect and admiration from others cannot be bought with material things. It suggests that people often mistake the admiration of possessions for admiration of the person, which is a misconception that leads to unnecessary spending.

💡Emotional Survival

Emotional survival in the context of the video is the ability to maintain one's emotional well-being in the face of financial stress or uncertainty. It discusses the importance of having financial plans that account for not just physical needs but also emotional responses to financial situations, such as the psychological impact of watching savings diminish.

💡End of History Illusion

The 'End of History Illusion' is a psychological concept where people believe that they will not change in the future, despite evidence of past changes. The video uses this concept to caution against making extreme financial commitments based on current beliefs and desires, as these are likely to change over time, potentially leading to financial difficulties.

💡Reasonable Decisions

Reasonable decisions are those that may not be strictly rational or financially optimal but are appropriate given an individual's emotional needs and personal circumstances. The video contrasts 'reasonable' with 'rational' decisions, suggesting that while rational decisions may seem best on paper, reasonable decisions consider the emotional well-being and peace of mind of the individual, such as the emotional benefits of paying off a mortgage.

Highlights

Different attitudes towards money affect how people earn and spend it, and quick judgments should not be made based on others' financial decisions.

The importance of recognizing the role of luck in financial success, as demonstrated by Bill Gates' early access to a computer.

The advice to learn to say 'this is enough' and avoid constantly moving the goal post in pursuit of more.

The power of compounding in growing wealth, illustrated by Warren Buffett's net worth growth after his 50th birthday.

The argument that building wealth is more about savings rate than income or investment returns.

The suggestion to focus on avoiding mistakes rather than seeking to make big gains in investments.

Using money to buy freedom and flexibility is more valuable than material possessions.

The distinction between the strategies required for getting wealthy and staying wealthy, emphasizing risk-taking versus preservation.

The paradox of flashy spending, where expensive items often fail to bring true respect and admiration.

The importance of leaving room for error in financial planning, to account for both physical and emotional survival.

Avoiding extreme financial commitments for the future self, as our desires and values are likely to change.

Being reasonable rather than just rational in financial decisions, considering emotional needs and peace of mind.

The psychological benefits of paying off a mortgage, despite the apparent financial irrationality.

The diminishing returns on happiness from increasing income, suggesting that beyond a certain point, more money does not buy more happiness.

The recommendation to save as much as possible, even without a specific reason, to increase financial freedom.

The reminder that not everyone should invest in high-risk assets like crypto, as it's important to stay within one's comfort zone.

Transcripts

hey friends welcome back to the channel

today we're talking about 12 lessons

about money that i learned from this

fantastic book by morgan housel called

the psychology of money and that's what

we're talking about in this episode of

book club the ongoing series where we

distill and discuss highlights from some

of my favorite books and we're going to

do this in four parts we're going to

talk about lessons about our attitudes

towards money lessons about getting

money lessons about spending money and

then lessons about protecting our money

once we've gotten it part one three

lessons about our attitudes towards

money so the first lesson i got from the

book was that everyone has different

attitudes towards money and because the

way that those attitudes affects the way

that they earn and spend their money we

shouldn't be too quick to judge people

based on what they do with their own

money so let's think about people's

behavior when it comes to investing in

stocks for example if you were born in

the 1970s the s p 500 which is the index

fund that tracks the top 500 biggest

companies in the us that increased by 10

times its starting amount between age 13

and age 30 for you but if you were born

just 20 years earlier the market

basically went nowhere so these two

groups of people are going to go through

life with radically different ideas of

how the stock market works and obviously

these views are going to affect how they

behave like people born in the 1970s are

much more likely to invest in stocks

than people born in the 1950s for whom

they think the stock market doesn't

really do anything and so for example

for someone like me it can seem a bit

weird like why don't more people just

just invest in the s p 500 it just keeps

on going up why don't more people invest

in crypto but what i realized after

reading the book is that to be honest i

need to not be a dick about it because

people have different attitudes to money

depending on their own circumstances

lesson number two is don't underestimate

the importance of luck when it comes to

making money because basically any

outcome that we're going for whether

it's making money or anything else in

life is some combination of luck and

skill and unfair advantages if we take

bill gates for example now he's

obviously super talented but he was also

pretty lucky to get to go to one of the

very few high schools in the u.s that

actually owned a computer and that's

what helped him start messing around

with coding and start working on the

company that ultimately became microsoft

and so morgan's point in the book is

that we shouldn't focus too much on the

individuals we shouldn't look too

closely at what did elon musk do to get

rich what did bill gates do to get rich

we should instead look at the broader

patterns that try and account for this

fact that different people got lucky at

different times lesson number three from

the book is that we should learn to say

this is enough now it's natural for us

to humans to keep on moving our goal

posts like once we achieve our goals

whether it's financial goals or career

goals or hot bot goals or pretty girl

goals we always look forward to the next

goal and generally the cycle doesn't end

because we keep on comparing ourselves

to the people who are above us in this

invisible ladder now this doesn't really

resonate with me because i've been

chasing this entrepreneurship thing

since like the age of 13 trying to make

money on the internet and started off

making basically zero money and then

slowly so slowly over time my income has

basically compounded to the point where

i am way beyond the point that any

reasonable person would say that this is

enough but what i've been finding is

that the comparator group keeps on

changing it's like when my youtube

channel was just starting out and it was

making a small amount of money here and

there it was like oh that's cool you

know it'd be cool to make maybe a

hundred pounds here and there then it

started making 100 pounds here and i was

like oh that's cool but look at those

channels that maybe have millions of

subscribers like i wonder how much money

they're making and what i like um that

morgan reminds us of is that we actually

do need to recognize when enough is

enough and not be continuously trying to

pursue growth just for its own sake and

in the book he gives a bunch of examples

of really rich people doing very dodgy

and shady things to chase even more

money like bernie madoff for example who

was already ridiculously rich but then

built this pyramid scheme to try and

become even more ridiculously rich and

ended up in prison as a result of it and

what morgan says is that it's really

about asking the question of when is

enough enough do i really need this

extra thing and there's a nice quote

where he says there is no reason to risk

what you have and need for what you

don't have and don't need and this

lesson actually applied in my life

fairly recently so my housemate sheen if

you might remember from previous videos

moved to dubai and i was strongly

thinking why don't i move to dubai and i

spoke to my accountant he was talking

about the low tax rates and all that

kind of stuff and i was thinking oh i

could wind down the company in the uk

move to dubai like not live in the uk

for three years to become tax resident

outside of the uk become tax resident in

dubai where i don't pay any corporation

tax or vat or income tax and all this

stuff and then i'd be making twice as

much money because i have to pay half as

much tax and i had all these thoughts

going in my head and it was around that

time that i read the psychology of money

and started figuring out what my values

in life and stuff and i realized that

that is just like stupid thinking i

don't need that extra money i quite like

being in the uk i like the fact that my

friends and family are here and i'd be

sacrificing a large amount of stability

here in the uk for the sake of just

chasing a little bit more money but

effectively tax avoidance in dubai and

so ultimately i decided against it um

thank you morgan for for the tip on that

front part two lessons about getting

money all right so this is obviously not

a video on how to make money from

scratch you can check out my video on

nine passive income ideas if you want

more information about that but morgan

does have some very solid chapters about

how we actually get rich so lesson four

is to appreciate the magic of

compounding so let's say i put a

thousand dollars into the s p 500 index

fund and i get a decent return of about

10 per year that'll give me 1100 by the

start of year 2 which means i'm then

earning 10 on the 1100 so that at the

start of year 3 i'll have 1 210 and as

this compounds over time you're

basically earning interest or gains only

on your interest or gains and when you

start playing with the big numbers here

the results are absolutely insane now

the example that morgan uses in the book

is warren buffett who is famously very

rich and at the time that the book was

written warren buffett's net worth was

around 84.5 billion dollars but of that

84.5 billion dollars 84.2 billion of it

actually came after his 50th birthday

and of that amount 81 billion of it came

after his 60th birthday and one of the

reasons that warren buffett was able to

get so much wealth is that he started

young and he kept going like he started

investing at the age of 10 such that by

the age of 30 he had a million dollars

in investments and then he just

absolutely kept on going well into his i

think he's like 90 something now and

there's some good maths in the book that

shows that 99.9 of warren buffett's

wealth came as a result of compounding

because he started early and he just did

it for absolutely ages and there's a

really nice quote from the book that

describes warren buffett's success with

this morgan writes that none of the 2000

books picking apart buffett's success

are titled this guy has been investing

consistently for three quarters of a

century but we know that that's the key

to the majority of a success it's just

hard to wrap your head around that maths

because it's not intuitive lesson number

five is to try and save as much as you

can even when you don't have a specific

reason to save morgan writes that

building wealth has little to do with

your income or investment returns and

lots to do with your savings rate so we

naturally think that saving is basically

income minus expenses but morgan says

that the other way of thinking about it

is that savings equals income minus ego

and this is quite interesting i think

it's an interesting way of looking at

our expenses like if i look at my own

spending how much of that spending is

actually necessary and how much of it is

based on ego i don't know maybe you can

decide and he also talks about how

really our savings rate is the only

variable in this equation that we can

really control like i can't really

control how much money i'm making i

can't to extend but not really i can't i

can't at all control the returns of the

stock market or the returns of bitcoin

or the returns of the real estate market

but i can absolutely control how much

money what percentage of my income i'm

saving myself and there's a related

point that i came across from uh biology

who was interviewed in tim ferriss's

podcast recently where he says that if

you can have a very high savings rate

and you can keep your own personal

expenses very low like you need little

money to survive and thrive then it

actually gives you a lot more freedom in

life because there are a lot of people

that are tied to jobs that they don't

necessarily enjoy because they now have

lifestyles that require them to have

that high income from the job that they

don't necessarily enjoy and kind of the

point is what's what's the point of

being miserable in your job for 80 000

hours of your life kind of for most of

the time that you spend alive what's the

point of being miserable in that for the

sake of having a fancy house and having

a fancy car it's probably not worth the

trade-off and so really if we can just

lower our personal expense rate increase

our personal savings rate in you know

whatever fashion we can uh that gives us

more anti-fragility more freedom more

autonomy to kind of do more of the

things that we actually want lesson

number six from the book is to focus on

not screwing up rather than on making

big gains so let's imagine two investors

sue and jim sue invests one dollar into

the stock market every single month no

matter what whereas what jim does is

that he invests money into the stock

market as it's going up and then he

sells his stocks as it's going down and

he's trying to play the market in that

sense this is what sue's portfolio looks

like over time and unfortunately this is

what jim's portfolio looks like over

time and the reason why sue ends up

better off than jim is not because she

made big gains it's because she

consistently did not screw up by selling

her stocks in like a downturn and the

other interesting point here is that

when it comes to thinking about how

we're spending and investing our money

getting it wrong is a lot worse for us

than getting it right because if we lose

money we can then no longer go back into

the game and we actually have

consequences on our life whereas if we

make twice as much money or twice as

much as that or twice as much as that

like there are significant diminishing

returns to the value of extra money that

we get and so morgan's point basically

is you know to like think about the long

term and try not to lose money rather

than thinking oh my god i need to chase

that next ponzi scheme or that next oh

you know dogecoin is going to the moon

therefore i'm going to put stuff in

there it's far more important to just

focus on not screwing up and not losing

money and doing that consistently over

time so that you can actually benefit

from compounding all right let's turn to

part three which is lessons about

spending money and then lesson number

seven is use money to buy freedom and he

talks about how really the true value of

money is in the flexibility and the

optionality that it gives us rather than

the fact that it helps us buy a fancy

house or a fancy car he writes that

money's greatest intrinsic value and

this cannot be overstated is its ability

to give you control over your time using

your money to buy time and options has a

lifestyle benefit that few luxury goods

can compete with and the reason for this

is that at the end of the day we all

just want to be happy and live a happy

and meaningful life and tons of studies

have shown that your income has

significant diminishing returns on your

personal life satisfaction or happiness

from life and that beyond a point

depending on who you ask it's around

about 75 000 in the u.s beyond a certain

point more money stops buying you

further increases in happiness and so

ultimately given that time is our most

valuable non-renewable resource we can

always make more money but we can never

make more time using our own money to

buy extra time to buy our freedom is a

very good use of that money rather than

spending it on pointless luxury crap

that we don't actually need lesson

number eight is that getting wealthy is

very different to staying wealthy now

here morgan writes that getting money

requires taking risks being optimistic

and putting yourself out there but

keeping money requires the opposite of

taking risks it requires humility and

fear that what you've made can be taken

away from you just as fast and i was

kind of thinking about this as i was

thinking about like basically these days

how much of my investment portfolio to

take out of stocks in real estate and

just put into crypto so crypto is

obviously highly volatile and could go

up significantly i have reasonably high

conviction that it will um but i still

have a decent chunk of savings in

investments in stocks and shares and in

real estate and reminding myself that

right now my aim is not to continue to

make more money my aim is actually to

keep the money that i have and grow it

slowly that means i want to be nicely

diversified across these different asset

classes and so i do have a fairly

significant chunk of my portfolio i

think like 30 or 40 30 probably 30 in

crypto more on that in a future video

coming but i am not withdrawing all my

stock market returns and all of my kind

of real estate investments to put money

into crypto that would be a bad decision

and even though it might go up it's like

if it goes down then that will

significantly negatively affect my life

in a far greater way than if it just

goes up 10x or goes to the moon for

example lesson number nine from the book

is don't be a flashy so morgan

writes to his son you might think you

want an expensive car or a fancy watch

and a huge house but i'm telling you you

don't what you want is respect and

admiration from other people and you

think that having expensive stuff will

bring it it almost never does especially

from the people that you actually want

to respect and admire you now there's

two main reasons for this and the first

one is the man in the car paradox the

idea is that people buy fancy cars and

mansions and stuff because they think

that this will get them respect and

admiration from other people at the end

of the day like if i'm driving the news

tesla around people will think that i'm

cool and rich and that kind of stuff but

what people don't realize is that people

don't actually admire the person with

the fancy cora house instead they're

just admiring the fancy kara house

itself and imagining themselves having

that tesla or having that mansion so

buying expensive things to gain respect

from people never actually works because

respect and admiration can't be bought

and the second point he makes about this

is that there's no point being flashy

about the money you're spending because

true wealth is actually the money that

you have not spent and then we turn to

part four which is how to protect your

money once you've got it any amount of

money any amount of money at all needs

some level of protection and so lesson

10 here is to leave room for error now

broadly there are two bits to this idea

of making room for error the first part

is making sure that you can technically

survive if your future returns are not

very good so let's say i've got some

money and i'm banking on it going up by

seven percent i really should have a

plan like if it does not go up by seven

percent if it goes up by four percent or

three percent or two percent or even if

it goes negative i should be able to

survive that likelihood but the second

point is that it's not just about the

physical survival it's all it's also

about the emotional survival and would

we want to live that kind of lifestyle

so for example let's say you work your

job and you save up two years worth of

expenses so you can quit your job and

become a full-time youtuber for two

years and give that a go in theory

you're telling yourself that you have

two years worth of runway so that if

worst case scenario you don't succeed as

a youtuber then two years down the line

your savings will run out and you can

just get another job but what you're not

taking into account there is the

emotional pain of seeing your savings

whittle down over time and it might just

be that as you burn through 50 of your

savings at that point you start to feel

emotionally psychologically scarred and

you just quit and go back to your day

job because you couldn't handle the fact

that you lost 50 of your savings and

you're not succeeding on youtube just

yet so the point that morgan is making

in the book is that we need to make room

for these kind of emotional decisions

and the way that we behave as humans

when it comes to money which is why it's

called the psychology of money is that

we act not necessarily in like fully

rational economic logical terms but we

also have to take our emotions into

account lesson number 11 is to try and

avoid extreme financial commitments for

your future self and this is speaking to

the kind of person that says you know

what i know that i'm never going to buy

a house therefore i can afford to splash

money when i'm when i'm young or someone

who says you know what i know i'm never

going to have kids and therefore my

expenses can be super high because i

know i don't have to save for the kids

college fund or whatever now this is

kind of a bad thing because even if you

are very sure that that's how you want

to live your life chances are you are

not correct and that you actually will

change your mind at some point further

down the line psychologists call this

the end of history illusion it's the

idea that when you ask people how much

they've changed in the last 10 years

we're pretty good at describing how

we've changed but if you ask people to

predict how much they're going to change

in the next 10 years then we're really

bad at doing that and we think that we

are broadly the people we are now are

roughly the same as the people that

we're going to be 10 years from now and

so given that we are really bad at

predicting how our own goals and values

and desires are going to change over

time and given that we're kind of hoping

that unless the crypto thing really goes

to the moon and fiat currency completely

dies we're still going to need money to

make decisions 10 years from now we

should keep that in mind we shouldn't

make extreme financial commitments to

ourselves right now we shouldn't blow

all our money for this you know lift

fast die young because by the time

you're approaching the whole day young

thing you might realize actually i kind

of want to live for another 40 years and

now you have no money and it's kind of a

bit of a struggle and then lesson number

12 is to be reasonable rather than

rational and the point that morgan's

making here is that sometimes good

decisions are not always rational but

they are reasonable and that we have to

remember that we're ultimately emotional

creatures with emotional needs not just

like rational economic machines making

the absolute perfectly logical decision

i think this lesson is what i really

took home because before reading the

book i could not imagine why anyone

would bother paying off the mortgage on

their house it just seemed like a dumb

thing to do like why would you do that

you can borrow money from a mortgage

relatively cheaply if you stick that

money in stocks and shares it will grow

faster than the rate of the thing of the

mortgage if your inflation happens over

time the more value of the mortgage does

that goes down all of these like

rational economic reasons for not paying

off the mortgage on your house but i

completely discounted the fact that

there is a lot of emotional niceness to

having paid the mortgage on your house

you feel like you have this house that

you can now live in without paying a

mortgage you feel a sense of security it

helps you sleep better at night and so

if you can and you're in that privileged

position and you want to put down a cash

payment to pay off the deposit on a

house yes technically it's kind of

irrational it's not the most

economically financially like legit

decision to maximize your returns but if

it's the thing that helps you sleep at

night that is the thing that matters

because ultimately if we're playing this

game of you know getting and protecting

and earning and continuing to retain our

money rather than losing all of it we

have to also optimize for the things and

the decisions that will help us sleep at

night and so maybe you might watch one

of my crypto videos or you've got a

crypto bro friend who says oh my god you

should be putting 100 of your money into

crypto but if that helps you sleep worse

at night don't do it put however much of

your money into crypto as a as you are

personally comfortable with and that

will be reasonable even if it's not

fully rational so those are 12 lessons

about the psychology of money there are

actually a few more i think three more

that i've got in my script but this

video is getting very long and so those

lessons are going to be in the extended

version of this video which is available

over at nebula now if you haven't heard

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release exclusive content like clips

from my old deep dive series live advice

from cool people are from all around the

world and also my workflow series where

i talk through how i use apps like

notion and rome in an anal amount of

detail that i don't normally do on these

youtube videos now if you want to get

access to nebula then the best thing you

can do which is actually a reasonable

and rational way to spend your money is

to sign up to curiosity stream who are

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know about the psychology of money and

you want to learn how to make money then

check out this video over here which is

nine passive income ideas and talks

about how at the time i was making 27

000 per week from these different

sources of passive income and hopefully

that'll give you some ideas for how you

can make money by yourself anyway thank

you so much for watching do hit the

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and i'll see you hopefully in the next

video bye