Today, we're talking about 12 lessons about money that I learned from this fantastic book by Morgan Housel called The Psychology of Money.

And that's what we're talking about in this episode of Book Club, the ongoing series where we distill and discuss highlights from some of my favourite books.

And we're gonna do this in four parts.

We're gonna talk about lessons about our attitudes towards money, lessons about getting money, lessons about spending money, and then lessons about protecting our money once we've gotten it.

Part one, three lessons about our attitudes towards money.

So the first lesson I got from the book was that everyone has different attitudes towards money.

And because the way that those attitudes affect the way that they earn and spend their money, we shouldn't be too quick to judge people based on what they do with their own money.

So let's think about people's behaviour when it comes to investing in stocks, for example.

If you were born in the 1970s, the S&P 500, which is the index fund that tracks the top 500 biggest companies in the US, that increased by 10 times its starting amount between age 13 and age 30 for you.

But if you were born just 20 years earlier, the market basically went nowhere.

So these two groups of people are gonna go through life with radically different ideas of how the stock market works.

And obviously these views are gonna affect how they behave.

Like people born in the 1970s are much more likely to invest in stocks than people born in the 1950s for whom they think the stock market doesn't really do anything.

And so for example, for someone like me, it can seem a bit weird.

Like why don't more people just invest in the S&P 500?

It just keeps on going up.

Why don't more people invest in crypto?

But what I realised after reading the book is that to be honest, I need to not be a dick about it because people have different attitudes to money depending on their own circumstances.

Lesson number two is don't underestimate the importance of luck when it comes to making money.

Because basically any outcome that we're going for, whether it's making money or anything else in life is some combination of luck and skill and unfair advantages.

If we take Bill Gates, for example, now he's obviously super talented, but he was also pretty lucky to get to go to one of the very few high schools in the US that actually owned a computer.

And that's what helped him start messing around with coding and start working on the company that ultimately became Microsoft.

And so Morgan's point in the book is that we shouldn't focus too much on the individuals.

We shouldn't look too closely at what did Elon Musk do to get rich?

What did Bill Gates do to get rich?

We should instead look at the broader patterns that try and account for this fact that different people got lucky at different times.

Lesson number three from the book is that we should learn to say this is enough.

Now it's natural for us as humans to keep on moving our goalposts.

Once we achieve our goals, whether it's financial goals or career goals or hot board goals or pretty girl goals, we always look forward to the next goal.

And generally the cycle doesn't end because we keep on comparing ourselves to the people who are above us in this invisible ladder.

Now this lesson really resonated with me because I've been chasing this entrepreneurship thing since like the age of 13, trying to make money on the internet and started off making basically zero money.

And then slowly, slowly, slowly over time, my income has basically compounded to the point where I am way beyond the point that any reasonable person would say that this is enough.

But what I've been finding is that the comparator group keeps on changing.

It's like when my YouTube channel was just starting out and it was making a small amount of money here and there, it was like, oh, that's cool.

You know, it'd be cool to make maybe a hundred pounds here and there.

Then it started making a hundred pounds here and there.

I was like, oh, that's cool.

But look at those channels that maybe have millions of subscribers.

Like I wonder how much money they're making.

And what I like that Morgan reminds us of is that we actually do need to recognise when enough is enough and not be continuously trying to pursue growth just for its own sake.

And in the book, he gives a bunch of examples of really rich people doing very dodgy and shady things to chase even more money.

Like Bernie Madoff, for example, who was already ridiculously rich, but then built this pyramid scheme to try and become even more ridiculously rich and ended up in prison as a result of it.

And what Morgan says is that it's really about asking the question of when is enough enough?

Do I really need this extra thing?

And there's a nice quote where he says, there is no reason to risk what you have and need for what you don't have and don't need.

And this lesson actually applied in my life fairly recently.

So my housemate, Sheen, if you might remember from previous videos, moved to Dubai.

And I was strongly thinking, why don't I move to Dubai?

And I spoke to my accountant and he was talking about the low tax rates and all that kind of stuff.

And I was thinking, ooh, I could wind down the company in the UK, move to Dubai, like not live in the UK for three years to become tax resident outside of the UK, become tax resident in Dubai where I don't pay any corporation tax or VAT or income tax and all this stuff.

And then I'd be making twice as much money because I have to pay half as much tax.

And I had all these thoughts going in my head.

And it was around that time that I read the psychology of money and started figuring out what are my values in life and stuff.

And I realised that that is just like stupid thinking.

I did not need that extra money.

I quite like being in the UK.

I like the fact that my friends and family are here.

And I'd be sacrificing a large amount of stability here in the UK for the sake of just chasing a little bit more money, but effectively tax avoidance in Dubai.

And so ultimately I decided against it.

Thank you, Morgan, for the tip on that front.

Part two, lessons about getting money.

All right, so this is obviously not a video on how to make money from scratch.

You can check out my video on nine passive income ideas if you want more information about that.

But Morgan does have some very solid chapters about how we actually get rich.

So lesson four is to appreciate the magic of compounding.

So let's say I put $1,000 into the S&P 500 index fund and I get a decent return of about 10% per year.

That'll give me $1,100 by the start of year two, which means I'm then earning 10% on the 1100 so that at the start of year three, I'll have $1,210.

And as this compounds over time, you're basically earning interest or gains on your interest or gains.

And when you start playing with the big numbers here, the results are absolutely insane.

Now, the example that Morgan uses in the book is Warren Buffett, who is famously very rich.

And at the time that the book was written, Warren Buffett's net worth was around $84.5 billion.

But of that $84.5 billion, 84.2 billion of it actually came after his 50th birthday.

And of that amount, 81 billion of it came after his 60th birthday.

And one of the reasons that Warren Buffett was able to get so much wealth is that he started young and he kept going.

Like he started investing at the age of 10, such that by the age of 30, he had a million dollars in investments.

And then he just absolutely kept on going well into his, I think he's like 90 something now.

And there's some good maths in the book that shows that 99.9% of Warren Buffett's wealth came as a result of compounding because he started early and he just did it for absolutely ages.

And there's a really nice quote from the book that describes Warren Buffett's success with this.

Morgan writes that, none of the 2,000 books picking apart Buffett's success are titled, this guy has been investing consistently for three quarters of a century.

But we know that that's the key to the majority of his success.

It's just hard to wrap your head around that maths because it's not intuitive.

Lesson number five is to try and save as much as you can, even when you don't have a specific reason to save.

Morgan writes that building wealth has little to do with your income or investment returns and lots to do with your savings rate.

So we naturally think that saving is basically income minus expenses.

But Morgan says that the other way of thinking about it is that savings equals income minus ego.

And this is quite interesting.

I think it's an interesting way of looking at our expenses.

Like if I look at my own spending, how much of that spending is actually necessary and how much of it is based on ego?

I don't know, maybe you can decide.

And he also talks about how really our savings rate is the only variable in this equation that we can really control.

Like I can't really control how much money I'm making.

I can to an extent, but not really.

I can't at all control the returns of the stock market or the returns of Bitcoin or the returns of the real estate market, but I can absolutely control how much money, what percentage of my income I'm saving myself.

And there's a related point that I came across from Balaji who was interviewed in Tim Ferriss' podcast recently, where he says that if you can have a very high savings rate and you can keep your own personal expenses very low, like you need little money to survive and thrive, then it actually gives you a lot more freedom in life because there are a lot of people that are tied to jobs that they don't necessarily enjoy because they now have lifestyles that require them to have that high income from the job that they don't necessarily enjoy.

And kind of the point is, what's the point of being miserable in your job for 80,000 hours of your life, kind of for most of the time that you spend alive?

What's the point of being miserable in that for the sake of having a fancy house and having a fancy car?

It's probably not worth the trade-off.

And so really, if we can just lower our personal expense rate, increase our personal savings rate in whatever fashion we can, that gives us more anti-fragility, more freedom, more autonomy to kind of do more of the things that we actually want.

Lesson number six from the book is to focus on not screwing up rather than on making big gains.

So let's imagine two investors, Sue and Jim.

Sue invests $1 into the stock market every single month, no matter what.

Whereas what Jim does is that he invests money into the stock market as it's going up, and then he sells his stocks as it's going down, and he's trying to play the market in that sense.

This is what Sue's portfolio looks like over time.

And unfortunately, this is what Jim's portfolio looks like over time.

And the reason why Sue ends up better off than Jim is not because she made big gains, it's because she consistently did not screw up by selling her stocks in like a downturn.

And the other interesting point here is that when it comes to thinking about how we're spending and investing our money, getting it wrong is a lot worse for us than getting it right because if we lose money, we can then no longer go back into the game and we actually have consequences on our life.

Whereas if we make twice as much money or twice as much as that, twice as much as that, like there are significant diminishing returns to the value of extra money that we get.

And so Morgan's point basically is, you know, like think about the longterm and try not to lose money rather than thinking, oh my God, I need to chase that next Ponzi scheme or that next, oh, you know, Dogecoin is going to the moon, therefore I'm gonna put stuff in there.

It's far more important to just focus on not screwing up and not losing money and doing that consistently over time so that you can actually benefit from compounding.

All right, let's turn to part three, which is lessons about spending money.

And then lesson number seven is use money to buy freedom.

And he talks about how really the true value of money is in the flexibility and the optionality that it gives us rather than the fact that it helps us buy a fancy house or a fancy car.

He writes that money's greatest intrinsic value, and this cannot be overstated, is its ability to give you control over your time.

Using your money to buy time and options has a lifestyle benefit that few luxury goods can compete with.

And the reason for this is that at the end of the day, we all just wanna be happy and live a happy and meaningful life.

And tons of studies have shown that your income has significant diminishing returns on your personal life satisfaction or happiness from life.

And that beyond a point, depending on who you ask, it's around about $75,000 in the US.

Beyond a certain point, more money stops buying you further increases in happiness.

And so ultimately, given that time is our most valuable non-renewable resource, we can always make more money, but we can never make more time.

Using our own money to buy extra time, to buy our freedom is a very good use of that money rather than spending it on pointless luxury crap that we don't actually need.

Lesson number eight is that getting wealthy is very different to staying wealthy.

Now here, Morgan writes that getting money requires taking risks, being optimistic and putting yourself out there, but keeping money requires the opposite of taking risks.

It requires humility and fear that what you've made can be taken away from you just as fast.

And I was kind of thinking about this as I was thinking about like, basically these days, how much of my investment portfolio to take out of stocks and real estate and just put into crypto.

So crypto is obviously highly volatile and could go up significantly.

I have reasonably high conviction that it will, but I still have a decent chunk of savings in investments in stocks and shares and in real estate.

And reminding myself that right now, my aim is not to continue to make more money.

My aim is actually to keep the money that I have and grow it slowly.

That means I wanna be nicely diversified across these different asset classes.

And so I do have a fairly significant chunk of my portfolio, I think like 30 or 40, 30%, probably 30% in crypto, more on that in a future video coming, but I am not withdrawing all my stock market returns and all of my kind of real estate investments to put money into crypto.

That would be a bad decision.

And even though it might go up, it's like, if it goes down, then that will significantly negatively affect my life in a far greater way than if it just goes up 10X or goes to the moon, for example.

Lesson number nine from the book is don't be a flashy twat.

So Morgan writes to his son, you might think you want an expensive car or a fancy watch and a huge house, but I'm telling you, you don't.

What you want is respect and admiration from other people.

And you think that having expensive stuff will bring it.

It almost never does, especially from the people that you actually want to respect and admire you.

Now, there's two main reasons for this.

And the first one is the man in the car paradox.