The Psychology of Wealth: What Morgan Housel Teaches Us About Real Financial Freedom
Explore the life story of Morgan Housel—from growing up in a Tennessee hippie commune and surviving a ski disaster to becoming a world-renowned finance author.
Have you ever looked at your bank account on the last day of the month and wondered where all your money disappeared? You are not alone. Many people mistakenly believe they need a six-figure income and/or a genius-level IQ to be financially independent. In truth, understanding the psychology of money, investing, and saving is surprisingly simple. The author of the bestselling book The Psychology of Money has walked the walk and talks the talk when it comes to being financially literate. Let us review the highlights of Morgan Housel’s biography, the life lessons he learned along the way, and what you can learn from him.
- Behavior Wins: Emotionally intelligent decisions typically trump purely financial ones.
- Invisible Wealth: True wealth is visible wealth. What you own is what you have available for investing, spending, or passing on to the next generation.
- Patience Pays: Compounding only works if you are willing to be patient and give your investments enough time to grow.
- Safety First: Having a cash cushion can help you weather a financial storm and avoid selling an investment at the wrong time.
1. Grew Up in a Hippie Commune
Morgan Housel’s life path begins in a rather unorthodox setting — an off-grid hippie commune. In the 1970s, his parents were part of an infamous Tennessee-based cult called “The Farm”. In such communes, it was illegal to have personal bank accounts because all the members had to live in poverty. They would share everything, including food and sex. So, how did the young Housel learn to be a financially literate and emotionally intelligent adult?
Hippie Commune ➔ Deep Poverty ➔ Pre-Med Pivot ➔ Extreme Frugality
Morgan’s father was 30 when he had him, which was old for a child in the 1970s without the benefit of a modern healthcare system. As such, making enough money was a constant concern. To provide for his family, Morgan’s father went back to school to become an Emergency Room (ER) doctor. He did it all by the age of 43. Meanwhile, Morgan’s mother became an ER nurse. Even once they managed to provide for the children, his parents lived frugally. So, Housel learned valuable lessons from observing his parents’ financial behaviors. The most important one was that being financially literate and emotionally intelligent requires a degree of self-discipline, which is a choice, not a function of income.
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2. Skied Into a Life-Changing Accident
Morgan Housel grew up in Lake Tahoe, California, where he trained to become a professional ski-racer. Since he was a homeschooled and had plenty of free time, he decided to pursue his passion for extreme sports. However, a tragic accident changed his plans and influenced his financial philosophy. Let us examine the events that led to the creation of Morgan’s highly influential financial literacy book.
Rule Breaking ➔ Lucky First Run ➔ Avalanche Tragedy ➔ Understanding Risk & Luck
Housel had two best friends – Brendan and Bryan. The three of them would often go skiing together. One day, his friends decided to go into a closed part of the mountain, despite the warning signs. Tragically, a huge avalanche came down and killed Brendan and Bryan. Although Housel was not with them when the accident happened, he injured his back badly in a separate skiing incident shortly after. Hence, his professional sports career was over at 17. The main lessons he took from this include:
- Luck and Risk Are Often Entangled: Sometimes, you will take the same risks and still not reach your goals because of factors outside your control.
- Know When You Have Enough: The fear of missing out (FOMO) can be a significant risk factor. Whether you are gambling or investing, knowing when to stop is vital.
3. Rose to Become a World-Renowned Financial Expert
Since his sports career was over, Housel enrolled at the University of Southern California (USC) to study economics. He learned the joy of watching hard work pay off firsthand by watching his bank account grow. He began his finance career at Motley Fool, where he wrote engaging articles about the markets without getting sidetracked by financial jargon. Eventually, he became a Wall Street Journal columnist, where he cemented his philosophy about the behavioral side of finance. The Psychology of Money is his most influential work with over 8 million copies sold.
4. The Most Influential Financial Literacy Principles
You can implement several of Morgan Housel’s financial principles in your life today:
A. Wealth Inevitably Depends On Invisible Wealth
People tend to think that wealthy people have expensive toys, such as exotic cars and private jets. However, any rich person will tell you that their invisible wealth (i.e., money in the bank) buys them freedom and options. For example, they can afford not to work, which most poor and middle-class workers cannot. As such, investing in invisible wealth is the surest way to become wealthy.
B. A Famous Example Demonstrates the Outcomes of Wealth Accumulation
Nirosh and Kasun are both 30, and they have been close friends since college. Nirosh earns $10,000 every month. He leases a luxury car, buys expensive clothes, and spends $9,800 a month, while Kasun makes $3,500 every month. He drives a reliable used car, lives simply, and invests $800. Nirosh spends all of his income on his family, his car, rent, and other monthly expenses. Meanwhile, Kasun invests the entirety of his income in an index fund. What will happen if they keep doing this for the next decade?
Nirosh will likely continue to be his parents’ “anchor,” i.e., the son who supports his aging parents. By contrast, Kasun will likely be able to retire early and enjoy the money he invested in the index funds. It does not matter if Kasun’s investments underperform the market; the mere fact of having an emergency fund provides him with a safety net.
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5. Morgan Housel Talks About Personal Investing
Morgan Housel has a rather simple investment strategy, which he bases on his financial literacy philosophy. Below are the key takeaways regarding Housel’s personal finances:
| Category | Morgan’s Personal Strategy | The Lesson for You |
|---|---|---|
| Index Funds | The majority of Morgan’s stocks are in broad index funds (e.g., VTI) | Diversification is typically more profitable than attempting to beat the market. |
| Home Debt | Morgan is mortgage-free and has no home equity loans. | Having a cash cushion is frequently more important than maximizing your contributions to retirement accounts. |
| Cash Buffer | Morgan has plenty of cash on hand. | When the market becomes volatile, cash reserves protect investors from selling securities at a loss. |
Frequently Asked Questions (FAQ)
What is Morgan Housel’s most successful book to date?
The Psychology of Money is his bestseller, while Same As Ever is his most interesting book about human nature and behavioral finance.
What is the central message behind The Psychology of Money?
What you do with your money matters more than what you earn. Discipline beats volatility, so it is essential to protect your assets and invest with patience.
What is Morgan Housel’s current occupation?
In addition to being a renowned author, Morgan is also a Partner at Collaborative Fund, a venture capital firm. He also gives motivational talks and lectures in universities.
Morgan Housel life story is highly instructive since it shows that your financial future depends not on your past but on your choices. Following Morgan’s financial principles can make you rich. However, you do not need to become an expert in economics and mathematics to implement them in your life. All you need to do is to start today by making better choices than yesterday.
Stay happy and wealthy,
Finlly Joy
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Disclaimer: The information provided in this article is for educational and informational purposes only and should not be construed as professional financial, investment, or legal advice. Financial situations and credit scoring algorithms vary by individual and location. Always consult with a certified financial advisor or credit professional before making any major financial decisions.
