One of my favourite books is Morgan Housel’s The Psychology of Money.

I know that when two people read a book, they can have wildly different opinions on it—and that is fine. That’s what makes the world diverse and colourful.

There’s that old economist joke that goes: when you put two economists in a room, you will get two opinions, unless one of them is Lord Keynes, in which case you will get three opinions.

I would like to share what I particularly liked about The Psychology of Money, namely the thoughts, arguments, and the catchy ideas that resonated with me.

And if you’ve not read this amazing book yet, I’ve saved you some time by focusing on the key points that might change your life.

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The highest form of financial freedom is waking up and saying, “I can do whatever I want to do today.” Gaining control and autonomy over your time and where you place your efforts is what financial freedom really means.

Manage your money in such a way that you can sleep soundly at night. There is no reason to unnecessarily risk what you have and need for something you don’t have and don’t need. If you risk something important to you, for something unimportant to you, it just does not make sense.

There are many ways to become wealthy, but there is only one way to stay wealthy: be frugal and paranoid. After all, you can be absolutely certain that tomorrow won’t be exactly like yesterday. Don’t be complacent and rest on your laurels, assuming that yesterday’s success will continue to translate into tomorrow’s good fortune. You have to keep moving forward and growing.

In a related vein, be paranoid of ruinous risk. No financial risk that can wipe you out is ever worth taking (even if the probability is low). Avoid single points of failure, because everything that can break might break or will eventually break.

Things that have never happened before happen all the time. The most common plot of economic history is the role of surprises. Things change over time, all the time, because the invisible hand of the market hates anything staying the same indefinitely.

Save more money. Raise your efficiency and lower your expenses. This is indeed easier said than done, but saving serves as a hedge against life’s ability to surprise you at the worst possible moment. Or, as I like to say, always save for the proverbial rainy day.

The hidden return on savings with 0% interest is that you actually gain flexibility and adaptability to take advantage of opportunities, while protecting yourself against fire sales. I reflected on this point for some time and it does make sense. Keep a larger emergency fund in cash (even if the interest rate is low) than you might be comfortable with. Some financial commentators might disagree with this thought, arguing that cash should be invested, especially if you have a longer time horizon.

Be humble when financial decisions go right and be compassionate when they go wrong. This is because Luck and Risk are siblings. Every financial outcome is guided by forces other than individual effort. This is a humbling thought: we do not always win by our own merit.

Watch out for simple narratives or solutions for financial freedom. Stories triumph over statistics, but the world is not really easy to fully understand. To create simple, attractive narratives, you must exclude a lot of detail. Sometimes the devil is in the details.

This principle reminds me of something my father used to say, “Never ask a barber if you need a haircut. He has an economic incentive to tell you that you need a haircut.”

Similarly, be careful of simple narratives or solutions peddled, like “take five steps to financial freedom” or “secrets to retire early”.

If it were really that simple to reach true financial freedom, everyone would be multi-millionaires already.

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Hopefully, from these points that stood out to me from Housel’s book, there are points that resonate with you and that provide food for thought.

Stay safe on your journey towards financial freedom.