The Psychology of Money by Morgan Housel

The Psychology of Money explores the emotional reasons people make bad financial decisions and offers plenty of tools for improvement.

The Psychology of Money

You will approach the concept and consequences of money in terms of behavior throughout the book.

Housel delves into the gray area of how people make financial decisions in the real world rather than focusing on math-based logic.

He thinks outside the box and encourages you to do the same.

What’s the Psychology of Money all about?

What’s the Psychology of Money all about?

The Psychology of Money acknowledges that people’s financial decisions are not always data-driven.

Rather than following the math-case approach outlined in traditional personal finance books, Housel seeks to uncover how real money decisions are made.

Individuals’ financial behavior will have a significant impact on their financial future.

Because behavior is such an important factor, the book is devoted to examining various aspects of how consumers make money decisions in their minds.


Chapter by Chapter Summary of the Psychology of Money.

Chapter by Chapter Summary of the Psychology of Money.

Each chapter is a short story that focuses on a different aspect of psychology and finance.

When these elements are combined, you will have a thought-provoking experience that will allow you to see the world around you in a new light.

Let’s look more closely at what each chapter covers.

Chapter One: No One’s Crazy

Housel begins The Psychology of Money by stating that everyone has a unique set of life experiences.

Your life experiences will have a significant impact on how you approach financial decisions.

As a result, you should not regard others as insane if they make financial decisions that differ from yours.

In this chapter, Housel set a nonjudgmental tone for the rest of the book, which I appreciated.

Chapter Two: Luck & Risk

Looking around, you will notice people in various financial situations.

Whether you have a solid foundation or are bankrupt, luck and risk play a role in your current situation.

If you are successful, a portion of your success was most likely due to chance. Risk, on the other hand, can play a role in a situation where you do not succeed.

It is critical to understand both sides of the coin. Housel provides historical examples of luck and risk to help put things into perspective.

Chapter Three: Never Enough

If you’ve ever wondered why objectively wealthy people risk everything to participate in illegal money games, this is the chapter for you.

Housel investigates the concept of “enough” when it comes to money.

Why are some people unhappy when they appear to have all the money they could ever need?

Chapter Four: Confounding Compounding

When it comes to increasing your wealth, you’ll hear about the power of compounding. The longer you can invest your money, the better your chances of success.

The math behind Warren Buffett’s fortune is examined in this chapter of The Psychology of Money.

It may both surprise and inspire you to extend your own investment timelines.

Chapter Five: Getting Wealthy Vs. Staying Wealthy

It is more difficult to stay wealthy than it is to become wealthy. But how do you keep the money you’ve earned?

This chapter investigates the power of a survival mentality that prioritizes frugality while harboring a slight fear of losing everything.

With historical examples, this intriguing chapter of The Psychology of Money may force you to reconsider your long-term wealth-building strategy.

Chapter Six: Tails, You Win

Even with a long investing timeline and consistent investment, bad decisions can occur. In fact, you should expect to make some poor financial decisions during your lifetime.

With proper diversification, however, one bad investment will not ruin your financial future.

Housel discusses the process of successful art investors and emphasizes the significance of investment mistakes.

Chapter Seven: Freedom

In the pursuit of material things, money cannot buy happiness.

However, more freedom in your life can lead to happiness.

Recognizing the value of your time and the ability to structure your life around your priorities can be difficult.

However, doing so may assist you in adjusting your financial strategy.

Chapter Eight: Man in The Car Paradox

Your neighbors might not be as taken with your possessions as you believe.

Housel tells an interesting story in this chapter about the truth about material possessions like expensive cars.

What you don’t see is what you have.

Although you can spend your money on expensive possessions, according to The Psychology of Money, long-term wealth is something that cannot be seen from the outside.

This chapter contains prominent examples of people who over-leveraged themselves (to appear wealthy) and did not leave enough money in the bank.

Chapter Nine: Save Money

We all know that saving money is important. But Housel puts this powerful strategy into perspective.

In this chapter, you’ll see how you could literally transform your entire financial future by just making a few small changes to your savings goals.

Chapter Ten: Reasonable > Rational

Although the cold hard math of personal finance can lead to lofty goals, reasonable outcomes are more attainable.

It can be incredibly difficult to stick to the spreadsheet without any infusion of your own reasonable expectations.

Housel encourages you to consider your own reasonable desires as you build your money plans.

Chapter Eleven: Surprise!

The future is full of surprises that you simply cannot see coming. Yes, it’s important that we learn from history as best we can.

But The Psychology of Money points out that the needle of history is often moved by outlier events that no one can predict.

Chapter Twelve: Room for Error

Even the best-devised financial strategies don’t always go as planned.

That’s why it’s critical to include room for error as you build your financial plans.

With interesting references to card counters in Las Vegas, you’ll enjoy this chapter.

Chapter Thirteen: You’ll Change

As you build your financial plans, it’s easy to make them based on your current needs and desires.

But Housel points out that your future desires will likely change as you grow as a person.

Over time, you should expect that your dreams will change and your finances will need to adjust.

Chapter Fourteen: Nothing’s Free

As consumers, we pay for everything from housing to expensive cars.

However, many try to avoid the costs of successful investing by attempting to time the market.

In this chapter, you’ll be encouraged to view the ups and downs of investing as a necessity instead of something that should be avoided.

Chapter Fifteen: You & Me

In the chapter of The Psychology of Money, Housel again points out that different people will have different financial goals.

But when it comes to the market, many investors choose to take cues from the people playing a different financial game.

You’ll find relevant examples in recent history of the pitfalls that investors often fall prey to.

Chapter Sixteen: The Seduction of Pessimism

Pessimistic worldviews tend to garner more attention than optimistic outlooks.

While pessimism can be hard to resist, it can also lead to big negative consequences for your investment portfolio.

Housel dives deeper into the treacherous possibilities of believing the pessimistic hype.

Chapter Fourteen: When You’ll Believe Anything

Humans make sense of the world around them by telling themselves a narrative that fits into their worldview.

It can be easier to believe fiction than the facts of our world. But these tendencies can lead to big impacts on the economy that affect everyone.

Chapter Eighteen: All Together Now

This chapter of The Psychology of Money ties together the short stories to provide a comprehensive picture of how psychology impacts money decisions.

In this chapter, Housel offers straightforward advice on how to recognize the power of psychology in your finances.

Chapter Nineteen: Confessions

After wrapping up the story, Housel shares his own money strategies.

Although he recognizes that some of his decisions may be controversial, he is happy with the freedom he has created in his life.

He encourages you to make money decisions that maximize your own peace of mind and help you sleep at night.

Chapter Twenty: Postscript

In the postscript, titled “A Brief History of Why the U.S. Consumer Thinks the Way They Do,” Housel walks through a short history lesson.

He highlights the interesting evolution of the modern U.S. consumer.

I highly recommend reading this final section if you are interested in the state of the current consumer. I, personally, found it very interesting.

But if you are strictly looking for a look at the impacts of psychology on your own personal finances, you can skip the postscript.

About Morgan Housel

About Morgan Housel

Morgan Housel is a well-known financial journalist and partner at The Collaborative Fund.

He previously worked as a columnist for The Motley Fool and The Wall Street Journal, where he won journalism awards. He is currently residing in Seattle with his family.

Who Should Read Money Psychology?

Read Further

The Psychology of Money is not your typical book on personal finance.

The details on how to budget and invest are not usually laid out in a cut and dry format in a personal finance book.

Instead, you’ll find a collection of stories that will raise new questions about your own relationship with money.

If you approach the book with an open mind, you can learn a lot about how money works and how to control your own financial mindset.


Overall, The Psychology of Money provides a unique perspective on personal finance.

Instead of focusing on the details of creating a financial plan, it examines your relationship with money from the inside out.

And, armed with this knowledge, you’ll be better prepared to make the inner (mental) decisions that almost always lead to future financial success.

FAQs about The Psychology of Money

The psychology of money is the study of our behavior with money.

Success with money isn’t about knowledge, IQ or how good you are at math. It’s about behavior, and everyone is prone to certain behaviors over others.

‘The Psychology of Money’ is an essential read for anyone interested in being better with money.

Fast-paced and engaging, this book will help you refine your thoughts about money. You can finish this book in a week, unlike other books that are too lengthy.

In the Psychology of Money, Morgan Housel teaches you how to have a better relationship with money and to make smarter financial decisions.

The most important emotions in relation to money are fear, guilt, shame and envy.

It’s worth spending some effort to become aware of the emotions that are especially tied to money for you because, without awareness, they will tend to override rational thinking and drive your actions.

Simply thinking about words associated with money seems to makes us more self-reliant and less inclined to help others.

And it gets weirder: just handling cash can take the sting out of social rejection and even diminish physical pain.

Whether it happens by way of a better-paying job or winning the lottery, some studies suggest that money can change your behavior, and not always for the better.

Hopes and fears, guilt and shame, they can all play a significant role in your financial life.

Research published in the journal Psychological Science found that people of lower economic status were better at reading others’ facial expressions, an important marker of empathy than wealthier people.

CSN Team.

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