EMAIL #174 - 19th JUNE 2022 - "THE PSYCHOLOGY OF MONEY"

Hi Team,

Last week I revisited the topic of Financial Intelligence, and in today's email I'm going explore why this subject is so important and how it can change your life? 

A big part of financial intelligence is your attitude to money and how you relate to saving money and wealth in general. 
(i.e., how you view money and the role it plays in your daily life). Your attitude to money comes from numerous sources, such as your parents + upbringing, your education, your profession, your culture/nationality, and your personality. Your relationship with money is dynamic, and complicated and is part of who you are, just like your relationship with food and exercise.

"Money is a result of how you spend your time and energy." Tim Denning

One of the key ingredients to successfully running any business is having good financial intelligence and a real interest in finance and managing money. I am lucky that I have always been interested in finance and economics and over the last decade I have developed a passion for understanding how investing and wealth creation actually works.

The best book I have come across about this topic is, "The Psychology Of Money" by Morgan Housel, (anyone that want's a healthy relationship with money should read this book.). My beliefs and philosophy about money are completely in line with the contents of Housel's book and this Week's Email was largely inspired by his teachings.

I'm going to start with one of my favourite quotes about money (I've used this before, but I think it's worth repeating).

"The best way to double your money is to fold it once and put it back in your pocket." Jim Dodds

Housel believes that most people have the wrong attitude to money because they don't understand the difference between being rich and being wealthy and that this is the key to good financial intelligence. 

Being rich is spending money on stuff to make you look rich and is all about image and ego. Being rich is therefore making it all about yourself and playing the short game. People who portray themselves as being rich tend to buy things that decrease in value over time, and don't tend to have a solid long-term plan for financial growth.

Being wealthy is a whole different philosophy. To be wealthy you must play the long game and be in control or your resources/assets.

To become wealthy you must decline enticing options today, so you can create better options in the future. "Wealth is the money you do not spend". Wealthy people tend to have lots or options and have full control of their time.

"Money can't buy you happiness, but it can buy you choices and freedom." Unknown

Becoming wealthy only comes from buying/investing in stable assets that go up in value and by achieving financial stability.
Warren Buffet, the world's most successful investor, famously said "The biggest problem with investing is, no one is prepared to get rich slowly". In other words, everyone wants to get rich quickly, but becoming wealthy only happens over several decades. True wealth comes from long term compound growth (see email # 21, + link below).

                         https://buildertrend.net/Messages/Messages.aspx?folderID=6032&messageID=17779446

The key takeaway here is that Buffet only became really wealthy after investing for 30+ years. Compound growth is all about time. Here is a fascinating mathematical example of compound growth, (I have run the numbers and as hard as it is to believe, the maths is correct!)

If you start with 1 cent and double it each day for one month (31 days), how much money would you have?
The answer is $10+ million...

($5 by day 10, $5248 by day 20, and $10.7m by day 31, so you would be pretty bummed if you sold out on day 20!)

Understanding your attitudes and beliefs about money and where they came from is super important, especially if you have children and you want them to grow up with good financial intelligence. Next week I will explore where our beliefs about money come from and how we can work to expand and improve these financial attitudes and values.

Thanks for reading,
Stay safe and play the long game.
David

 

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