The Biggest Secret of Staying Rich (It's Not What You Think) đ€đ°
This headline hints at a key takeaway from the book - that staying wealthy is about more than just earning high returns. It emphasizes the importance of frugality and a long-term perspective.
"Itâs not how much money you make, itâs how much money you keep.â - Robert Kiyosaki, Rich Dad, Poor Dad
"The most powerful tool for building enough is remarkably simple, and doesnât require taking risks that could damage any of these things." - Morgan Housel, The Psychology of Money
Have you ever wondered why those who win the lottery often end up broke a few years later? Or why those who get big raises at work donât seem to have more money in the bank?
Itâs not that theyâre bad people. Itâs not that they donât work hard. Itâs that theyâre not masters of money. Theyâre slaves to it.
You see, getting rich isnât the same as staying rich. Itâs easier to make a million than to keep a million, and the problem is that we overemphasize the âmakingâ while neglecting the âkeeping.â
The biggest secret to building real, long-term wealth lies in a mindset of survival. Itâs about understanding that financial success doesnât come from chasing risky, big-return bets, but rather by building a foundation of frugality and patience.
1. Forget About Big Returns: Focus on Being Financially Unbreakable đȘ
"When forced to choose, I will not trade even a nightâs sleep for the chance of extra profits." - Warren Buffett, The Psychology of Money
âThe hardest financial skill is getting the goalpost to stop moving." - Morgan Housel, The Psychology of Money
Most people focus on finding the next big investment or chasing the latest hot stock. They think thatâs the key to getting rich. But theyâre missing the point.
Think about it this way: Would you rather be able to comfortably handle a 30% drop in your investments or get that one, once-in-a-lifetime 1,000% return that gets taken away from you just as quickly?
The most powerful financial skill is knowing when to stop, and what to do with your money after youâve gotten enough.
If youâve got a healthy financial base, and can comfortably survive a downturn, youâll actually have the best chance of earning big returns over time, because youâll be able to stick with your investments long enough for compounding to work its magic.
A higher savings rate means that you are in control. The less you spend, the more you can save. You can buy a luxury car, or a big house, or a fancy watch. But youâre probably better off not buying themâat least not until youâre financially secure, because wealth is what you donât see.
"There is no faster way to feel rich than to spend lots of money on really nice things. But the way to be rich is to spend money you have, and to not spend money you donât have. Itâs really that simple." - Bill Mann, The Psychology of Money
2. Don't Be a Historian: Focus on Today and Tomorrow
âHistory never repeats itself; man always does.â - Voltaire
"Things that have never happened before happen all the time." - Scott Sagan, The Psychology of Money
Itâs tempting to think that we can predict the future based on the past. We can look at all the recessions, bubbles, and crashes of the last century. And we can confidently say, âThe market is going to fall. It always does.â Or âThis is going to be the biggest bubble since the dot-com craze.â But the world is not a spreadsheet. Itâs a living, breathing organism thatâs constantly changingâand that makes predictions both difficult and dangerous.
We can learn a lot from history, especially about human nature and how we respond to risk. But we shouldnât treat historians as prophets. The future will almost certainly not perfectly resemble the past. Itâs impossible to predict the next big economic shock or the next groundbreaking inventionâbecause they will be completely different from the ones weâve already experienced.
The best way to deal with that kind of uncertainty? Build a financial plan with room for error.
3. Beware of Appealing Fictions đ
"When you have no money, and your son is sick, youâll believe anything." - Ali Hajaji, The Psychology of Money
The problem is that itâs easy to let our desiresâespecially those that sound goodâdictate what we believe. When you want to believe something is true, it becomes easier to accept any evidence that will support your belief without scrutinizing it. This is true in every area of life, but itâs especially important to be aware of this bias in finance.
Think about all the âexpertsâ who predicted in 1999 that the internet would continue to boom and that dot-com stocks would keep rising forever. Then there were the experts who predicted in 2007 that housing prices would continue to soar. And in 2019 a Wall Street Journal article reported the theories of a Russian professor who predicted the United States would break apart into six different countries by the middle of 2010. That wasnât the rant of some rogue blogger. It was on the front page of the most respected financial newspaper in the world.
Appealing fictions are stories we tell ourselves that we desperately want to be true, but often have little to no backing in reality.
The problem with these fictions is that they make us willing to believe what we want to believe. And that can lead to serious financial mistakes. When you want to believe a certain outcome is inevitable, you will overlook information that would warn you otherwise. The more you want to be right, the less likely you are to think critically.
4. Be Reasonable, Not Rational đ§
"I visualized my grief if the stock market went way up and I wasnât in itâor if it went way down and I was completely in it. My intention was to minimize my future regret." - Harry Markowitz, The Psychology of Money
Finance is often taught as a coldly rational field: you plug data into formulas and get a precise answer. But thatâs not how people make real-world decisions. People are emotional, and their feelings about money play a huge role in their decisions. What seems irrational to one personâsay, owning a house without a mortgage when interest rates are lowâcan feel completely reasonable to another.
Youâre not a spreadsheet. Youâre a person. And you have to make decisions that will make you feel comfortable, confident, and empowered.
That means being reasonable about your choices, and not trying to be perfectly rational. If you want to be happy with your money, you have to make decisions that will help you sleep well at night, not just those that will make your balance sheet look impressive on paper.
You want to make decisions that will maximize for both your long-term goals and your current well-being. Youâre not a robotic creature. Youâre a human who feels things, so making decisions that feel right is as important as the technical, analytical side of money.
5. You'll Change (and So Will the World) đ
âAt every stage of our lives we make decisions that will profoundly influence the lives of the people weâre going to become, and then when we become those people, weâre not always thrilled with the decisions we made.â - Daniel Gilbert, The Psychology of Money
One of the most important truths that you learn about money as you get older is that things changeâboth your goals and the world around you. The same person who wants a fancy car when theyâre in their 20s, might prefer to have a reliable car and a stable home with a family when they reach their 30s. Youâll never get it perfect. So you canât plan for a perfect future, because you donât even know what that future will look like. If youâve made a mistake, the best way to handle it is to acknowledge it and change course as quickly as possible.
"I have no sunk costs." - Daniel Kahneman
Donât be afraid to abandon a bad financial decision and start anew. Thatâs what makes compounding so powerful: You can always start fresh. Even if youâve already invested years and a lot of money, donât be afraid to admit a mistake and change course. Itâs better to lose a little than to lose a lot. And, as weâve said before, no oneâs death certificate has an âinvestor of the yearâ award inscribed on it.
So thatâs the biggest secret to staying rich: frugality and patienceâthe ability to keep your financial goals in mind while remembering that youâll never have all the information you need and that making mistakes is an inevitable part of the process.
The book youâre holding tells you what to do with your money. It canât tell you what to do with your life. But as those who have made it in finance knowâand the rest of us are slowly beginning to realiseâhaving money only matters to the extent that it allows you to do what you want, when you want, and with whom you want. Thatâs the true wealth, and itâs not a game you can win in a single day. Itâs a life you build over time.
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