The Ultimate Guide to Understanding the Psychology of Money by Morgan Housel

, partner at Collaborative Fund and former writer for Wall Street Journal and Motley Fool is one of the finest personal finance books I've read. His clear insights provide wisdom without excessive jargon.

How We Think About Money

Attracting wealth requires less brainpower and more behavior modification - that's the premise behind Morgan Housel's 20 easily digestible chapters filled with stories and anecdotes to teach personal finance and investing lessons.

Housel is a partner at venture capital firm Collaborative Fund and an expert on human behavior as it relates to financial decisions. He notes how your upbringing plays a part in shaping how you relate to money; how your worldview and experiences may play into how people approach financial matters differently due to feelings, biases or fear might also play into this.

Understanding your beliefs regarding saving, investing and spending could help you change them if they're unhealthy. Your upbringing may have instilled you with frugal habits but also scarcity thinking or fear of taking financial risks. Redefining your money mindset by accepting volatility as part of everyday life could also change it positively.

The Psychology of Optimism

Morgan Housel offers an intriguing perspective in the personal finance book genre. He asserts that doing well with money has less to do with intelligence or math skills than it does with psychological choices we make when managing and investing our finances and investments.

Optimism is a vital mental health trait that can bring numerous advantages, including increased life satisfaction, better physical and mental health outcomes, enhanced coping abilities, risk assessment capabilities and increased perseverance and persistence in facing challenges.

Optimism is a learned behavior, one which can be promoted through cultivating gratitude and appreciating what's good in one's situation. Even those who are naturally optimistic can be taught to develop an internal locus of control (LOC), giving them confidence that they have influence over events and outcomes in their life; this helps counteract external LOC effects like feelings of hopelessness or helplessness.

The Psychology of Pessimism

Pessimism refers to an overall negative outlook. Pessimists typically feel helpless over events in their lives and see themselves as passive agents whose success depends on luck or affiliation with powerful people or institutions. Furthermore, these people believe it unlikely their actions will have any beneficial effects - this belief known as external locus of control.

Studies have demonstrated that pessimistic beliefs can contribute to depression, anxiety, poor sleep, hostility, high blood pressure, heart disease and other serious health conditions. Conversely, optimism has been linked with improved health and happiness.

Pessimism can result from many different sources, including genetics, family upbringing and negative role modeling. It may also be precipitated by challenging life events like job loss, divorce or illness that trigger pessimists' negative outlook and cognitive distortions such as always thinking the glass is half empty.

The Psychology of Time

Housel's unconventional wisdom stands out in a sea of personal finance books. He emphasizes how success in dealing with money has little to do with intelligence or IQ; rather, the best financial habits often stem from life experiences - for instance if you were raised during periods of high unemployment and stock prices that collapsed, your beliefs around money might differ significantly than someone who experienced plenty.

Time, our subjective representation of duration, can have a dramatic impact on financial decisions. Studies show that people who tend to make hasty decisions tend to prioritize immediate gains over delayed ones due to experiencing time as subjectively shorter than others. Furthermore, those more preoccupied with past events tend to overestimate its duration while those more interested in the future tend to underestimate it, creating an inaccurate portrayal of how much time is left to invest towards reaching financial goals.

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