I remember this book being short and sweet, and easily understandable. It was a good reminder of the basic principles, and I enjoyed the storytelling. While I already knew many of these ideas, rereading them nicely structured into a book was nice. 5/5 ⭐.
Here is a quick summary of the ideas that piqued my interest:
1. Being disciplined is more important than being smart.
The premise of this book is that doing well with money has a little to do with how smart you are and a lot to do with how you behave. And behavior is hard to teach, even to really smart people.
2. The hardest financial skill is getting the goalpost to stop moving. You must know when to switch strategy from building wealth to preserving it.
Getting money and keeping money are two different skills. Getting money requires taking risks, being optimistic, and putting yourself out there.
But keeping money requires the opposite of taking risk. It requires humility, and fear that what you’ve made can be taken away from you just as fast. It requires frugality and an acceptance that at least some of what you’ve made is attributable to luck, so past success can’t be relied upon to repeat indefinitely.
3. Being Rich is not the same as being Wealthy.
Rich is a current income. Someone driving a $100,000 car is almost certainly rich, because even if they purchased the car with debt you need a certain level of income to afford the monthly payment.
But 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 options, flexibility, and growth to one day purchase more stuff than you could right now.
4. Saving money is the gap between your ego and income.
One of the most powerful ways to increase your savings isn’t to raise your income. It’s to raise your humility.
5. Know your own timeline. If possible, increase it.
Few things matter more with money than understanding your own time horizon and not being persuaded by the actions and behaviors of people playing different games than you are.
If you want to do better as an investor, the single most powerful thing you can do is increase your time horizon. Time is the most powerful force in investing.
6. Build an emergency fund – See The Importance of Cash.
Charlie Munger says the first rule of compounding is to never interrupt it unnecessarily.
If cash prevents you from having to sell your stocks during a bear market, the actual return you earned on that cash is not 1% a year — it could be many multiples of that, because preventing one desperate, ill-timed stock sale can do more for your lifetime returns than picking dozens of big-time winners.
7. Luck and risk are both real and hard to identify. Don’t get fooled by your results.
Go out of your way to find humility when things are going right and forgiveness/compassion when they go wrong. Because it’s never as good or as bad as it looks.
Bill Gates once said, “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.”
Failure can be a lousy teacher, because it seduces smart people into thinking their decisions were terrible when sometimes they just reflect the unforgiving realities of risk.
8. Progress happens too slowly to notice, but setbacks happen too quickly to ignore. Be paranoid of ruinous risk. Don’t wipe out.
Growth is driven by compounding, which always takes time. Destruction is driven by single points of failure, which can happen in seconds, and loss of confidence, which can happen in an instant.
The trick when dealing with failure is arranging your financial life in a way that a bad investment here and a missed financial goal there won’t wipe you out so you can keep playing until the odds fall in your favor.
9. If you wipe out, you erase all opportunities to get back in the game again.
A homeowner wiped out in 2009 had no chance of taking advantage of cheap mortgage rates in 2010.
More than big returns, I want to be financially unbreakable. And if I’m unbreakable I actually think I’ll get the biggest returns, because I’ll be able to stick around long enough for compounding to work wonders.
10. Become OK with a lot of things going wrong.
You can be wrong half the time and still make a fortune, because a small minority of things account for the majority of outcomes.
11. Avoid extreme ends of financial planning. Be moderate.
Aiming, at every point in your working life, to have moderate annual savings, moderate free time, no more than a moderate commute, and at least moderate time with your family, increases the odds of being able to stick with a plan and avoid regret than if any one of those things fall to the extreme sides of the spectrum.
12. Financial planning doesn’t have to be stressful. It’s up to you whether you want to maximize profit or have a balance of profit and mental peace.
Manage your money in a way that helps you sleep at night. That’s different from saying you should aim to earn the highest returns or save a specific percentage of your income.
Do not aim to be coldly rational when making financial decisions. Aim to just be pretty reasonable. Reasonable is more realistic and you have a better chance of sticking with it for the long run, which is what matters most when managing money.