Psychology of Money


psych of money

07.20.21
Zach Bainter


As a financial planner and investment advisor, I am often asked for recommended books on the topic of money. The book I suggest when asked this question has changed over the years. That is until I read one book that fully encapsulated the human experience with money along with investing and financial planning lessons. Morgan Housel’s The Psychology of Money is a life-changing read. Personal finance depends on the person and the decisions they make, often driven by emotion and a unique view of the world instead of data and formulas. Throughout my career, I have learned many things, but one topic that continues to fascinate me is how behavior influences finance. I recommend everyone, regardless of age or income, read The Psychology of Money -it is a memorable read, and many clients have expressed how profound the lessons are. Below are a few takeaways.

One of the lessons in the book is figuring out how much is enough when it comes to accumulating wealth. Housel writes, “Life isn’t any fun without a sense of enough.” I have observed many investors taking unnecessary risks in their portfolios, sometimes unbeknownst to them due to poor planning or greed. It is important to plan for long-term goals like retirement with a financial goal in mind based on one’s unique financial situation. It is advisable to adjust the investment portfolio accordingly once the goal is achieved. Often portfolios are left too aggressive and prone to risk. Occasionally this is due to greed in wanting to see the portfolio continue appreciating. Housel writes that the hardest financial skill is getting the goalpost to stop moving. I would add that worrying about hitting certain portfolio milestones at a particular point is wasted energy.

The most profound yet simple lesson is to save money. Saving money is empowering. I recognize that not everyone is in the same financial place, but most can find a way to save -it just involves making trade-offs and delaying gratification. Housel writes, “building wealth has little to do with your income or investment returns, and lots to do with your savings rate.” This could not be truer. I have met with clients who make $50,000 annually and have more saved and invested than someone who is the same age and makes $500,000. Becoming efficient with money and operating in a manner that will leave “leftovers” for later is the key. It is important to remember that there does not need to be a concrete reason to save. Saving can simply be a hedge against surprises, or most importantly, help one gain control of time.

Financial flexibility and control of time is the utmost sign of wealth -not how much one can buy with their income. Having control of time by accumulating money that affords one’s lifestyle is a worthy goal. This is easier said than done in a consumer-based society, but the stories and lessons told by Housel are a great reminder for us all in how we can become better stewards of our financial destinies. While these are just a few, there are many other great lessons in The Psychology of Money.

Zachary Bainter is a Financial Advisor of Santa Monica, Calif-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately $2 billion in assets under management as of 06/29/21. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Readers shouldn't buy any investment without doing their research to determine if the investments are suitable for their situation. “All investments involve risk and one should consult a financial advisor before making any investments. Past performance is not indicative of future results."