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To stimulate analysis, innovation, and forward thinking, and generate new ideas and insight
on subjects that matter in 21st Century Bhutan.
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Launched on 21st February 2021 to commemorate the 41st Birthday of His Majesty The King

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BOOK REVIEW | THE PSYCHOLOGY OF MONEY

POSTED ON February 27, 2023
Leki Wangmo
Teacher, Damphu Middle Secondary School

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Have you ever wondered why, even though your salary has increased, your savings never seem to grow, and you are never satisfied with the money you have? And you desire a further hike in salary, thinking it might help solve your issues, but when it does, you find yourself back at square one. So, how do we know when it is enough?

Morgan Housel's book The Psychology of Money tries to answer these questions by explaining why we have an insatiable desire for more money and the key to success and happiness.

Morgan says that one need not be a graduate of Oxford or Harvard or have a high-earning job to be financially successful; rather than knowledge, behaviour counts. According to Morgan, “financial success is not a hard science; it's a soft skill where how you behave is more important than what you know.”

An interesting account from the book is about a tech executive who becomes rich after designing and patenting a key component in Wi-Fi routers. However, he spends lavishly and often throws gold coins in the river for fun, and as you can predict, he becomes broke despite his knowledge. On the other hand, there is a story of a janitor named Ronald Read who lived a humble life working as a janitor and gas station attendant his whole life. He lived in a small, two-bedroom house, and his favourite hobby, as his friend recalled, was chopping wood. When he died in 2014 at the age of 92, he had more than $8 million in his account and was listed among the names of millionaires who died in 2014. In his will, he left $2 million to his children, donated $6 million to his local hospital and library, and died a philanthropist.

The secret to Ronald's success was that he lived a frugal lifestyle, saved as long as he could, invested in stocks, and grew his wealth through the magic of compounding. When his wealth grew, so did his humility. According to the author, "wealth" is money that is not spent, nice cars that are not purchased, vacations that are not taken—it is invisible. The book cites, "One of the most powerful ways to increase your savings isn't to raise your income. It's to raise your humility."

There is no limit to how much money a person can make. But how do we know when it is enough? We frequently see wealthy people who are always seeking more than what they have and are pursuing more. This might be due to greed, an indescribable feature of human nature that is frequently driven by one's tendency to compare oneself to others who are better than oneself. The ceiling of social comparison is so high that virtually no one will be able to hit it. There will always be bigger fish in the water. Once a goal is achieved, another looms, and you run for it only to realise many more goals are to be achieved. Perhaps the hardest financial skill, as the author describes, is getting the goalposts to stop moving.

The key to finding happiness is to focus on what makes you happy and what you want. Money should simply be the tool to create freedom.

The book suggests that spending less, saving more, investing in stock markets, and living a frugal life just like the wealthy janitor could help solve our issues. However, simply living an austere life can be difficult. Who doesn't want to have more money, give the best of education to your children or travel to exotic destinations if you can afford it? Perhaps there is no harm in spending and being flashy if you have the money, but the problem arises when you spend beyond what you can afford. According to the book, money should be used only as a means to finding your freedom—the freedom to do what you want, when you want, for as long as you want. What does freedom mean to you?

The book is amazing in that it makes us realise that our behaviour towards money counts the most to be financially successful. Anyone who has money but doesn't know how to keep it, who is struggling financially, who wants to understand the basics of the psychology of money or who wants lessons on wealth, greed, and happiness might find this book helpful.

Book Review