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Writer's pictureVISHAL MURALIDHARAN

7 Lessons I Learned from the Book 'The Psychology of Money


Money—it’s that thing we all want in abundance, like the hero's entry in a masala Bollywood film: we dream about it, run after it, and sometimes even think it’ll solve all our problems. But how often do we pause and ask ourselves, Why do we behave the way we do with money? That’s the big question Morgan Housel tackles in his book, The Psychology of Money. Here’s a little summary of what I learned from the book "The psychology of money" some points may even be extra because, well, I took a deep dive into the book and got a few bonus insights along the way! Trust me, this isn't just about number crunching—it's about understanding the quirky ways we all handle cash Lesson 1: It’s Not About Math, It’s About Behavior

Sure, numbers matter in finance (we’re not ignoring that), but here’s the twist—your emotions and habits are the real game-changers. For instance, let’s say you know that investing ₹12,000 every month in a mutual fund with a 12% expected annual return will grow to over ₹1 crore in 20 years. Sounds fantastic, right? You’ve got a plan!

But then—hold up—the latest iPhone hits the market, and all that discipline goes flying out the window. Before you know it, your SIP money is now part of an EMI for a shiny new phone. Oops!

Wealth isn’t just about crunching numbers. It’s about controlling those little impulses and staying the course (even when a new gadget or a tempting sale comes knocking at your door). Easier said than done, right? But you get the point—your financial future isn’t just a result of good math, it’s about having the discipline to stick with your plan!


Tip: Focus on building financial habits, not just making the right decisions at one moment. If you can develop the self-control to stick to your plan, you’ll find the math works itself out. Lesson 2: Stop Comparing Your Chapter 1 to Someone’s Chapter 20


Ever looked at your friend Raj’s brand-new Mercedes and thought, “Ugh, why am I still stuck with my 5-year-old Activa?” It’s easy to feel like you’re behind in the race. But here’s the twist: You don’t know Raj’s backstory.

Maybe Raj took a ₹50 lakh loan for that car and spends sleepless nights juggling EMIs. Meanwhile, your ₹5 lakh fixed deposit is earning you interest and peace of mind, while you enjoy a steaming cup of chai every evening, completely debt-free.


Tip: Comparing your financial journey to someone else’s is like judging a book by its cover—you don’t know what’s hidden inside. Focus on your own story, your own pace. Everyone’s financial path is different, and that’s what makes it unique! Keep your eyes on your own journey, and don’t let the flashy exterior fool you.


Lesson 3: Compounding is the 8th Wonder of the World


Remember when your mom told you to start saving as soon as you got your first paycheck? You probably rolled your eyes and thought, "Yeah, yeah, I'll save later." But guess what? She was a financial guru in disguise! Turns out, the best financial advice is often the simplest—time is your best ally when it comes to growing wealth, and that’s all thanks to compounding.

Here’s how it works: Let’s say Ramesh starts investing ₹5,000 every month at age 25, with an expected annual return of 12%, and continues until he’s 35. By the time he’s 35, he’ll have contributed ₹6,00,000 (₹5,000 per month for 120 months), but the value of his investment at age 60 will grow to ₹1.90 crore due to compounding. (12% assumed return)

Now, Suresh, on the other hand, starts investing ₹5,000 at age 35 and continues until he’s 60. His total contributions will be ₹15,00,000 (₹5,000 per month for 300 months), and the value of his investment at 60 will grow to ₹85 Lakhs. ((12% assumed return)

You’d think Suresh, who invests for 25 years, would end up with more money, right? But no! Ramesh, who invested for just 10 years, will actually have more money by the time they’re both 60.

Why? It’s the magic of compounding. The earlier you start, the more time your money has to grow exponentially, even with smaller contributions. Just like planting a mango tree—you start with a small sapling, but over time, it grows bigger and the fruit gets sweeter.

So, the lesson here is simple: Start early, invest consistently, and let compounding work its magic. It’s the financial strategy that never goes out of style and can turn even small amounts of money into a fortune over time!Tip: Start today. Even small, consistent investments will reap big rewards over time due to compounding. Don’t wait for the perfect moment—start now!


Tip: Start today. Even small, consistent investments will reap big rewards over time due to compounding. Don’t wait for the perfect moment—start now!


Lesson 4: Freedom is the Ultimate Wealth

What’s your idea of being rich? A ₹5 crore salary with 80-hour work weeks or a more peaceful ₹50,000 income that gives you the freedom to unwind with your family every evening? The truth is, true wealth isn’t about how much money you have—it’s about the freedom it brings.

Here’s the thing: You don’t need a ₹100 crore fortune to feel wealthy. In fact, the greatest form of wealth is the freedom to live life on your terms. Sometimes, wealth is simply being debt-free, enjoying a weekend without any stress, or having enough time to relax and enjoy that Sunday afternoon nap.


It’s about choosing peace of mind over constant hustle, and finding joy in the simple moments—whether it’s watching a movie with your family or going on a spontaneous trip. The money you earn should give you the freedom to live a life you love, not just more stress or more things to keep up with. So, next time you’re chasing the big bucks, ask yourself: Is this helping me live the life I truly want?

Tip: Prioritize financial freedom over the pursuit of flashy goals. Ask yourself what true wealth means to you and let that guide your decisions.


Lesson 5: No One Knows the Future


If someone claims they can predict the stock market with 100% accuracy, just smile and walk away. The truth is, even the so-called experts can’t see the future. The market is unpredictable, and what seems like a golden opportunity today could turn into a disaster tomorrow.

Rather than trying to time the market or follow every hot tip, it’s smarter to focus on building resilience. Think of it like laying a strong foundation for your house—when the winds of uncertainty blow, your plan should keep you safe and secure.

To do this, ensure you have an emergency fund for the unexpected, diversify your investments to reduce risk, and resist the temptation to chase after “get rich quick” schemes. It’s not about predicting every twist and turn of the market, but being prepared for the inevitable ups and downs. This approach is the key to long-term financial stability. Tip: Don’t try to predict the market—focus on building a strong, diversified portfolio and financial resilience. Preparation is more important than prediction.


Lesson 6: Being Rich vs. Being Wealthy Let’s make the difference between being rich and being wealthy clear with a simple comparison:


  • Rich: You’ve got a ₹50 lakh car parked in your driveway, but you’re constantly checking your bank balance before deciding whether to splurge on that ₹5,000 dinner with friends. You may look wealthy on the outside, but you're constantly worried about the next expense.

  • Wealthy: You don’t have the flashy car, but you’ve got ₹50 lakh in your fixed deposit or hybrid mutual funds, growing steadily. You’re able to enjoy life without hesitation—going out for a nice dinner or taking a short vacation, all while your wealth continues to grow quietly in the background.

Being rich is about showing off what you own what you own, while being wealthy is about having the freedom to live life without the constant pressure of financial uncertainty. It’s not about material things—it’s about the long-term security and peace of mind that comes from having your finances in order.


Tip: True wealth isn’t about flaunting assets—it’s about building financial security that allows you to enjoy life without worry.


Lesson 7: Happiness is the Real ROI

At the end of the day, money is just a tool. It’s not the end goal. Its purpose is to bring you happiness. If that ₹200 chenna samosa with your kids makes you smile more than a ₹4,000 meal at a fancy restaurant, then guess what? That’s money well spent!

Don’t get sucked into the rat race of “more and more.” Sometimes, enough is enough—and it’s the perfect amount for a happy life. Tip: Focus on what truly brings you joy. Don’t let the pursuit of wealth overshadow your happiness—find contentment in simple pleasures.


Wisdom Meets Modern Finance


  • Simplicity: “Live below your means” – a principle our grandparents practiced, and guess what? It still holds true today! In a world full of flashy ads and instant gratification, the simple act of controlling your spending can be the key to long-term wealth. Focus on saving, investing wisely, and avoiding unnecessary splurges. Financial freedom isn’t about having everything you want right now, but about building a secure future.


  • Generosity: Money isn’t just for you—it’s for your family, your community, and yes, even that sweet shop uncle who always adds an extra laddu with your order! Generosity not only spreads good vibes, but it also enriches your life in ways that a bigger bank balance never will. Giving back helps you stay grounded and reminds you that wealth is about more than just numbers—it's about relationships and the positive impact you can make.



Final Thoughts

The Psychology of Money isn’t about becoming a crorepati overnight. It’s about understanding yourself, your spending habits, and your relationship with money. After all, financial success isn’t just about making the right investments—it’s about making the right decisions for you.

So, whether you’re saving for that dream home in Chennai or planning a trek to the Himalayas, remember: Money is a tool to craft a life you love. Use it wisely, and enjoy the ride! Key Take aways 

  • Focus on improving financial behavior, not just math.

  • Stop comparing your journey to others—focus on your own progress.

  • Compounding is a superpower—start investing early and consistently.

  • Prioritize freedom over material wealth—build passive income and pay off debt.

  • Accept that no one can predict the future—diversify and build an emergency fund.

  • Invest in wealth-building assets, not status symbols.

  • Find happiness in simplicity and appreciate what you have.

  • Simplify your financial plan and automate where possible.

  • Stay educated and seek professional advice when needed.

  • Stick to your long-term goals and stay patient.





Regards

Vishal Muralidharan.,CFP®

Mutual Fund Research Analyst

GSM Investment Services ARN 174939



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