Why ‘Psychology Of Money’ Should Be On Every Woman’s Must-Read List!

So here is a summary of my key learnings from the book:

• ‘Saving money is the gap between your ego and your income’: So apparently your grandma was right –a penny saved is a penny earned. There can be no investment without saving, that’s simple logic, right? But we all somehow believe that whatever amount we save, our investments will compound at an exceptional rate (at least, we hope) and we will live rich ever after. In reality, it rarely happens. Building wealth is a continuous effort, where you need to live within your means and not increase your standard of living every time your pay cheque increases (or have a moving goalpost, as the author says). Spending more is so tempting – we all want better houses, better cars, better clothes and fancier holidays. Being a generation fuelled by social media likes doesn’t help. We always want to ‘appear’ like we are having the time of our lives. Hardly ever possible though. So don’t fall into the rat race trap. That is how you will actually achieve the dream life you have been hoping for. The author says ‘Saving money is the gap between your ego and your income, and wealth is what you don’t see.’
• Make an Emergency Fund: This is for those contingencies which you cannot foresee coz life happens when you least expect it to. One day you could be out holidaying in USA, and the next, you might be admitted in hospital with Covid 19. You might be thriving in your new start-up when it suddenly goes belly-up due to the new government regulation. Suddenly, you need cash funds which you never accounted for. Keep some liquidity for times like these. If there is one thing pandemic has taught us, it is that life is unexpected. Be prepared for it, so that you don’t need to disinvest the investments which you have made for your long-term goals.
• Invest Long Term: Trying to keep up with day trading is a tedious job. So, unless you are a stock broker, don’t even try. Invest in the companies which you really believe in. These are the organizations which have strong fundamentals and which you see growing in long term. And long term here does not mean 3 years or 5 years. We are talking 30 to 40 years here. Sure, there would still be times where the stock could take a hit, but your blood pressure needn’t go up and down with the index! These are the times when you keep your fear and doubt in check and ride the wave. The market will bounce back, and that index fund which you really believed in will give you returns. You just need to keep the faith. The author states in Psychology Of Money, ‘As I write this, Warren Buffet’s net worth is $84.5 billion. Of that, $84.2 billion was accumulated after his 50th birthday. $81.5 billion came after he qualified for Social Security, in his mid-60s.’ That is a staggering statistic. Compounding is one powerful tool which can fulfil all your financial goals.

The most important thing wealth grants is the freedom

Even when you do everything right, there is this little thing called Lady Luck. There could, and always would be things which are out of your control. Yet, you need to be able to take reasonable risks to get some returns. ‘Save like a pessimist, invest like an optimist,’ says the author.