All You Need

• Wealth is what you don’t see
• Getting vs. keeping
• Avoid lifestyle inflation
• Save aggressively when times are good

I spent my early years working as a valet at a nice hotel. One frequent guest was a technology executive. He was a genius, having designed and patented a key component in Wi-Fi routers in his 20s. He had started and sold several companies. He was wildly successful. He also had a relationship with money I'd describe as a mix of insecurity and childish stupidity. He carried a stack of hundred dollar bills several inches thick. He showed it to everyone who wanted to see it and many who didn't. He bragged openly and loudly about his wealth, often while drunk and always apropos of nothing. One day he handed one of my colleagues several thousand dollars of cash and said, "Go to the jewelry store down the street and get me a few $I,000 gold coins." An hour later, gold coins in hand, the tech executive and his buddies gathered around by a dock overlooking the Pacific Ocean. They then proceeded to throw the coins into the sea, skipping them like rocks, cackling as they argued whose went furthest. Just for fun. Days later he shattered a lamp in the hotel's restaurant. A manager told him it was a $500 lamp and he'd have to replace it. "You want five hundred dollars?" the executive asked incredulously, while pulling a brick of cash from his pocket and handing it to the manager. "Here's five thousand dollars. Now get out of my face. And don't ever insult me like that again." You may wonder how long this behavior could last, and the answer was "not long." I learned years later that he went broke. The premise of this book is that doing well with money has a little to do with how smart you are and a lot to do with how you behave. And behavior is hard to teach, even to really smart people. A genius who loses control of their emotions can be a financial disaster. The opposite is also true. Ordinary folks with no financial education can be wealthy if they have a handful of behavioral skills that have nothing to do with formal measures of intelligence. (Pg. 1-2)

Today we are reading The Psychology of Money by Morgan Housel. I wasn’t sure what to expect when I first ordered this book. Now that I’ve read it, I can tell you that it is a definite must read. Each chapter is it’s own lesson. Today we’ll break down 4 practical money moves.

Wealth is What You Don’t See

Wealth is the nice cars not purchased. The diamonds not bought. The watches not worn, the clothes forgone and the first-class upgrade declined. Wealth is financial assets that haven't yet been converted into the stuff you see. (Pg. 98)

When we see nice things, we subconsciously assign an increase in value to the owner. This might be true. It might also be false. Morgan tells us that there’s no real way to tell based on outward appearances alone.

Getting Vs. Keeping

Getting money requires taking risks, being optimistic, and putting yourself out there. But keeping money requires the opposite of taking risks. It requires humility, and fear that what you've made can be taken away from you just as fast. It requires frugality and an acceptance that at least some of what you've made is attributable to luck, so past success can't be relied upon to repeat indefinitely. (Pg. 60)

There are two frames of mind — Getting and keeping. Both require different skills and a different thought process. We can take calculated risks, be optimistic, and try new things (remember the 10k experiments rule). In order to keep; however, we must penny pinch like there’s no tomorrow!

Avoid Lifestyle Inflation

The first idea-simple, but easy to overlook—is that building wealth has little to do with your income or investment returns, and lots to do with your savings rate. (Pg. 103)

Increasing one's lifestyle is pretty easy to do in good ol’ America 🇺🇸 There’s lots of things to buy and lot’s of ways to pay. A great way we can get ahead is by not increasing our lifestyle when times are good.

Save Aggressively When Times Are Good

Charlie Munger put it well: “The first rule of compounding is to never interrupt it unnecessarily.” Pg. 218)

This advice from Housel is golden. It also tracks. I’ve received the same advice from my dad, Tilman Fertita, Warren Buffett, and about a dozen other pros. When times are good, we can get aheady by saving and investing as much as possible. Even if it’s just a little. I’m going to work on saving more during the good times. How about you?

So Remember

• Wealth is what you don’t see
• Getting vs. keeping
• Avoid lifestyle inflation
• Save aggressively when times are good

This was just 4 key takeaways, There are many more.

Click here to get a copy of The Psychology of Money