The Psychology of Money

Timeless Lessons on Wealth, Greed, and Happiness

By Morgan Housel
Psychology of Money by Morgan Housel book cover
Find it on Bookshop


Money, along with health, is a universal experience that every human has to deal with. Most people see money as a scary, hard thing. There are so many numbers and rules, how could we possibly keep up? In reality, however, money doesn’t have to be complicated. There are a few simple principles to follow that will make your experiences with money much easier and less stressful.

This book will give you some key tips to follow, as well as some language for talking about money with your loved ones.

Main Points

Financial Behavior

A major component of a person’s wealth over a lifetime is how they behave with money. Finance is often taught like math, with rules, when we really should look at it more like psychology, with emotions. There is no single right or wrong way to handle your money— it depends on what is important to you, and how you want your money to help you get it.

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.

The book opens with an example of a janitor who saved well and lived within his means and died with $8 million in the bank. Housel contrasts him with a tech executive who frittered away his large salary until he went broke.

Your behavior when it comes to money isn’t everything that determines how much you have, but it can turn a small amount into a much larger one or exactly the opposite. Good financial behavior can be the great equalizer across income, education, and networks.

Use Your Money Tools

The strongest tools in your money management toolbox are savings and time. Savings is just the difference between what you earn and what you spend. If you make a lot of money but you spend all of it, you’re going to be broke. If you make a modest salary and only spend money on essentials below your means, your high savings rate will eventually make you rich.

But most people are greedy and insecure, and tend to use their money on things that will make them happy right now, however briefly. Most people aren’t thinking enough about the long term.

Getting money requires taking risks, being optimistic, and putting yourself out there. But keeping money requires the opposite of taking risk. 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.

Money and Happiness

A message that really hit home for me was this:

When most people say they want to be a millionaire, what they really mean is they want to spend a million dollars. But if you spend your fortune, you are no longer rich.

Spending money to show people how much money you have is the fastest way to have less money.

Happiness is just results minus expectations. If you lower your expectations, you can be happy. Do you really need a fancy brand-new car, or will a used one do? Do you need the latest iPhone or can your current one last another year or two?

The point is that the ceiling of social comparison is so high that virtually no one will ever hit it. Which means it’s a battle that can never be won, or that the only way to win is to not fight to begin with—to accept that you might have enough, even if it’s less than those around you.

We see other people who seem very wealthy and successful with big boats and fast cars, and we want that for ourselves. The problem is, that boat owner is one boat’s worth poorer than they were before they purchased the boat. Wealth is what you don’t see: the savings, the investments. That is where the security and freedom lie.

Control over doing what you want, when you want to, with the people you want to, is the broadest lifestyle variable that makes people happy.

Leaving room for error is very important in any financial strategy. You never know if you or your partner or child will get sick, or if your car has an accident not covered by your insurance. As they say, shit happens. You need to be prepared so you’re not completely ruined by a little bad luck.

Real optimists don’t believe that everything will be great. That’s complacency. Optimism is a belief that the odds of a good outcome are in your favor over time, even when there will be setbacks along the way.


Money is one of the parts of being a human that we all have to deal with, and yet our experiences with it can be very different. Don’t let yourself be unhappy with your life because of an unhealthy relationship with money. Figure out your priorities and how money can help you achieve your goals.

I can’t tell you what to do with your money, because I don’t know you. I don’t know what you want. I don’t know when you want it. I don’t know why you want it.


  • Utilize your most powerful tools: savings and time
  • Wealth lies in the money not spent
  • Use your money to gain control over your life and that will make you happy

Want to read more? Find The Psychology of Money here: Bookshop

This book made it as an honorable mention on my list of best nonfiction books of 2021! See the full list here.

The quotes above were gathered using Readwise. It’s a truly amazing app to help you remember what you read. If you want to try it out, use my link and we both get a free month 🙂

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