If you want to get rich, you can't just focus on getting a pay rise, investment tips or
the direction of the economy.
The most fundamental key to your financial success lies elsewhere: you need to understand
human behaviour.
That's the idea behind the book The Psychology of Money: timeless lessons on wealth, greed,
and happiness by Morgan Housel [https://arata.se/book-b29so].
If you understand human behaviour, your financial decisions will improve.
In today's Arata Academy Summary, we'll explore this idea to understand why this book has
captivated so many readers that its impact is compared to modern classics like Rich Dad,
Poor Dad and The Secrets of the Millionaire Mind.
Please note: this is not a financial service.
Read the disclaimer before continuing.
Luck and risk influence our financial lives more than we like to admit.
When we hear the stories of billionaires like Bill Gates or Elon Musk, our tendency is to
admire their effort and intelligence.
But the truth is that the combination of luck and risk plays a strong role in financial
success.
For example, in 1968, only one in a million teenagers worldwide had access to a computer
at school.
Bill Gates was one of those lucky ones.
Without that stroke of chance, he might not have become a technology pioneer.
So it's no use blindly copying people who got rich.
The context of their lives probably won't repeat in your life.
Instead of focusing on people, pay attention to patterns of success.
If you notice elements that repeat in many diverse cases, in different contexts, these
patterns might be a good strategy for your wealth-building.
Don't confuse ostentation with true wealth.
In the English language, there are two words to refer to a person with money: wealthy and
rich.
Wealthy is someone who's prosperous, with a lot of money in the bank.
For example, someone who's amassed a fortune over their lifetime, won the lottery or received
a generous inheritance.
Rich is someone with a high income.
Someone who can routinely spend on expensive items because they receive a high salary or
a high passive income.
Looking from the outside, you can tell if someone is rich.
You see if they live in a mansion, drive a luxury car and wear expensive clothes.
What you can't see from the outside is if someone is wealthy, whether they have a lot
or a little money in their account.
To have a lot of money saved, a wealthy, prosperous person probably doesn't splurge on items that
show off wealth.
Nothing stops you from being both wealthy and rich - but if you have to choose one,
choose to be wealthy.
Don't imitate people who spend a lot to appear wealthy.
Instead, be inspired by the behaviour of those who have a good net worth.
Buying control over your time is the main reason you should want to save money.
​​Why do you want to get rich?
Have you thought about the reason?
It's not for having an expensive car or a big house.
There's something much more valuable that money can buy: control over your time.
Everyone has twenty-four hours in a day, but the wealthy have the advantage of money.
They can buy other people's time and free up more time for themselves.
Imagine two single mothers with young children.
One has money, the other doesn't.
The mum without money has to work, clean the house, prepare lunch, bathe the kids, catch
the bus to take one child to school and another to nursery...
all on her own.
The mum with money also works.
But she has a cleaner to tidy the house, a cook to prepare lunch, a nanny to bathe the
kids, and can arrange a driver to take the kids to school.
Which of these mums has more control over their own time?
Psychologists say having control over your own time is one of the keys to happiness because
it gives you flexibility to choose what to do and when to do it.
More money isn't always better.
Learn to be satisfied with what is enough.
How much money do you need to consider yourself rich?
The word wealth is usually associated with mansions, luxury cars, designer clothes, and
expensive restaurants.
But none of that is necessary for you to live well.
A person who has enough money to cover all basic needs and still has income left over
to fund some trips, hobbies, and a few luxuries...
That person can already be considered rich.
Wanting more than necessary can lead you to a constant state of dissatisfaction.
It can also cause you to lose all the money you've already earned.
After all, to earn more money, you need to take more risks.
On the other hand, if you're satisfied with what you already have, you'll invest more
safely to preserve your wealth and avoid falling for scams.
A practical tip is not to increase your standard of living according to your salary increase.
For example, imagine that you got a twenty-five percent raise when you changed jobs.
If that happens, don't raise your standard of living to consume all of that extra income.
Don't move to a bigger rental or buy a car with more expensive maintenance just because
you're earning more.
Instead, save that extra money to get more passive income from investments.
Learn to take advantage of compound interest, even when it seems like it's not yielding
anything.
You've probably heard about the power of compound interest and the snowball effect it has on
our wealth when we let time do its thing.
The hard part is having the patience to let the snowball grow.
Since it's an exponential curve, in the beginning, it seems like compound interest isn't yielding
much.
This makes us anxious, and we often withdraw the money because we think it's better to
buy something than to leave the money earning so little.
Our thinking is very linear.
We have difficulty seeing compound gains, especially when it can take decades to materialise.
It's counterintuitive, but if you have the patience to wait, you'll see that WHEN you
invest is more impactful than WHERE you invest your money.
Focus more on saving money than on finding a miraculous investment.
People who usually set out to make money want to get rich quickly.
This leads many to invest in centralised cryptocurrencies, risky businesses, or even financial pyramids.
Instead of looking for miraculous investments, prioritise the habit of saving money.
Spend less than you earn to invest the leftover money in stores of value, such as gold or
bitcoin, and in more consolidated assets like stocks or real estate.
None of these investments will make you rich overnight.
But you'll reach your financial goals if you invest consistently and let compound interest
do its work.
Saving is the one thing that's absolutely under your control.
You can't control the return on your investments, inflation, or interest rates, but you can
control how much you save to make your monthly contributions.
So stop worrying about what other people think.
Don't buy things to impress others.
Just set your monthly savings goal, make your contributions by allocating assets according
to your risk appetite, and let compound interest work over time.
Something will go wrong.
Plan for when it does.
Financial planning necessarily takes the long view.
It could take decades for you to achieve financial independence.
During all that time, it's likely that something will go wrong.
You might have a health issue, suffer an accident, see an investment turn to dust, or find that
the centralised cryptocurrency you bet on ceases to exist.
That's why, if your financial plan only accounts for a few rosy futures, you're putting yourself
in a risky position.
Even if you're a daring investor, never put all your money into one type of asset.
Putting a hundred percent into stocks, or gold, or bitcoin, or real estate or fixed
income might look good for an influencer to talk about and attract clicks, but it's unlikely
to work in real life.
Be flexible with your plan because your goals will probably change over time.
When making a long-term financial plan, don't fall victim to the end-of-history illusion.
This is a psychological phenomenon where you think you'll never change drastically.
Accept that our lives are very dynamic, and the financial goals you have today will be
different in a few decades.
Today, you might want a flat and a small car.
In fifteen years, you could have three kids and need a house and a bigger car.
So don't make extreme decisions based on your current situation, or you'll regret it in
the future.
For example, if you decide to devote a hundred percent to your career to get a pay rise,
you might ruin your marriage or relationships with your family.
Emotion speaks louder than reason.
Develop a strategy that's logical but also sensitive.
Spreadsheets and financial plans are usually cold numbers, based on logic and calculations
of returns.
But for a financial plan to work, it should also be sensitive.
After all, our decisions are usually more emotion-based than reason-based.
There's no point in living in a state of deprivation today just to maximise your gains in thirty
years.
There's no point in risking a hundred percent of your wealth in a miracle investment if
it's going to keep you up at night worrying about losing everything.
The recommendation is to define an asset allocation that makes you comfortable and stick to that
strategy over time.
Don't keep jumping from one thing to another, churning your assets, as this will make you
lose money on fees and taxes and increase your risk of selling low and buying high.
Put pessimism aside.
Focus on your work and saving without worrying too much about market uncertainties.
Economic news will always have alarmist headlines about a major crisis, a bear market, or a
new government measure that will affect your investments.
If you let these news stories dominate your mind with negative thoughts, you won't be
able to stick to your financial plan for years and years.
Every investment has a degree of uncertainty.
To limit this uncertainty, many people try to predict market movements to buy low and
sell high, but studies show that almost no one can do this.
Instead of trying to avoid uncertainty, accept that it's inevitable.
If you invest in variable income, expect it to vary.
Stop worrying about what you can't control and start paying more attention to what is
under your control.
Invest in yourself to get a pay rise or increase your income.
Save part of those earnings and continue making your monthly investments without paying too
much attention to market uncertainties, because they'll always be there.
The only way to fail in your financial plan is by giving up.
Financial planning isn't an all-or-nothing game.
Imagine you calculated that you need a million to achieve financial independence.
You worked hard, saved what you could, followed the plan, but after twenty years you only
managed to save five hundred thousand bucks.
So what?
Do you stop or carry on?
If you give up and blow all the money, you've failed.
But if you keep going, you know it's better to retire with five hundred thousand than
with nothing.
And it might be that, in the years to come, you catch a bull market and hit your one million
target.
In the world of long-term investments, you might get lucky and find an investment that
has significant growth.
A single event can offset several setbacks you had over the years.
For example, imagine someone who studied what bitcoin was and understood the basics.
The core idea behind bitcoin is that it's the only asset in human history with absolute
scarcity.
With that basic understanding, anyone who bought bitcoin in 2015 and didn't sell saw
their wealth multiply over a hundred times.
Even if this person has other assets in their investment portfolio that suffer losses, a
single significant gain can save everything else.
If you persist and invest over the years, you can be successful even with short-term
setbacks.
The only way to fail is by giving up halfway.
Be very clear about what your financial goals mean for your life.
A plan based on a strong reason tends to be more sustainable than one made without clarity.
You need to clearly define what your financial plan means to you.
Ideally, the plan should align with your highest personal values.
If you want to save money just to look rich and show off luxury purchases, you'll hardly
stay motivated to save and invest over decades.
On the other hand, if you understand that money can give you control over your own time
and provide you with freedom, you'll have the necessary motivation to stick to the plan
even with difficulties along the way.
The book The Psychology of Money recommends that you write down the reasons for your financial
goals.
Make it clear how long you'll invest, detail what you expect to find along that time, and
define the rules of your plan.
It's not easy, but by following the tips you've learned in this summary, the goal will become
simpler to achieve.
The Psychology of Money teaches us that the secret to financial success lies in understanding
human behaviour.
This understanding is more fundamental than mastering technical details to earn more or
find miraculous investments.
This is a thesis we've been defending for many years at Arata Academy.
Over ten years ago, when we launched the Truly Wealthy course, our focus was more on your
behaviour as an investor than on the investments themselves.
So, if you want to join the training, I invite you to learn more about the High-Class course
by visiting https://arata.se/trulywealthy right now.