How this book can help in personal finance by molding your behavior…

Doing well with money isn’t necessarily about what you know but It’s about how you behave. Even to really smart people, behavior is hard to teach. Money — investing, personal finance, and business decisions — is typically taught as a math-based field, where data and formulas tell us exactly what to do. In the real world, people don’t make financial decisions on a spreadsheet but they make them at the dinner table or in a meeting room, where personal history along with there unique view of the world, ego, pride, marketing and odd incentives are scrambled together.In The Psychology of Money, award-winning author Morgan Housel shares 19 short stories exploring the strange ways people think about money and teaches you how to make better sense of one of the life’s most important topics.

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Key learning from the book :

The book can be summarized in one line — Be frugal. “Spend less than what you earn.” If you do this, sooner or later, you will become financially independent,Save early, save more, don’t borrow.

The other variable is time. As Housel says, “You can be wrong half the time and still make a fortune”. Asset returns cannot be predicted, so don’t waste your time and energy trying to do that. Over long periods of time, asset returns tend to give average returns and so if you invest for long term, you will smoother extremes.

If you avoid the comparison trap, you are on your way to being wealthy.The paradox of wealth is that people want to signal to others that they should be liked and admired. But in reality others will avoid admiring you, not because they do not think wealth is admirable, but rather because they use your wealth only as a criterion for their own will to love and be admired.

People like predictability. So they create their own stories. Hard sciences behave predictably and consistently over time. But investing is not a hard science. It’s a result of human decisions and emotions, thus Imperfect.The majority of what’s happening at any given moment in the global economy can be tied back to a handful of past events that were nearly impossible to predict. Relying only on History won’t prepare you for what surprises will drive the future, but further back you study, more general the takeaways should be. History can be a great guide and teacher but it is not a perfect predictor in investing. You can’t prepare for what you can’t invade.

The book explains in detail the role of human biases in investment decisions.Reading it will not make you identify the next multibagger, but will indeed make you a better investor.

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Professional reviews :

Morgan Housel’s new book clarifies — with razor sharp and accessible insight — that building wealth is a mindset problem, not an investment problem. This is the first book any investor should read; in conjunction with a good index fund, becoming wealthy lies within everyone’s grasp.
Tim Hale, Managing Director at Albion Strategic Consulting and author of Smarter Investing: Simpler Decisions for Better Results.

Few people write about finance with the graceful clarity of Morgan Housel. The Psychology of Money is an essential read for anyone who wants to make wiser decisions or live a richer life.
Daniel H. Pink, #1 New York Times Bestselling Author of WHEN, TO SELL IS HUMAN, and DRIVE