Book #52
The Psychology of Money
By Morgan Housel
The Making of a Financial Mindset
When I was a child, I would sneak $20 bills into my parents’ bedroom dresser when they were fighting.
Like most married couples, their fights were about money. And, like most children, I believed it was my responsibility to fix it.
But without realizing it, I was already learning some bad money habits: that money solves problems.
It’s true. Money can be used to solve problems. But it can also be used to cover them up- which was exactly what I was unknowingly doing.
I was trying to put a $20 bandaid over a much larger problem.
Money As a Tool to Keep Others Happy
So, it is with this backdrop that I entered adulthood. I had learned that money (including money that I didn’t even have) was a tool to keep others happy.
I didn’t learn to use money toward putting a roof over my head, but rather to soothe dominant, toxic personalities to keep the peace and keep myself “safe”. I considered that “normal” by that point.
But this was a terrible financial strategy.
It attracted all the wrong people, who would use their emotional volatility to extract something from me.
I lost everything.
Housel’s Approach to Money
So, it is long overdue that I heal my relationship with money.
I chose to read The Psychology of Money because it hinted at something that I recognized, but couldn’t quite articulate: that money isn’t simply about numbers on a spreadsheet, it is also about more mysterious influences like emotions, relationships, and lived experience.
Here are 6 money lessons that I learned. These come from a combination of Housel’s advice from The Psychology of Money and my own experience.
6 Money Lessons Learned
1. Know the Difference Between Stuff & Fundamentals
Abundance Without Essentials
If you had seen my toys growing up, you probably would be jealous.
But what I didn’t have was emotional or financial stability.
In my childhood home, cries of “We’re going to lose the house!” and “We’ll have to sell (Mom’s) engagement ring!” were routine. So were threats to cut my sister and I out of the will, and complaints about how much we cost to feed. These were part of the background cacophony of my home life.
But at one point, I had a jet ski. So that was fun.
Yet that too, involved a lot of screaming and fights.
For Christmas, my sister and I would ask for no presents because we just wanted peace. We hated the inevitable dark cloud that would hang over our home in January/ February as our parents’ credit card bills came due.
The high of Christmas day would quickly evaporate into months of tension. And we knew that our parents would take their financial anxiety out on us. No barbie doll is worth that.
Parents often think that their kids want things. But money and objects are only enjoyable if they are accompanied by more fundamental needs- like being seen, feeling safe, having space for self-expression, and healthy relationships.
When those fundamentals are missing, gifts just tend to exacerbate what isn’t there in the first place.
Looking Rich vs. Genuine Wealth
It is relatively easy to appear rich.
You can buy flashy clothes or accessories and put them on credit. Or you can drive a car whose monthly lease eats up an absurd amount of your income. The financial strain won’t be felt by you or visible to others… for a while.
But this isn’t a long-term approach.
Nor is it true wealth.
2. Know What Truly Matters to You & Never Risk It
Money and material things are tempting sirens. They can call us away from the things that truly matter. So make a list early on of things you are not willing to gamble with. This might include:
- your relationship with your family
- your morals
- your reputation
- your safety and security
- your mental and physical health
- your autonomy
- your ability to sleep at night
Of course, many people find themselves in situations where they have little choice but to betray these values. For example, someone might work long hours instead of spending time with family- not out of desire, but out of necessity.
But hopefully life grants you a tipping point, where you get more of a say. And it is important to recognize when life allows you to make better choices, so that you don’t stay stuck. The behaviours that saved you when you were in survival mode may destroy you when you are thriving.
Often, when we make financial decisions, we only see what we will gain by making them. We don’t see what they will cost us. Learning to recognize unseen costs will help you to make better decisions for you in the long run.
No one can decide what matters most to you or take actions toward those things. It is up to you.
3. Be Careful Who You Idolize
Besides getting to know yourself, it is also important to see others clearly.
It is easy to confuse another person’s assertiveness and flashiness with financial competence. But I’ve noticed that those who are the loudest about their wealth, are also some of the worst managers of it.
And, one issue with this is that people who are feeling financially anxious seek leadership from people who convey confidence and authority. They want reassurance and may find it in nefarious places either online, on television, or in their social network.
This can create a toxic cocktail of someone eager to masquerade their wealth, and someone willing to believe it.
Instead of chasing after the flashiness, look at quieter markers of wealth like freedom, rest, health, and quality relationships.
4. Beware the Illusion of Autonomy
Putting another person on a financial pedestal is dangerous, but so is not recognizing your own limitations.
I was driving on a 4-lane highway recently and there was heavy traffic. I noticed that certain cars would frequently change lanes in order to get themself slightly ahead. Yet they weren’t making much progress compared to those who were just staying in their lane and waiting for traffic to clear.
But what those aggressive drivers did have is the illusion of control.
They were stuck in traffic, just like the rest of us. But weaving in and out of other cars probably made those drivers feel like they had some autonomy.
Like Housel says, effort and impact aren’t necessarily correlated- especially when it comes to finances.
Recognizing this will help you let go of any false sense of control and will free you to make decisions and take actions that truly matter, which will ultimately help you to exert yourself less and achieve more.
5. The Financial Cost of Depression & Burnout
I would describe burnout as the second worst financial decision I’ve ever made. Ill-health is very expensive.
When mental or physical health are neglected, then you are rejecting any sense of longevity. Your world narrows to just getting through the day.
Not only are you less capable when you are depleted, but you also have to pay the cost of recovery.
Burnout and overextension aren’t “optimized”; they’re a sign of dysfunction.
So if you are living a life based on overextension, then make sure you have enough savings for when you inevitably come to the end of the road. Because you will, eventually.
6. The Financial Cost of Bad Relationships
Now, the single worst financial decision I ever made was tolerating bad relationships.
Toxic relationships drain your safety net, self-worth, ambition, and other relationships. It is very hard to thrive financially amongst toxicity- not only while you’re in the relationship but also when you are trying to get out of it.
I say that, and I have never been married or divorced- experiences that would only amplify this sentiment. Even without that added layer, my experiences financially ruined me for several years.
One of the most detrimental, yet unquantifiable, effects of toxic relationships is the lost confidence. You develop a perceived unworthiness that prevents you from asking for help, networking, going after promotions, or even maintaining friendships.
There is value in having a robust personal and professional social network, and toxic relationships tend to rob you of these.
Another consequence of unhealthy relationships is the bone-deep exhaustion that comes from always having to put the abuser first.
Everything is based on caprice, not long-term planning. So problems compound, instead of wealth compounding.
And money itself, becomes a tool of coercion rather than security- something used to control, not protect.
Learning to recognize dysfunction early on will be one of the best financial decisions you will ever make.
Ideally, the people you surround yourself with should stabilize you and help you grow. If they don’t, then you are losing out on something financially- whether you see it immediately or not.
Taking the Fear Out of Finances
I listened to The Psychology of Money audiobook, while I was following along in a physical copy that I own.
One thing that struck me with the audiobook was that the narrator wasn’t shouting.
Money was decoupled from fear and violence. The words felt productive, not destructive, both in their content and tone.
I want my finances to feel this way: calm and proactive. Not angry and chaotic.
Even though financial decisions will always be affected by our upbringing, temperament, and circumstances, they don’t have to be at the mercy of them.
There is hope for a better financial future. And financial confidence can be gained, one book at a time.
Messy Bun Book Lover
The Psychology of Money by Morgan Housel is available for purchase here → https://amzn.to/4jgCnQU
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