10 Lessons from "The Psychology of Money" You Should Integrate Today

The Psychology of Money is one of the best personal finance books I have read to date. Here I share some of my favorite lessons covered.

1. Everyday people, even those with no formal financial education, have the ability to build wealth. Building wealth is much more about one's behaviors than it is intelligence. Couple this with patience, consistency, and the power of compounding, and wealth is inevitable.

2. "The hardest financial skill is getting the goalpost to stop moving". Adjusting our lifestyle to every raise we get, or new position we take on, is a recipe for disaster. Or at best, a recipe to remain on the hamster wheel.

3. There's no place for your ego. Keeping up with the Jones's is not only an impossible game to win, but it takes a psychological toll. Nobody cares about your new car or new house. If respect or admiration is what you're after, a far more effective path is to be kind and demonstrate humility.

4. Einstein was right. Compound interest is the 8th wonder of the world. In the book, Housel notes, that if Warren Buffet began investing at 30 years old with a $25,000 net-worth (assuming portfolio performance was the same), and decided to retire at 60 years old, his net-worth would be $11.9 million today (vs. $85 billion).

5. Every dollar you save is buying your independence. You don't need a "reason" to save - save for the sake of saving. "Every bit of savings is like taking a point in the future that would have been owned by someone else and giving it back to yourself. "

6. There is a place for emotion. People will often say there's no place for emotion in investing. Housel counters this in the book, saying that if you're emotionally bought in to your strategy, it lessens the odds that you will step away from your strategy when times get tough. Great perspective.

7. What you want now is probably not what you'll want in 10 or 20 years. Deciding to burn the ships and quit your job while living paycheck to paycheck, or working 80 hour weeks to get ahead, will likely lead to some form of regret. Having balance in your life lowers the odds of regret later. Aim for reasonable balance.

8. It's not always about numbers on a spreadsheet. Do what's reasonable for you and your situation. What helps you sleep at night? My situation is not the same as yours. If you're a long-term investor, don't mimic the activity of a short-term trader. Many different games are being played all around us. Identify yours, and stick to it.

9. Start seeing market volatility and value fluctuation as a fee, not a fine. Making this mental adjustment, as Housel points out, allows you to accept paying the price of growth, versus seeing it as punishment.

10. Negativity sells. We live in a society where pessimism draws much more attention than optimism. Keep this in mind when making financial or investing decisions.