Why ‘Psychology Of Money’ Should Be On Every Woman’s Must-Read List!

If there is one book I wish I had read in my early 20s, it is 'Psychology Of Money' by Morgan Housel. Heck, I wish I had read it in school!

I recommend Psychology of Money be a part of every school curriculum (along with other basics of financial literacy). Why is it, especially as women, that we are clueless about how to manage our finances, how to save (and invest) for our goals or honestly, even fill a cheque, when we pass out of the school? Why is such a critical skill needed in life left out in our school syllabus? Our finances are mostly managed by our fathers and later our husbands. In today’s day and age, where Nykaa’s Falguni Nayar has become India’s richest self-made woman entrepreneur, isn’t it time we take charge of our finances?

Reading Psychology of Money was an eye opener. The way it talks about compounding effect of investment – we are all aware of it but we don’t really realize the importance of it. And much less see it happening because we never stay invested for that long a period of time. By the time we understand it, golden years for investment and compounding are gone, and we are left with much lesser time to fulfil our financial goals.

But as they say, better late than never!

So here is a summary of my key learnings from the book:

  • ‘Saving money is the gap between your ego and your income’: So apparently your grandma was right –a penny saved is a penny earned. There can be no investment without saving, that’s simple logic, right? But we all somehow believe that whatever amount we save, our investments will compound at an exceptional rate (at least, we hope) and we will live rich ever after. In reality, it rarely happens. Building wealth is a continuous effort, where you need to live within your means and not increase your standard of living every time your pay cheque increases (or have a moving goalpost, as the author says). Spending more is so tempting – we all want better houses, better cars, better clothes and fancier holidays. Being a generation fuelled by social media likes doesn’t help. We always want to ‘appear’ like we are having the time of our lives. Hardly ever possible though. So don’t fall into the rat race trap. That is how you will actually achieve the dream life you have been hoping for. The author says ‘Saving money is the gap between your ego and your income, and wealth is what you don’t see.’
  • Make an Emergency Fund: This is for those contingencies which you cannot foresee coz life happens when you least expect it to. One day you could be out holidaying in USA, and the next, you might be admitted in hospital with Covid 19. You might be thriving in your new start-up when it suddenly goes belly-up due to the new government regulation. Suddenly, you need cash funds which you never accounted for. Keep some liquidity for times like these. If there is one thing pandemic has taught us, it is that life is unexpected. Be prepared for it, so that you don’t need to disinvest the investments which you have made for your long-term goals.
  • Invest Long Term: Trying to keep up with day trading is a tedious job. So, unless you are a stock broker, don’t even try. Invest in the companies which you really believe in. These are the organizations which have strong fundamentals and which you see growing in long term. And long term here does not mean 3 years or 5 years. We are talking 30 to 40 years here. Sure, there would still be times where the stock could take a hit, but your blood pressure needn’t go up and down with the index! These are the times when you keep your fear and doubt in check and ride the wave. The market will bounce back, and that index fund which you really believed in will give you returns. You just need to keep the faith. The author states in Psychology Of Money, ‘As I write this, Warren Buffet’s net worth is $84.5 billion. Of that, $84.2 billion was accumulated after his 50th birthday. $81.5 billion came after he qualified for Social Security, in his mid-60s.’ That is a staggering statistic. Compounding is one powerful tool which can fulfil all your financial goals.

The most important thing wealth grants is the freedom

Even when you do everything right, there is this little thing called Lady Luck. There could, and always would be things which are out of your control. Yet, you need to be able to take reasonable risks to get some returns. ‘Save like a pessimist, invest like an optimist,’ says the author.

Finally, as Morgan says, ‘Freedom being the ability to do what you want, when you want, with who you want, for as long as you want. That is the highest dividend money pays.’

As women, isn’t that aspirational for all of us to achieve?

Image Source: Still from the movie Ki and Ka


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