4 investing lessons I got from a $19 book that are helping me save more than ever

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• When it comes to money, your mindset has a big impact on the way you spend, save, and invest.
• Reading Morgan Housel's book "The Psychology of Money" helped me shift my mindset.
• I've moved from a mindset of scarcity to "enoughness," and I'm investing more than ever.

When it comes to money, many people focus on hard numbers and simple truths, but they ignore one key point — the way you think about money matters. 

I've always been interested in learning how to shift my money mindset and examine the relationship between money and mental health, so when I heard about the book "The Psychology of Money'' by Morgan Housel, I devoured it. 

The book is broken up nicely into tangible lessons you can apply to your own finances. For me, four lessons from the book helped me improve my money mindset and invest more. 

1. The magic ingredient in compounding is time 

Compound interest helps investors build wealth by generating returns on investments over time. These returns then continue to compound and help grow assets. Compounding is sometimes referred to as "earning interest on interest." 

Many of us know that compounding works, but we can't really understand it on a huge scale. Housel delivers some perspective by taking a look at Warren Buffett. 

Buffett is well known as one of the wealthiest investors of all time, but it's not all because of his skill as an investor.

Buffett started investing when he was a kid, at the young age of 10, so his money has had decades to compound. Most of us can't go back in time and fill up brokerage accounts we never had, but we can start investing now. The longer your money stays in the market, the more it will grow.

Housel writes, "Warren Buffett is a phenomenal investor. But you miss a key point if you attach all of his success to investing acumen. The real key to his success is that he's been a phenomenal investor for three quarters of a century." 

What I got from this is that time is our best friend, and getting started today — and staying the course for the long-term — is the best way to build wealth. 

2. You want to focus on being reasonable with money over being rational 

One of my favorite parts of the book is when Housel writes that being reasonable with your money is more powerful than being rational. 

He admits that we're humans with emotions, which will inevitably affect how we feel and manage our money. He writes, "You're not a spreadsheet. You're a person. A screwed up, emotional person. It took me a while to figure this out, but once it clicked I realized it's one of the most important parts of finance." 

In other words, even though something may look good on paper based solely on the numbers, it may not be the best strategy in the long term. 

He shares an example of how having a fever is actually good to fight an infection. It's what rationally makes sense. But no one wants to suffer with the pain and shivers or hot flashes of a fever. It's reasonable to take medicine to feel better. 

Housel writes, "My own theory is that, in the real world, people do not want the mathematically optimal strategy. They want the strategy that maximizes how well they sleep at night."

This is in line with some advice I've offered in my book "Dear Debt," regarding debt repayment. Many people recommend the debt snowball or debt avalanche methods, focusing on paying off the smallest balance or highest-interest debt first. But I also recommend paying down the debt that will help you sleep better at night or the debt that makes you angry. We're emotional creatures, so making money decisions that make us feel better isn't so bad, even if it's not the "right" option on paper. As long as you're doing something, it makes a difference.

Housel suggests that opting for reasonable over rational helps us stay the course. He writes, "The reasonable investors who love their technically imperfect strategies have an edge, because they're more likely to stick with those strategies."

Focusing on our own risk tolerance and what is reasonable for you can be your compass when guiding your finances. 

3. Finding out what 'enough' is

For many people, it feels like there's never enough money. Housel notes that the goal post always seems to be moving, and that we compare ourselves all the time to other people. 

I think of myself and how the old me would have loved to make the income I do now. Yet, I still feel it's not "enough," and now the goal has shifted (you could call it lifestyle creep). 

In the book, Housel shares stories of greed and risk and how they can turn progress upside down and be the downfall of any success, and notes that finding what "enough" is for you is important when managing money and investing. 

Housel writes, "If expectations rise with results, there is no logic in striving for more because you'll feel the same after putting in extra effort. It gets dangerous when the taste of having more — more money, more power, more prestige — increases ambition faster than satisfaction." 

4. Luck and risk affect everything

In personal finance, it's easy to focus on our individual actions and forget about how our privilege — or our luck and risk, as Housel describes it — can affect our financial outcomes. 

Housel shares a story about Bill Gates. Gates went to a high school with one of the very first computers, altering the course of his life and career. One of his friends, Kent Evans, was his classmate and also was talented with computers. Unfortunately, he died in a mountaineering accident. 

In this example, we see luck and risk very clearly. They are the invisible puppet strings that can affect our lives, careers, and money. 

Housel writes, "Luck and risk are both the reality that every outcome in life is guided by forces other than individual effort. They are so similar that you can't believe in one without equally respecting the other. They both happen because the world is too complex to allow 100% of your actions to dictate 100% of your outcomes." 

By acknowledging the role of luck and risk, we can remove ourselves from the temptation to put everything on ourselves when it comes to managing money and investments. 

Reading "The Psychology of Money" was so fulfilling for me and helped me shift my money mindset out of anxiety and scarcity to feelings of "enoughness." The book inspired me to save and invest more according to what makes me feel good and sleep best at night, while also sticking to it for the long term so I can let compounding do its magic. It also conveyed the importance of playing your own money game and not getting too caught up with what everyone else is doing. After all, it's your life, your money. 

This article was originally published in February 2021.