The Psychology of Money REVIEW: The $8 Million Janitor Beat The Harvard Millionaire

Doing well with money has little to do with how smart you are and a lot to do with how you behave.

The $8 Million Janitor vs The Broke Harvard Millionaire

Let me tell you about two men who died 5 months apart in 2014.

Ronald James Read was a janitor. He fixed cars for 25 years and swept floors at JCPenney for 17 years. He bought a 2-bedroom house for $12,000 at age 38 and lived there until he died at 92. His hobby was chopping firewood. When he died, he left $8 million to his hospital and library. No lottery. No inheritance. He just saved and invested in blue-chip stocks for decades.

Richard Fuscone was everything Ronald was not. Harvard-educated Merrill Lynch executive with an MBA. Retired in his 40s. Crain's 40 under 40. In the mid-2000s, he borrowed heavily to expand his 18,000 sq ft mansion with 11 bathrooms, 2 pools, 7 garages. It cost $90,000 a month to maintain. Then 2008 hit. He went bankrupt. His mansion was sold for 75% less.

Ronald was patient. Richard was greedy. That was all it took.

No One's Crazy - Why We All See Money Differently

Your personal experiences with money make up maybe 0.00000001% of what's happened in the world, but maybe 80% of how you think the world works.

In 1960, JFK was asked what he remembered from the Great Depression. He said: "I have no first-hand knowledge. My family had one of the great fortunes in the world. We had bigger houses, more servants."

Same event, different worlds. That is why smart people disagree about money.

A few years ago, The New York Times wrote about horrible conditions at Foxconn. A nephew of a worker commented: "My aunt worked in what Americans call sweat shops. Hard work, small wage. Do you know what she did before? She was a prostitute. Being exploited by a boss for a few dollars is better than having her body exploited by several men for pennies."

What looks crazy to you makes perfect sense to someone else. Every financial decision makes sense to the person making it in that moment.

Lowest-income households spend $412 a year on lottery tickets. 40% of Americans can't come up with $400 in an emergency. Crazy? Imagine their reasoning: "Buying a ticket is the only time we can hold a tangible dream of getting the good stuff you already have. We are paying for a dream."

You don't have to agree. But you can understand.

Luck & Risk Are Siblings

Bill Gates went to one of the only high schools in the world that had a computer in 1968. There were 303 million high-school-age kids in the world then. Only 300 went to Lakeside. One in a million.

"If there had been no Lakeside, there would have been no Microsoft," Gates said.

Gates is brilliant and hardworking, but he also had a one-in-a-million head start. Nothing is as good or as bad as it seems.

Wealth Is What You Don't See

We judge wealth by what we see: cars, houses, watches. But wealth is what you don't see. It's the cars not purchased, the watches not bought, the money in the bank that gives you options and freedom.

The man in the car paradox: When you see someone driving a nice car, you rarely think "wow, the guy driving that car is cool." You think "wow, if I had that car, people would think I'm cool." True wealth is invisible and gives you freedom to wake up and do what you want, when you want.

Final Verdict - 5/5 Stars

This book is only 20 short chapters. It has no formulas. It has stories. It will make you less judgmental about others and more humble about yourself. The 401(k) didn't exist until 1978. The Roth IRA until 1998. We have 20 years of experience with modern finance and expect to be perfect. We're not crazy, we're just new.

If you have ever fought about money, felt behind, or felt scared when the market crashes - read this.

This is Part 1 of my 20-part REVIEW series. Part 1: No One's Crazy drops in 3 days.

Your Turn - Let's Talk

What is the one money lesson your parents taught you - good or bad - that you still carry today? Are you more like Ronald (patient) or Richard (greedy) right now? Be honest.

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