The Book That Changed How I Think About Money
The highest form of wealth is the ability to wake up every morning and say, 'I can do whatever I want today.
Morgan Housel’s Psychology of Money is my book of the year. Even though I first read it 3 years ago, many of its principles have only truly resonated with me recently. From the very start, one message stood out to me: true wealth is about more than numbers in a bank account or shiny new possessions. It’s about the freedom to live life on your terms.
Money is not about:
Stock tips
Returns
Spreadsheets
Rather, money is about:
Decision-making
Emotions
Behaviours
Here are the 7 most profound lessons from the book that stuck with me:
1. Never Having Enough
For most people, wealth is a moving target. Even when you’ve achieved what you once thought would make you “rich,” the goalpost moves forward. Housel writes, “The hardest financial skill is getting the goalposts to stop moving.”
This hit home for me. As I climbed the corporate ladder, moving from Cape Town to London and later Zurich, the level of wealth around me kept increasing. My salary grew 5x when I move to London and another 3x when I moved to Zurich but I felt relatively poorer because I was surrounded by a different crowd. My peers kept having nicer cars, houses, and holidays.
For some people, for every step they take forward, their goalposts move 2 steps forward. So they will always feel behind. I say “some people” lightly because I am also “some people” some days.
The problem is social comparison, as the book puts it: “The ceiling of social comparison is so high that virtually no one will hit it. The only way to win is to not fight to begin with. Accept that you might have enough, even if it’s less than those around you.”
2. You’re underestimating the impact of compounding
If there’s one concept that should be taught in every school, it’s the power of compounding. Housel uses Warren Buffett as the ultimate example: of his $84.5 billion net worth (in 2019), $81.5 billion was accumulated after he turned 50. That’s 96% of his wealth after he turned 50. And this is thanks to him starting investing at age 11, which was even more important than his consistent investment returns.
Compounding is only achieved when returns are reinvested. Therefore it is so crucial to reinvest dividends earned or other returns earned from the sale of assets or rental income from properties for example.
“There are books on economic cycles, trading strategies, and sector bets. But the most powerful and important book should be called “Shut Up and Wait”. It’s just one page with a long-term chart of economic growth”
I talk more about the time value of money in this blog.
3. Freedom > Money
The book cites a 1980s study on happiness. The research found that happiness wasn’t linked to income levels or other expected factors but rather to the sense of control individuals had over their own lives.
This idea reminded me of my first job. I thought my career would mirror The Devil Wears Prada—dressing elegantly, surrounded by smart colleagues, and handling fulfilling challenges. Instead, I felt like a slave. I couldn’t leave my desk when I wanted, take a walk on a sunny day, or even attend a doctor’s appointment without prior approval. In hindsight, I felt trapped because I didn’t have an alternative—I needed the money (and I had to pay my dues to get the CA(SA) qualification).
Having a backup investment fund gives you a certain level of freedom because you know you can quit a job if needed. You’re not dependent on any boss or company. You can take six months off to find something better or start your own business if you want to.
“Using your money to buy time and options has a lifestyle benefit few luxury goods can compete with.”
4. If You Spend Your Money on Things, You Have the Things - Not the Money
If someone drives a $100k car, you only know one thing about them: they have $100k less in their bank account or $100k more in debt. Yet, this is the one data-point most people use to consider someone “wealthy.”
One of Housel’s most eye-opening lessons is that wealth isn’t about what you see. True wealth is invisible. It’s the cars NOT bought, the diamonds NOT worn, the vacations NOT taken, and the business-class upgrades declined. It’s the money left in your investment portfolio to grow and not the things shown on your Instagram account.
“...if you spend your money on things, you will end up with the things and not the money.”
5. The Price of Investing in the stock market is paid with emotions
Money, like life, is full of trade-offs. Keeping your savings in a bank account feels safe but returns little. Investing in the stock market offers higher returns but comes with risk. Housel emphasizes that every choice in life has a cost, similar to choosing whether you will pay the price to visit Disneyland, for example:
You can stay home (it’s free) - that’s like keeping your money in cash,
You can go to your local country fair (it’s cheap) - that’s like investing in bonds or earning interest on savings, or
You can go to Disneyland (it’s expensive) - that’s like investing in the stock market.
The “price” you pay for investing in the stock market is not a ticket price but an emotional price. Because it comes with volatility - this means uncertainty & the emotions around that. If you cannot deal with that volatility, you’ll miss out on the trip to Disneyland (superior returns). Nothing’s free in life.
“The volatility/uncertainty fee - the price of returns - is the cost of admission to get returns greater than low-fee parks like cash and bonds.”
If you’re holding too much cash, you should read this blog.
6. And the winner is… Index Investing (No Surprise)
Beating the market is hard, and it should be - otherwise, everyone would do it.
Most investment firms (yes, MOST) can’t do it, including most US hedge funds with the smartest analysts, the best technology, and all the experience.
Housel admits all his money is invested in:
Vanguard index funds
His house
Cash (probably more than he needs)
If you’re a regular reader you would know by now that I’m a big advocate for index investing. Like Housel, my investing journey started as a stock picker, confident I could beat the market. But over time, I realized that consistently beating the market is nearly impossible and what I stand to lose is greater than what I stand to gain.
7. The Ultimate Goal
“Being able to wake up one morning and change what you’re doing, on your own terms, whenever you’re ready, seems like the grandmother of all financial goals. Independence, to me, doesn’t mean you’ll stop working. It means you only do the work you like with people you like at the time you want for as long as you want.”
I made a YouTube video about this blog, share this with someone if these lessons resonate with you: