How does Money make us Wealthy, Greedy, and Happy?
The path to becoming wealthy is said to be a long journey. And taking that path seems to be the best way to keep us happy over the long term and also keep us away from greed. It is quite difficult to walk that path these days because most people around us are planning their retirement already or attaining super early Financial Freedom.
So, this book, The Psychology of Money by Morgan Housel, shows quite a lot of perspectives on the title of the book and gives us a general idea of ways to go forward and attain Financial Freedom at our own preferred pace but with caution. And as the book says, it taught me timeless lessons on Wealth, Greed, and Happiness.
Wealth is What You Don’t See
Social comparison is the root of all evil when it comes to spending money. It’s what leads us to think we need the same things our friends have, even if we can’t afford them. It’s what makes us buy things we don’t need, just to keep up with the Joneses.
Spending money to show people how much money you have is the fastest way to have less money.
Whenever I have to make a purchase, I always ask myself whether I really need it or if I’m just buying it because it’s what everyone else has. If I’m not sure, I’ll wait a few days to see if I still want it as much as I did when I first saw it. More often than not, I’ll realize that I don’t need it after all.
To save money, the best thing we can do is avoid comparing ourselves to others. We must focus on our own financial goals and don’t let peer pressure lead us into making purchases we can’t afford.
Remember that wealth can be invisible.
Save Money
Okay, we start saving money; now what do we do with it and where do we start investing our savings?
Saving for things that are impossible to predict or define is one of the best reasons to save money.
It's best to start saving to fill our emergency fund. A general rule of thumb for an emergency fund is to have 6 times the amount of our monthly salary; easily accessible at any point in time for emergencies.
Note: Credit Card is not our emergency fund; unless we have the emergency fund elsewhere to pay off the outstanding amount before the due date.
After the emergency fund is full, we can peacefully start thinking about making an investment plan. Be it short-term, mid-term, or long-term.
No One’s Crazy
Our financial decisions, when we take them, often seem correct from our own perspective and often seem crazy from someone else’s perspective. These decisions are way different, especially from those of the previous generation.
While our parents often like investing in safe fixed-return-based investments like low-return pension schemes; here we are, trying to go all-in on Bitcoin. Both of us think the other one is crazy.
The reason is the experiences both types had had with money. The older generations are more careful because they might have been part of those great losses in the stock market in the past and would never want to set foot in it; while the younger generation sees peers around them getting rich overnight. So we’re not all crazy considering the time we live in.
What you’re doing seems crazy but I kind of understand why you’re doing it.
The better idea is to understand both perspectives and draw a thin line in-between, trying to implement the good sides of both paths.
Hence, it is best to diversify our investments and make a conscious decision on the percentages of how we divide them into different buckets. We must invest in fixed-return-based investments, stock market investments, real estate, and also cryptocurrency investments, etc; but only a reasonable percentage of money in each type of asset, based on our current economic condition and our risk capacity.
Confounding Compounding
Once, we decide on how much to invest in each type of asset in our diversified portfolio. We’ve got to put up a plan to be consistent with these investments. Compounding favors consistent people.
Around 96% of Warren Buffet’s net worth came after his 65th birthday.
Big players usually invest more during these global financial disasters like COVID, War, etc. We as beginners may not be able to predict these global disasters before they happen.
Most beginners see their portfolio in red during these downtrends and sell out their investments in losses. If we invest in a fundamentally good financial asset, it is bound to bounce back after the disaster has passed.
So, Consistency is what drives the growth in these situations. Being consistent even when the times are bad acts as a booster shot to the compounding effect.
You & Me
In this social media era, we tend to easily find out where the big players are making their big investments. Or there are a lot of investment tips flying around on social media like, a specific stock or cryptocurrency will boom in the next week. This ignites us all to go all-in on such investment ideas.
Don’t take financial cues from people playing a different game than you are.
We must understand that everyone thinks differently in their own way. Even in this article, a few examples are written from my own perspective and may not suit a lot of people.
So, we must make our own decisions with caution and not blindly follow anyone; not even a billionaire's suggestion.
Freedom
Financial Freedom is the ability to do what we want, when we want, with who we want, for as long as we want. That is what makes us happy.
Controlling your time is the highest dividend money pays.
Time-to-time, introspect and retrospect your time spent each day. Plan to improve your efficiency, consistency, and focus. Find ways to make your money work for you while you are sleeping.
So, let us make and use money, to gain control over our time. That is the goal. That is how Money makes us happier, wealthier, and less greedy.
Conclusion
The overall idea is simple.
- Don’t spend because others around you have better things.
- Save Money to fill the emergency fund first.
- Start diversifying your investments with the appropriate proportions.
- Keep it consistent and compounding will follow.
- Don’t blindly follow those who are financially different from you.
- The goal is to use money as a tool to control your time.
I would advise everyone, to read The Psychology of Money because it shows us more such perspectives than what I have gathered in this article. You may even understand things differently than how I have understood them, which is okay because No One’s Crazy.
The key takeaway, I believe, is that we must understand all the perspectives. Then, the mind would come to a conclusion on what’s the right path for us.
If you don’t own a copy of The Psychology of Money yet. Here are the links.
Amazon US: https://amzn.to/3ah5J2L
Amazon India: https://amzn.to/3yIa7Be
These links are affiliated and they drive me to write more content like this. We’ll discuss more on this in my next article which covers multiple income streams. I guess every medium writer must put up an article on side hustles.
