Life- Changing lessons from the Physiology of Money

We all know that money is an emotional topic but what we don't realize is that these emotions play a huge part in our bad money decisions .

five of the biggest emotional traps that I've learned from the psychology of money and how you can avoid falling into them 1- Pay the price this is one that very few people understand that everything you have and do comes at a price whether it's a monetary price in dollars or cents or an emotional price like fear or doubt or stress nothing is free and this is especially true

when it comes to investing because the price you pay isn't just the price of the stock or the amount you invest in it's also the emotional volatility and the fear that comes with it which

isn't always intuitive in other areas of your life for example if you go to the gym today it may hurt a bit tomorrow you'll feel sore and then three months six months nine months down the line

you will see results but people tend to take these short payoff periods and apply it to investing you think that by checking back at three months or in six months time the results will show but that is where the emotional trap comes in let's say you bought an S P 500 Index Fund in the 1980s yes one can argue that it went up 11 000 since then but you would still have needed to face about 13 years combined where your Investment Portfolio was down 20 from its high and eight months when it was down 50 it's only after paying that emotional price and sticking it out through those downfalls that you would have then benefited from the compounded results and the longer you're able to ride out that volatility the fear the worry the doubt and stay invested the more your money would work for you and as housel says good investing is not necessarily about earning the highest returns

because the highest returns tend to be one of hits that can't be repeated it's instead about earning pretty good results that you could stick with which can be repeated for the longest period of time .

2- the magnitude of chance this was a bit of a difficult one for me to digest that first but once you understand it you'll change the way you think about earning and who to learn from when it comes to making money there are so many elements that come into play that are outside of your control and they have a bigger impact on the outcome than what we would have done even

intentionally for example our upbringing our ethnicity gender which part of the world we live in and housing states that one of the main reasons we fail to become financially successful

is because we underestimate the role chance plays in our financial lives ignoring chance or luck is dangerous because many people try to gain wealth by imitating the most exceptional

successful people if we see someone make a lot of money very quickly we tend to look at that person and say okay how does she or he do that and how can I copy that to be just as successful but due to the fact of chance locked the right place at the right time the odds won't necessarily stack up in our favor he uses the example of Bill Gates Ultra successful huge net worth

and you can say he achieved his success because he was a super smart and super hard-working but what we don't always think of is the fact that he also went to the only high school in America with a computer and he was literally one in a million teenagers who had access to a computer so having

that accessibility was the chance element in his story that contributed massively to his financial success forget to look at the wider picture what were their circumstances when did they do it what was the wider market like how long have they done it for so house explains instead of focusing on the individual it's better to focus on broader patterns to maximize your probability of success so if one person did X to get wealthy but many people did why to get wealthy doing why will have a bigger probability of you gaining financial success .

3- Wealth is what you don't see this is probably the most important one on the list and one that as a society we often fail to see we are social beings so it is no surprise that we need social validation but actually craving for social validation makes us worse off and a reason why so many of us failed to achieve financial success is because we confuse use being wealthy with being rich rich people can lack wealth but we can't see that they do their current income is high so they have the money available to be able to spend on expensive items and tangible items and so we confuse perception with reality whereas on the other hand it's hard to identify a wealthy person because they save their money you can't go into their bank account and see the money that they're not using Hope from the book that says rich is what we see what we are wearing the bag we're holding the jewelry we're wearing and on the other side wealth is what we don't see it's the cause not purchased the diamonds not bought

to the renovations postponed the clothes will gone and the first class upgrades declined so knowing the difference between being wealthy and being rich is really important because we learn by imitation and so knowing who to imitate and who not to imitate can help us grow our money and grow our wealth you understand the difference between being rich and being wealthy and start learning the habits of what a wealthy person does you can prevent yourself from draining away your money and protect it .

4- Use money to buy control this is the lesson that has probably resonated the most with me and whenever someone asks why I'm not spending money on buying this or buying that it's because my sole focus is to use that money to create a life that I want using your money to buy time and options has a lifestyle benefit few luxury goods can compete with and money buys you optionality and control of your life more than our salary our corporate title or Prestige of our job instead to do what we want when we want with the people we want that is one of the things that brings the most happiness that comes with the privilege of having wealth it may come with sacrificing on other things for the time being of focusing on what is really the best value for your money and the big ticker items and that is to create a life that you have always wanted and having the freedom and control over your time .

5- Contrasting narratives we're all very familiar with this one but very few of us implement it we all know having money and and being able to manage it gives you control but how much money should you have well there are studies that show how your income has diminishing returns on your personal life satisfaction and Beyond a certain point more money stops buying you

further increases of Happiness Until you realize that the goal post on how much you want to earn will keep moving the advice in the book is to know when to say enough there is a limit to the

value that money can bring into our lives it's about finding the balance between accumulating wealth and preserving what truly matters things like our relationship health and your overall

well-beings too often people get caught up in the pursuit of more and more money more possessions more success without taking a step back and considering the potential consequences

and this can cause sacrificing our physical and mental health the damaging relationships or even risking what we already have and our financial stability in the pursuit of making more and in the book he gives examples of how Ultra successful people risk everything they have in the pursuit to get more and damage their reputation and everything they have they risk it all just to get more money that they didn't even need it's easy to forget this when you're seeing people around you spending their money and all the marketing messages telling you how you should

be spending yours on one side you'll get the messages saying you need to live frugally to be rich and you'd save to be rich and on the other side you need to quit your job and be traveling and be living your best life and with these contrasting narratives it's very easy to Lose Yourself within that money up to a certain point will buy you freedom and control and then after that that value needs to come intrinsically know who you are and what matters the most to you so those are the five most important lessons that I've taken away from this book highly recommend it and I've been applying it to many parts of my life I'm interested to know if you have fallen into one of these emotional traps either subconsciously or consciously and now that you're aware of the trigger what you'll be doing to come out of this cycle .