Introduction
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. (Location 37)
Or, two (and I think more common), that financial success is not a hard science. It’s a soft skill, where how you behave is more important than what you know. I call this soft skill the psychology of money. (Location 73)
To grasp why people bury themselves in debt you don’t need to study interest rates; you need to study the history of greed, insecurity, and optimism. (Location 104)
No one’s crazy
The economists wrote: “Our findings suggest that individual investors’ willingness to bear risk depends on personal history.” Not intelligence, or education, or sophistication. Just the dumb luck of when and where you were born. (Location 157)
Let me reiterate how new this idea is: The 401(k)—the backbone savings vehicle of American retirement—did not exist until 1978. The Roth IRA was not born until 1998. If it were a person it would be barely old enough to drink. (Location 233)
Sum: He talks about how everybody thinks differently about money since they have a different background and different experiences. So no wonder why everyone acts differently for example, during a recession. He also talks about how new is the system. Concepts like pension, loan and banks are relatively new compared to our history
Luck and risk
Bill Gates went to one of the only high schools in the world that had a computer. (Location 250)
Luck and risk are both the reality that every outcome in life is guided by forces other than individual effort. They are so similar that you can’t believe in one without equally respecting the other. (Location 289)
But realize that not all success is due to hard work, and not all poverty is due to laziness. Keep this in mind when judging people, including yourself. (Location 365)
Therefore, focus less on specific individuals and case studies and more on broad patterns. Studying a specific person can be dangerous because we tend to study extreme examples—the billionaires, the CEOs, (Location 366)
Sum: He talks about that being super rich not equals with just being smart. Luck helps a lot in it. If you just born into a family where they support you and have all the resources to become rich (ex Bill Gates and the computer) you have much more chance to do it than people who where born into poor families. That’s why you shouldn’t follow just one person, but a group of people (rich people)
Never enough
There is no reason to risk what you have and need for what you don’t have and don’t need. (Location 438)
The hardest financial skill is getting the goalpost to stop moving. But it’s one of the most important. (Location 442)
Reputation is invaluable. Freedom and independence are invaluable. Family and friends are invaluable. Being loved by those who you want to love you is invaluable. Happiness is invaluable. And your best shot at keeping these things is knowing when it’s time to stop taking risks that might harm them. Knowing when you have enough. (Location 474)
Sum: Don’t forget to stop and look back and appreciate what you’ve done and what you have. Life is not just about getting ahead all the time.
Confounding Compounding
If something compounds—if a little growth serves as the fuel for future growth—a small starting base can lead to results so extraordinary they seem to defy logic. It can be so logic-defying that you underestimate what’s possible, where growth comes from, and what it can lead to. And so it is with money. (Location 510)
Buffett’s fortune isn’t due to just being a good investor, but being a good investor since he was literally a child. As I write this Warren Buffett’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. (Location 513)
Sum: Just like with knowledge, a lot of small inputs equals a huge ending. You don’t need to earn a lot of money right away, you just need to put away a little extra but all the time.
Getting wealthy vs. staying wealthy
Getting money is one thing. Keeping it is another. (Location 600)
A plan is only useful if it can survive reality. And a future filled with unknowns is everyone’s reality. (Location 655)
You can be optimistic that the long-term growth trajectory is up and to the right, but equally sure that the road between now and then is filled with landmines, and always will be. Those two things are not mutually exclusive. (Location 668)
Sum: To earn money and keep money is two different skills. When you can keep your money and stay wealthy (not wanting more all the time) than you can truly go for the good opportunities. Just wait for it.
Tails, you win
“I’ve been banging away at this thing for 30 years. I think the simple math is, some projects work and some don’t. There’s no reason to belabor either one. Just get on to the next.” —Brad Pitt accepting a Screen Actors Guild Award (Location 696)
An Oscar turned Walt from famous to full-blown celebrity. By 1938 he had produced several hundred hours of film. But in business terms, the 83 minutes of Snow White were all that mattered. (Location 722)
Anything that is huge, profitable, famous, or influential is the result of a tail event—an outlying one-in-thousands or millions event. And most of our attention goes to things that are huge, profitable, famous, or influential. When most of what we pay attention to is the result of a tail, it’s easy to underestimate how rare and powerful they are. (Location 723)
A good definition of an investing genius is the man or woman who can do the average thing when all those around them are going crazy. Tails drive everything. (Location 782)
If you’re a good investor most years will be just OK, and plenty will be bad. If you’re a good worker you’ll find the right company in the right field after several attempts and trials. (Location 787)
Sum: Success is not about that one event when you get noticed or when you make it, it’s about all the small things you’ve done before. Staying in one field and doing small bits creative work is the true process, success is just a side effect.
Freedom
The highest form of wealth is the ability to wake up every morning and say, “I can do whatever I want today.” (Location 825)
Having a strong sense of controlling one’s life is a more dependable predictor of positive feelings of wellbeing than any of the objective conditions of life we have considered. More than your salary. More than the size of your house. More than the prestige of your job. (Location 835)
The hardest thing about this was that I loved the work. And I wanted to work hard. But doing something you love on a schedule you can’t control can feel the same as doing something you hate. There is a name for this feeling. Psychologists call it reactance. (Location 854)
Take it from those who have lived through everything: Controlling your time is the highest dividend money pays. (Location 915)
Sum: When you see truly rich people, you don’t see money, you see freedom. This comes back to the idea of having enough. If you’re satisfy whit what you have, you have freedom, and when you having freedom is the ultimate form of being rich.
Man in the car paradox
The letter I wrote after my son was born said, “You might think you want an expensive car, a fancy watch, and a huge house. But I’m telling you, you don’t. What you want is respect and admiration from other people, and you think having expensive stuff will bring it. It almost never (Location 925)
Sum: We don’t want to have expensive shit, we can’t to feel respected and appreciated
Wealth is what you don’t see
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. (Location 994)
Sum: Same here, you don’t see true wealth because it’s behind the curtain, it’s the ability to do anything you want.
Save money
Wealth is just the accumulated leftovers after you spend what you take in. And since you can build wealth without a high income, but have no chance of building wealth without a high savings rate, it’s clear which one matters more. (Location 1013)
A high savings rate means having lower expenses than you otherwise could, and having lower expenses means your savings go farther than they would if you spent more. (Location 1021)
Past a certain level of income, what you need is just what sits below your ego. (Location 1029)
Savings can be created by spending less. You can spend less if you desire less. And you will desire less if you care less about what others think of you. (Location 1038)
But saving does not require a goal of purchasing something specific. You can save just for saving’s sake. And indeed you should. Everyone should. (Location 1042)
Reasonable > Rational
With it comes something that often goes overlooked: Do not aim to be coldly rational when making financial decisions. Aim to just be pretty reasonable. Reasonable is more realistic and you have a better chance of sticking with it for the long run, which is what matters most when managing money. (Location 1082)
Surprise!
At a 2017 dinner I attended in New York, Daniel Kahneman was asked how investors should respond when our forecasts are wrong. He said: Whenever we are surprised by something, even if we admit that we made a mistake, we say, ‘Oh I’ll never make that mistake again.’ But, in fact, what you should learn when you make a mistake because you did not anticipate something is that the world is difficult to anticipate. That’s the correct lesson to learn from surprises: that the world is surprising. (Location 1239)
The pessimistic view is that we now have fewer recessions, but when they occur they are more powerful than before. For our argument it doesn’t particularly matter what caused the change. What matters is that things clearly changed. (Location 1268)
Room for error
Bill Gates understood this well. When Microsoft was a young company, he said he “came up with this incredibly conservative approach that I wanted to have enough money in the bank to pay a year’s worth of payroll even if we didn’t get any payments coming in.” (Location 1360)
Same with money. The odds of many lucrative things are in your favor. Real estate prices go up most years, and during most years you’ll get a paycheck every other week. But if something has 95% odds of being right, the 5% odds of being wrong means you will almost certainly experience the downside at some point in your life. And if the cost of the downside is ruin, the upside the other 95% of the time likely isn’t worth the risk, no matter how appealing it looks. (Location 1389)
The biggest single point of failure with money is a sole reliance on a paycheck to fund short-term spending needs, with no savings to create a gap between what you think your expenses are and what they might be in the future. (Location 1429)
It’s fine to save for a car, or a home, or for retirement. But it’s equally important to save for things you can’t possibly predict or even comprehend—the financial equivalent of field mice. (Location 1432)
Sum: The best is to save for the sake of it. For the feeling that you’re not dependent on your next paycheck. This gives you the ability to do want you want and go with the truly good options. Saving the the best tool for stress
You’ll change
“All of us,” he said, “are walking around with an illusion—an illusion that history, our personal history, has just come to an end, that we have just recently become the people that we were always meant to be and will be for the rest of our lives.” We tend to never learn this lesson. Gilbert’s research shows people from age 18 to 68 underestimate how much they will change in the future. (Location 1470)
We should also come to accept the reality of changing our minds. Some of the most miserable workers I’ve met are people who stay loyal to a career only because it’s the field they picked when deciding on a college major at age 18. When you accept the End of History Illusion, you realize that the odds of picking a job when you’re not old enough to drink that you will still enjoy when you’re old enough to qualify for Social Security are low. (Location 1494)
Sum: Don’t forget that what you think as a good idea now, not necessarily will be a good idea in the future. Just think about your old ideas.
Nothing’s free
Like everything else worthwhile, successful investing demands a price. But its currency is not dollars and cents. It’s volatility, fear, doubt, uncertainty, and regret—all of which are easy to overlook until you’re dealing with them in real time. (Location 1530)
You and me
A takeaway here is that few things matter more with money than understanding your own time horizon and not being persuaded by the actions and behaviors of people playing different games than you are. The main thing I can recommend is going out of your way to identify what game you’re playing. (Location 1681)
The seduction of pessimism
Optimism is the best bet for most people because the world tends to get better for most people most of the time. But pessimism holds a special place in our hearts. Pessimism isn’t just more common than optimism. It also sounds smarter. It’s intellectually captivating, and it’s paid more attention than optimism, which is often viewed as being oblivious to risk. (Location 1693)
There are two topics that will affect your life whether you are interested in them or not: money and health. While health issues tend to be individual, money issues are more systemic. In a connected system where one person’s decisions can affect everyone else, it’s understandable why financial risks gain a spotlight and capture attention in a way few other topics can. (Location 1768)
World oil production is now over 100 million barrels per day—some 20% above what Brown assumed was the high mark. (Location 1786)
Pessimism reduces expectations, narrowing the gap between possible outcomes and outcomes you feel great about. Maybe that’s why it’s so seductive. Expecting things to be bad is the best way to be pleasantly surprised when they’re not. (Location 1834)
When you’ll believe anything
It seems crazy. But if you desperately need a solution and a good one isn’t known or readily available to you, the path of least resistance is toward Hajaji’s reasoning: willing to believe anything. Not just try anything, but believe it. (Location 1884)
Most people, when confronted with something they don’t understand, do not realize they don’t understand it because they’re able to come up with an explanation that makes sense based on their own unique perspective and experiences in the world, however limited those experiences are. We all want the complicated world we live in to make sense. So we tell ourselves stories to fill in the gaps of what are effectively blind spots. (Location 1947)
Note: What a. I telling myself about the world
All together now
Manage your money in a way that helps you sleep at night. That’s different from saying you should aim to earn the highest returns or save a specific percentage of your income. (Location 2030)
Use money to gain control over your time, because not having control of your time is such a powerful and universal drag on happiness. The ability to do what you want, when you want, with who you want, for as long as you want to, pays the highest dividend that exists in finance. (Location 2041)
You might think you want a fancy car or a nice watch. But what you probably want is respect and admiration. And you’re more likely to gain those things through kindness and humility than horsepower and chrome. (Location 2044)
Sum: The best way to use money is not to buy some new gadget or fancy thing, it’s buying more time with it. Time is the most important resource
Confession
We can leave aside rich, but independence has always been my personal financial goal. Chasing the highest returns or leveraging my assets to live the most luxurious life has little interest to me. Both look like games people do to impress their friends, and both have hidden risks. I mostly just want to wake up every day knowing my family and I can do whatever we want to do on our own terms. Every financial decision we make revolves around that goal. (Location 2082)
Independence is our top goal. A secondary benefit of maintaining a lifestyle below what you can afford is avoiding the psychological treadmill of keeping up with the Joneses. (Location 2108)
Comfortably living below what you can afford, without much desire for more, removes a tremendous amount of social pressure that many people in the modern first world subject themselves to. Nassim Taleb explained: “True success is exiting some rat race to modulate one’s activities for peace of mind.” I like that. (Location 2109)
Either way, I’ve shifted my views and now every stock we own is a low-cost index fund. (Location 2133)
If I had to summarize my views on investing, it’s this: Every investor should pick a strategy that has the highest odds of successfully meeting their goals. And I think for most investors, dollar-cost averaging into a low-cost index fund will provide the highest odds of long-term success. (Location 2136)
Over the years I came around to the view that we’ll have a high chance of meeting all of our family’s financial goals if we consistently invest money into a low-cost index fund for decades on end, leaving the money alone to compound. A (Location 2145)
Summary:
- Small things what will bring wealth. Just keep doing what you like and create new things
- Wealth is when you can do anything you want and you don’t need to do what other people wants all the time. And for this, you need to be comfortable with what you have.
- Ask before purchasing something bigger: will this help me be more independent or more dependent?