The Psychology of Money Book Review

The Psychology of Money Book Review

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Buy this book. That is all I need to say about this book, but I think you are here for a little more.

The Psychology of Money is by far the best money books I have read in the last 20+ years, and I read many books about money. 

Morgan Housel’s book, along with Mind Over Money, really helped to highlight how much of what we do with our money is not rational. But unlike Mind Over Money, which focuses on how our money script dictates our actions, the Psychology of Money focuses on how our actions can still be reasonable even if they are not rational. As someone who advocates for kids and young adults to build healthy money habits, I can’t think of a better resource.

Rational vs. Reasonable


The Psychology of Money highlights that we often know what we are supposed to do with our money yet don’t always do it. The book starts by highlighting how short a time we have had as a species to master money management skills. Housel notes that 401ks are a reasonably new invention. And being a new invention, it should not be surprising that we are still figuring out how best to utilize it. He continues by showing that the goal when managing your money is not to be perfect but to set yourself up for success, even when you are bound to make financial missteps along the way.

What I enjoyed the most in this book was the views on Wealth and “Enough.” 

I have used his quote on wealth in talk after talk because it is so perfect.

Wealth is hidden. It’s income not spent. Wealth is an option not yet taken to buy something later. Its value lies in offering you choices, flexibility, and growth to one day purchase more stuff than you could right now.

A man holding cash

Morgan Housel – The Psychology of Money


The Psychology of Money’s views on “enough” is equally helpful. Housel articulates the concept I’ve heard described as lifestyle creep. Lifestyle creep describes how we increase our purchases and lifestyle to use up the “extra” money we bring in when we earn more. If we can live on less than we make and use the extra earnings to reach financial independence, we will be in a much better position. Housel uses the analogy of moving the goalpost. You set out to achieve and have something, but once you have it, you want more. “If only I could earn $100,000,” but when you accomplish that goal, you feel like you need to earn $200,000 to be happy, and on and on.

Housel also described how buying more often makes us feel like we now need to buy more things to support what we just bought. Take a house as an example. The home is purchased, great. Now you need to furnish it. Then you need to buy products and services to maintain it, and the expenses grow and grow. But the same could be said for something small like a hat that now requires a new outfit to match the hat’s style, and now you need some accessories and a place to go to show off your unique style. And on and on. 

Thoughts on The Psychology of Money


Having read several books on personal finance, I must say this book’s approach was refreshing. Housel’s behavior economist view of money was able to make clever and actionable observations on how most people manage their finances. Many of us hear what we should do, yet we don’t do it. Why? If we are rational beings, we should do what is most logical. But we are not Data or Spock from Star Trek. We are people. We don’t do what is rational. I mentioned that exact fact in my review of The Color of Money.  

Housel helps us take what is reasonable and put that into systems that will work for us in the long run vs. trying to do what is rational since we know the latter is not sustainable. It is a realistic view of human behavior with practical applications.

The Psychology of Money Book Cover

The Psychology of Money Book Review: Conclusion


As someone who often talks about giving yourself grace and letting go of shame and anxiety when it comes to money, this book shows how you do not need to do everything right all the time. You just have to do the right thing most of the time to make a difference.

The Psychology of Money’s postscript could have been a standalone 10-page eBook, and I think the book would have still been worth every penny.  

I could go on and on about how Housel packs so many insightful views into this book, from risk-taking to our thoughts on being wealthy vs. showing people we have wealth to being reasonable vs. rational. But I would do no justice to his views or his writing. So, as I said, just buy this book.