THE MONEY (OR BUSINESS MINDSET): FIVE LESSONS FROM “THE PSYCHOLOGY OF MONEY”
Written by Jessica Murray
I recently finished the book The Psychology of Money by Morgan Housel. While the book centers on lessons related to money, building wealth, greed and happiness, it’s also very much about creating a mindset. I found the concepts equally relevant to business, which is why I compiled the following five key lessons from the book that are valuable reminders for anyone on an entrepreneurial journey.
Lesson #1: Maintaining success requires humility
Accumulating money or early success in business requires taking risks and being optimistic. Taking big swings can lead to outperformance. However, maintaining that success once it comes, as Housel points out, demands something different:
“Humility, and fear that what you’ve made can be taken away from you just as fast.”
Business relevance
Celebrate successes, but stay vigilant to protect what you’ve built. This mindset will better position you to persevere through challenges.
Key points
Embrace a “barbelled personality.” Be optimistic about the future, but also maintain a survival mindset.
Humility and a healthy dose of paranoia position you for long-term sustainability.
Accept that part of your success is due to luck, and past wins can’t be relied on indefinitely.
Don’t always be in a hurry. Success is a marathon, not a sprint.
Lesson #2: Optimize for freedom
Housel opens a chapter entitled “Freedom” with:
“Controlling your time is the highest dividend money pays.”
Money’s value is derived from the freedom it provides — the ability to choose what you do, when and with whom. This type of control is also generally linked to happiness. For entrepreneurs, it’s a reminder to grow businesses that grant the freedom they desired when they started.
Business relevance
Your business should serve your life, not vice versa. Prioritize building a business that opens opportunities and don’t be afraid to say “no” when a direction doesn’t align with your vision.
Key points
Be self-aware about the things that truly make you happy.
Structure your business to maximize personal freedom. This could mean building robust systems, choosing a business model not entirely dependent on your presence, or something completely different.
Set personal and business financial goals that align with the freedom you seek.
Lesson #3: Drive efficiency in the things you can control
In money and business, we’re generally better off focusing on what we can control versus what we can’t. That doesn’t mean completely ignoring the uncontrollable, but rather not letting it consume you.
Housel illustrates this point with an example from the 1970s — the oil crisis. At the time, there were global fears about running out of oil. That didn’t happen, but it’s not because more oil appeared. Instead, the world innovated to produce more energy-efficient products and people thought differently about using this finite resource. All actions that were within society’s control.
Business relevance
Spend time optimizing what you can control to improve operational efficiency. Whether it’s enhancing a process, selecting the right vendors, improving customer relationships, empowering your staff or lowering expenses, there’s a lot you can impact. Use that to your advantage.
Key points
You likely have more control than you think.
Creating efficiency in what you can control yields more flexibility and outsized returns.
Increasing efficiency allows you to seize opportunities and turn them into competitive advantages, particularly when others can’t.
Lesson #4: The future might not resemble the past
Housel discusses how people often fall into the trap of over-relying on historical scenarios. This often happens with “best” and “worst” case circumstances. However, he argues, what gets forgotten is that when “worst-case” scenarios play out, they’re typically unprecedented events at the time and not generally things that were modeled. As Housel states:
“This is not a failure of analysis. It’s a failure of imagination. Realizing the future might not look anything like the past is a special kind of skill that is generally not looked highly upon by the financial forecasting community.”
Business relevance
Understand that history can be informative, but don’t assume the way things have happened before will be how they occur again. Acknowledging this in business and embracing this unpredictability will lead you to build an adaptable and flexible business.
Key points
History is great for calibration, but it shouldn’t be viewed as the roadmap to your future.
The world has surprised in the past and will continue to do so in the future.
Like investing, building a business is not a hard science.
Plan for the unexpected and leave room for error.
Lesson #5: Plan on your plan not going to plan
This one follows nicely from Lesson #4. Always plan on change and leave room for error. Be aware that unknowns and randomness will be a part of life, no matter how solid a plan you build. Need I remind you of our most recent run-in with an unprecedented global pandemic?
How do you succeed in an uncertain world? From Housel’s point of view:
“Margin of safety — you can also call it room for error or redundancy — is the only effective way to safely navigate a world that is governed by odds, not certainties.”
Business relevance
Build resilience into your business so that you don’t just survive but thrive when a curve ball comes your way. There are many ways to develop a margin of safety (e.g., multiple revenue streams), so pick what works for your business and integrate it into your plans.
Key points
Allow room for the unexpected. You’ll be more resilient as a result.
Pursue plans with a range of acceptable outcomes.
Allowing a margin for safety isn’t just a conservative hedge or being risk-averse. It’s a smart strategy for endurance when applied appropriately.
Avoid single points of failure. They make you vulnerable when things inevitably break.
Take these lessons and design your business for the long-term
The Psychology of Money isn’t just about money and investing. The book guides readers through principles and a mindset that leads to a more sustainable life, which is just as relevant to building a business. If you’re an aspiring or current business owner, I encourage you to reflect on the five lessons I shared and explore their relevance to you.
Which do you already follow?
Which could improve your mindset as a business leader?
With which do you not agree?
If you’ve read the book and took away important lessons I didn’t mention. Reach out and share them!