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10 Thoughts I Had While Reading The Psychology of Money

The Psychology of Money is one of the best books about investing and money that I've read in quite some time, I confess that I'm very much a novice when it comes to both of these topics but this was a fantastic book that gave me some fantastic thoughts that I can build on.

Here are a few of them:

    1. Wealthy and rich are not the same

    In my head, being wealthy and being rich were the same thing.

    After reading this though, I rethought that definition and came up with my own thought: I want to be rich in time, rather than wealthy in money.

    Essentially, what I mean by that is time is always more important than money and we should always aim to have time rather than money.

    2. Don't listen to anyone about your investments (unless you're paying them)

    Youtubers, influencers, your friends down at the pub.

    None of them have a clue about what you want or need from your investments, so unless you're paying them to give you advice - ignore it.

    3. Pessimistic views are always more believable

    A quote from the book which explains this perfectly:

    "Pessimism just sounds smarter and more plausible than optimism. Tell someone that everything will be great and they’re likely to either shrug you off or offer a sceptical eye. Tell someone they’re in danger and you have their undivided attention."

    When you think about it that way, it's very true isn't it - we either feel like things are too good to be true, that we're boasting or that it can't last when things are going good.

    If they're going bad though? Well that's a different story entirely.

    4. Always allow room for error

    You will make mistakes and this is turn will cause you to lose money.

    Allowing for as much room for error as you can will mean that the amount of money you lose may not cripple you (and shouldn't cripple you if you're not overexposed).

    5. You can't control the universe

    Learn to accept that you can't control the majority of things in life. You'll stay sane much longer.

    This is perhaps the trickiest thing we can ever learn how to do, but if you can accept that the majority of things are going to be out of your control, you’ll find your mindset towards most things is monumentally improved.

    6. Sunk costs will rule your life if you let them

    Relationships, money, investing - we believe that because of how much time we've put in, we can no longer change direction.

    This usually happens when our goals or values change - accept that these will change over time and make the tough decisions.

    Otherwise you're letting your past self, who may as well be a stranger make the decisions for you.

    7. Investing is a long-term play

    If you're expecting a get rich quick scheme, you're speculating and that definitely isn't the same as investing.

    Investing is putting money away for a long time with the goal of gaining a compounding return.

    For me, this means a 10 year+ timeline (more likely 20 years if I'm honest).

    So if I have a drop over a month, it means very little to me when I still have another 239 ish to get a return.

    8. Compounding takes time

    It's the whole penny doubling over 30 days thing... If you stop after 2 days, you get 2p, but if you wait till the 30th day you have over 5 million...

    9. Loss of confidence can happen in an instant

    Setbacks which lead to loss of confidence can happen so quickly it can make your head spin.

    This is perhaps the biggest risk to investors, if you lose confidence in what you're doing - it can be very difficult to get back on track.

    Having that room for error will allow you to offset this a little, but being aware can be half the battle.

    10. If you're not comfortable with losing, you're overexposed

    If you're up at night sweating because you're worried about how your investments are performing or because you've had a red month.

    You're overexposed.

    Only ever put in money that you're okay with losing.

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