5 Steps to Master The Psychology of Money (Summary & Guide) | MoneyAndCake.com

5 Steps to Master The Psychology of Money (Summary & Guide)

Last updated on February 10th, 2024 at 06:39 pm

The Psychology of Money is a must read if you want to learn how to kickstart or course correct your personal finance journey. Morgan Housel teaches 20 key “money mindset” principles to help you transform your financial life. The surprising stories and facts about famous rich people like Warren Buffett and Bill Gates as well as the crazy things normal people do for money or with money, like Ronald Reed and the average buyer of lottery tickets all add to the “timeless lessons” that will change how you think, act and behave with your money.

The Psychology of Money Review: An honest opinion

Why should I read The Psychology of Money?

Unlike other books about Money and Finance, which are often dry and boring, The Psychology of Money is a page turner that can make you laugh and cry. It did for me.

Personally, I wish I read it at 19, the best age to start learning the soft skill of money as a young adult. That being said, its impact on me now even after achieving financial independence at 38 is significant, and I am documenting in this article, my personal experiences for those who wish to learn from someone who’s being there and done it, but with still much to learn and do as the journey never really ends.

Ben Sweetland Success lies in the journey, not the destination.

So, yes… You should read The Psychology of Money from cover to cover as I did, to gain insights into your own relationship with money and develop your own individual takeaways based on where you are on your own money journey now and where you want to go in the future.  Everyone’s money journey is different as everyone has different goals. In fact, Morgan Housel warns against copying the investment strategies of others, because we all have our own different narratives. So you need to figure out what works for you and tailor it to your own needs and desires.

There are 20 timeless lessons that are relevant to everyone at any stage of their life, with different backgrounds, and starting points, and even those who have spent their life studying how money works, in order to overcome poverty as I have with 15+ years of experience in banking and finance.

More importantly, you should read the book because of how it will inspire you into action! It certainly did for me. Here are the 5 key actionable takeaways from the book which I have summarized as: 5 Steps to Master The Psychology of Money.

Buy The Psychology of Money from Amazon

The Psychology of Money Summary: 5 real takeaways

The Psychology of Money is full of lessons learned from Morgan Housel that provide great “aha moments” for most readers. BUT do you really have any takeaways if you can’t or don’t do anything with what you’ve read? Reading, observing, and even listening isn’t the same as actual learning when you begin to make decisions and put things into action.

As the author of a strategic management book, The Strategy Journey, and lecturer on the subject at a university, there are 3 steps that make a strategy successful: Planning, Execution & Monitoring. Notice how the idea like an ‘aha moment’ or realization isn’t in that list even through it is an essential trigger. You have to take action to turn that strategy into a success.

So, an “aha moment” and a “takeaway” are not the same thing.

What’s in it for you? Answer this question and you have a takeaway.

How to master the strategies from The Psychology of Money?

Financial success lies in the execution that follows your financial decisions and whether you have made good investment decisions for your own circumstances.

This is the problem I have with the list of takeaways you’ll find on most other Book Review blogs and even some of my favorite Personal Finance YouTube Channels. They are summarizing the lessons taught by Morgan Housel in The Psychology of Money, which is great if you don’t want to read the book and instead you’re happy with some cliff notes that save you time when studying for an exam or test.

Unfortunately, real life and your financial life is not an exam or a single test that you take at a point in time. No matter how big the event might feel such as the ‘A’ level or ‘SAT’ exams or equivalent might seem like the defining point to an 18 year old, the impact of a series of many smaller decisions led by your money habits, will have very different effects and outcomes. There are real consequences to all of your financial decisions, with real financial outcomes that impact your entire life and ongoing. 

My point is, if you can’t action or take a decision from what you have learned, then you don’t have a takeaway, at least not yet. So when reading The Psychology of Money, if you want some takeaways, you will need to take responsibility to plan out your own actions to take forward into your own life.

What can we learn from The Psychology of Money?

Here are the 5 best takeaways from The Psychology of Money:
One simple investment strategy
Build a margin of safety
Work out what’s enough money for you
Money buys you time
Everything has a price

💡 Remember to self-reflect on each takeaway using my personal reflections as examples only.
😇 Personalization is key to success. This is why you should see these takeaways as 5 Steps to Master The Psychology of Money.

One simple investment strategy

You might be surprised to learn that the only investment strategy taught by Morgan Housel in The Psychology of Money is to stick with low-cost index funds on the stock market, and to figure out your time horizon for expected investment returns from the compounding effect.

Morgan Housel uses stories from Warren Buffett vs Ronald Reed to illustrate why he too has taken this approach, to investing for the long run. Both Buffett and Reed accumulated millions and billions over their lifetimes. Buffett took 20 years to make his first million which he achieved at 30 only because he started investing when he was 10 years old, and he became at billionaire 26 years later when he turned 56. Reed was a janitor who died with 8 million at 92.  

Banker Explains:

The strategy described by Morgan Housel in The Psychology of Money where you grow your wealth at a slower pace via regular small contributions to Low-Cost Index funds is known as “dollar-cost-averaging”. This is when you continuously buy stocks in small quantities regardless of any market volatility from companies that you understand to already be growing over a set period of asset years.

This strategy does not rely on having high income levels, nor having to watch out for bull markets. You can invest according to your current income level, so it doesn’t matter if you have less money and you win in the long run by staying in the game, as you ride out the highs and lows of the economy and general economic growth over time. 

Most ordinary investors should have ETFs and low-cost index funds as foundation inside of your retirement accounts, wherever you live in the world. eg. 401K & Roth IRA in the USA, SIPP & ISA in the UK, CPF in Singapore, Superannuation in Australia, RRSP & TFSA in Canada, PEA, PER & Livret A in France…

Personal Reflection:

I have been dollar-cost-averaging across several ETFs and Index Funds globally since my early 20s when I got my first job – which is also where I learned from my first boss at the time, how to invest in stocks. The biggest difference in my own investment strategy is diversification. I started investing in Real Estate at 24 when I took out a rather large mortgage along with the numerous benefits from the Australia Tax System at the time, to buy my first investment property. I have owned both stocks and real estate since then as part of my growing net worth.

While I learned about stocks from my old boss, who I saw as my Money Mentor, my granduncle always encouraged me to become a landlord as that was the means to becoming a boss and living with Financial Freedom. We used to play Monopoly together every Chinese New Year as he gave out little nuggets of advice about how to play the game. I was introduced to Rich Dad’s Cashflow Quadrant* by Robert Kiyosaki which I read at 21. All of these factors had tremendous influence on my investment decisions at the time. 

👉 Check out the Book Review & Success Tips for Cashflow Quadrant by Robert Kiyosaki

*Rich Dad’s Cashflow Quadrant is the second book by Robert Kiyosaki in the Rich Dad series. The first book is the famous Rich Dad Poor Dad, which has become the best selling personal finance book of all time.

Build a margin of safety

Morgan Housel also stresses the need for a high savings rate including saving enough money for emergencies to give yourself a margin of safety when events beyond your control take over for the worst. 

In the The Psychology of Money, Housel calls these events like the financial crisis of 2008-2009 and the great depression during the 1930s, “long tails”, which are extreme examples with tremendous influence in our investment history. As there is simply no way to predict these events, and their impact to the stock market, the economy, or your individual investments, the best way to deal with long tails is to build a “margin of safety” in your finances to give you financial security and cover for unexpected rises in your expenses. This is how you can ride out those rainy days, while you stay in the money game. 

Personal Reflection:

This was a huge takeaway for me from The Psychology of Money, as I recalled the childhood stories from my grandmother and her brother my favorite granduncle, both of whom lived through World War II as young adults. I haven’t always kept to the discipline of having a sinking fund for the cost of living, with huge spending sprees in my 20s on the latest designer handbags 🥰. I also thought rationing your food was a bit crazy, but look at what most of us had to do during the 2 year lockdowns we experienced during the COVID-19 pandemic. 

The life experience that my grands passed on to me, guided me in advance to stock up my pantry by default, without the stress of the mad rush for toilet paper, etc… and all the crazy things that normal people had to do at the start of the pandemic. I also had plenty of savings, to manage my expenses, when income stopped coming in from my small business as the world economy came to a complete halt. 

Work out what’s enough money for you

The Psychology of Money doesn’t provide any special tips to make as much money as possible, or the fastest way to maximize your net worth, by picking the best financial assets to buy at the right time for those big returns. 

In fact, Morgan Housel teaches the exact opposite of this through this warning about greed, and to stop trying to “keep up with the jones” at any cost. This is illustrated to great effect by the story of Rajat Gupta, the retired $100 million dollar former CEO of Mckinsey, who went to jail for insider trading because being a centa-millionaire wasn’t enough for him and he wanted to become a billionaire.

“There is no need to risk what you have and need for what you don’t have and don’t need 
– Morgan Housel (The Psychology of Money)

So less ego, and forget that fancy car they have next door or nice cars in general. Work out what’s enough for you. Don’t fall into the money trap of the car paradox, where you want that nice car so you look good, since: 

“Wealth is what you don’t see”
– Morgan Housel (The Psychology of Money)

Personal Reflection:

I wish I didn’t spend many 100s of thousands of my hard earned income from my 9-to-5 job as a banker on that fancy car, if you happen to classify my Audi Q2 as one, or my 25 bags of old clothes which I regrettable gave to charity in the past year, and the 7 designer hang bags that I only use now and then when I’m on holidays or at a business meeting.

We can all get caught up with thinking that these possessions are our wealth, that this is what makes us happy, and I am no different.

I have since started the journey to declutter my life of these possessions following my early retirement, so I can start enjoying true wealth through living with Financial Freedom. The Audi Q2 was sold at a premium and replaced with Ubers and public transport plus the occasional private car hire – where I am still fighting the urge for a Mini Countryman instead of a Nissan Juke.

Of course don’t forget to reward yourself every now and then, if you want to stay on course with your financial goals – so maybe next time, the Mini Countryman special edition might win – hearts over minds 😍.

Money buys you time

In They Psychology of Money, Morgan Housel shares his own personal financial goal to be financially free as a priority. He describes the highest form of wealth as “being able to do what you want, when you want for as long as you want.” It’s being able to control our time and having independence and autonomy.

Financial Freedom is achieved when you can life your life, on your own terms. No more relying on that pay check that comes from your 9-to-5 day job, where your boss controls your time. 

Controlling your time is the highest dividend money pays.
– Morgan Housel (The Psychology of Money)

Personal Reflection:

Having achieved financial independence and becoming mortgage free, I couldn’t agree more with this favorite quote. It doesn’t mean I have stopped working by the way or that all of my financial worries are gone. Having grown up poor, I still worry that my sinking fund might run out one day, especially when there are new expenses I had not anticipated, like funding my parent’s health care and age care needs and higher than expected inflation which is making the 4% rule invalid. The money journey never ends. 

What’s different for me since this early retirement from my 9-to-5 is that I am in control of my time. I am able to decide for myself, where I want to invest my free time on sleeping more, reading books, or running my business or starting a new business, or buying more property and renovating or travelling or spending time with family or a personal trainer to improve my fitness and health.

During this time, I have enough money saved and investments that are growing to help make me money in my sleep that buys me more time. Having this control, is obviously much less stressful, than having lots of money problems as my parents did, which ultimately impacted their health both mentally and physically. 

Everything has a price

In The Psychology of Money, Morgan Housel advocates building wealth slowly but steadily and “staying wealthy” over “getting rich quickly”. There are usually dire consequences for those who risk it all in the ‘get rich quick’ camp but who did not get lucky – like Abraham Germansky and Jesse Livermore who both took their own life after suffering huge financial losses. This is the price they paid. 

There is a price to pay for every decision we make and action we take and this price isn’t always monetary. 

The price we pay can come in many forms, from the time spend and wasted or gained, to our relationships with the people we love, and our health, etc… 

When it comes to investing, the greater the risks, the greater the rewards, but also the great the losses if things don’t go your way. Can you afford to loose your money when investing? Can you stomach the market volatility and the fears, doubts, uncertainty and regrets that comes with investing? This is the price of investing in the stock market and even in most assets classes, except cash. Housel says that the trick is to view all of these stressful situations and feelings as a fee you pay, and agreed to pay it before making your purchase. Then maybe you will feel less or no pain.

Personal Reflection:

One of my new financial goals that in my financial plans since early retirement is to define a strategy for maintaining a certain level of wealth and to pass on my learnings and experiences about money – “money mindset” principles – to the next generation. The most important part of every plan if you want it to succeed, is to define the steps for execution and be prepared to make changes since your goals and priorities will inevitable change due to those unpredictable long tails. These changes in your goals is what makes long-term planning so hard.

Writing this blog right now is me taking action and executing 😇. Monetising this blog in the future as an additional source of passive income is one of my newer financial goals for building and maintaining wealth.

In my new blogging career, and in setting up any of my new businesses I have learned from experience that there is a fee to pay. No one starts a blog and monetises without investing lots of time (many months and years) and money too to setup the blog, host it, design it, do research and competitor analysis, to write the blogs, to make them searchable through good SEO and to build an audience through email marketing until they know, like and trust you enough to buy from you.

This goes for every other business that I’ve started and grown including my property portfolio and my investment portfolio, my tech business, becoming an authorpreneur and every other life project I’ve undertaken to solve a problem. Nothing is free. What’s the price?


The hardest part to financial success is indeed mastering the hardest financial skill – to harness your “money mindset” – the soft skill for managing your relationship with money. WIth these skills you are able to navigate your money journey more easily, but don’t forget to plan for success and execute this plan on your money journey over the long term to achieve your desired transformation in the future.

So listen carefully, learn, plan and then take action… using the 5 Steps to Master The Psychology of Money from Morgan Housel as your north start. This is how you’ll really transform “your money and your life” from a dream or a vision into reality.

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