What if everything you thought you knew about money was wrong?

Chances are, it is.

Your relationship with money is shaped by a number of factors that you have very little control over. Your ability to save money, for example, has as much to do with your habits as it does the subconscious beliefs you picked up from your parents as a kid.

The type of economy you were born into also shapes your overall outlook. Baby Boomers who benefited from the post-war economic boom have a much more optimistic financial outlook than their children and grandchildren.

In his 2020 book The Psychology of Money, Morgan Housel offers an alternative approach to how we think about our finances. He focuses on the frameworks we use to make financial decisions and how those decisions are often made with incomplete information.

This essay will review the key themes from the book. It will offer a new perspective for how you should think about money. Instead of playing a game you’re not designed to win you’d be better off learning to play an entirely new game — your own game.

The decisions around how you manage your money are shaped by your worldview. That worldview is shaped by financial experiences that are largely new and untested.

Whether you’re aware of it or not, you are programmed with a particular worldview that shapes how you interpret information. Wall Street Bankers, for example, have a very different lens through which they look at the economy than the average person on Main Street.

Your worldview is formed when you are young. It is shaped by your parents and close family members, influential teachers, spiritual leaders, and friends. As you get older and learn new information, your worldview changes.

How you see the world is also shaped by the culture around you. Oftentimes you might think something is true based on appearances without any knowledge of what is happening behind the scenes.

Here’s an example of what I mean. When I was in high school, everyone wanted an iPod. You could tell who had money and who didn’t based on whether or not you owned one. (For the record, I rocked a generic MP3 player from Kmart and procured my music from Limewire).

Your popularity as a high schooler in the aughts was a direct measure of the brands you wore and the things you owned. The kids who dressed in Abercrombie, listened to music on their iPods, and drove Audis to school, were in a completely separate social hierarchy than the rest of us.

I, like most 16 year-olds at the time, had access to incomplete information. Wikipedia was still too new to be trusted and YouTube was just being invented. I made assumptions based on what little I knew of the world around me. I assumed that the cool kids could afford expensive things because they had wealthy parents.

That may have been true, but I could have also been wrong. There are other paths to perceived wealth that I hadn’t considered.

Maybe their parents weren’t wealthy but their grandparents were. Maybe the iPod they whipped out in class was actually a gift from grandma and grandpa — not mom and dad.

Maybe their “wealth” was the outcome of a messy divorce. While I coveted the device they listened to music on, all they wanted was my stable family life.

Maybe they lost a parent in a car accident and received a lot of money as the result of a settlement. An iPod is hardly a consolation prize for that.

Or maybe their parents made a lot of money but they worked a lot too. The stuff they owned could have been a symptom of absent parenting as much as it was a sign of affluence.

The point is most of us make assumptions about money and formulate worldviews from those assumptions that are based on incomplete information. We don’t know how or why someone else makes the decisions they do but we assume it’s right and adopt their beliefs as our own.

In the book, Housel writes:

“Every decision people make with money is justified by taking the information they have at the moment and plugging it into their unique mental model of how the world works.” (18)

He looks at retirement and getting a college education as two examples of financial decisions we all make based on incomplete information. Many financial experts, for example, tout the importance of saving for retirement. They point to the benefits of having a Roth IRA as part of your retirement portfolio. Personally, I’ve completed a number of freelance assignments on this topic parroting the same talking points about the benefits of Roth IRAs.

We all assume that Roth IRAs are good because of the tax benefits that come with them. And maybe they are. But how do you actually know? A Roth IRA is only 26 years old. The sample size of those entering into retirement and living off their Roth IRAs is too small. There is insufficient data to genuinely determine whether it’s actually a good place to park your money for retirement. (Unless, of course, you’re Peter Thiel).

Assumptions also shaped your decision about going to college. The economy radically changed in the early 1980s. The solution to disappearing manufacturing jobs was to tell young people to go to college and get an education. High school students assumed that was the right choice because that’s what they were being advised to do by more experienced adults.

For a time that was the right decision. Going to college did make sense. But not anymore. We have far more college educated workers than the economy can realistically support.

As the Wall Street Journal recently reported:

“Hiring for roles that usually require a bachelor’s degree has dropped below 2019 rates in recent months.”

It turns out college wasn’t the guaranteed access to a good paying job that we were all led to believe it was. Now college grads are saddled with tens of thousands of dollars in student debt and are taking jobs as cooks and waitresses barely earning $15 an hour. The financial decisions they made based on their limited worldview will haunt them for the rest of their lives.

It doesn’t matter whether you’re talking about iPods or college degrees. Your view of money is going to be different than mine and mine is going to be different than yours. Each of our views is shaped by our own lived experiences as well as the experiences we inherit from our parents and grandparents. Combined with access to incomplete information, making “good” financial decisions is more difficult than we realize.

You benchmark your success against the success of others without realizing success in and of itself is an outlier. Failure is far more common than you appreciate.

Aside from shaping your financial worldview with incomplete information, the book highlights how you also fail to acknowledge the roles of luck, skill, and risk when scoring your own success. What you interpret as skill may actually be luck, something no amount of financial education can prepare you for.

Housel provides two examples of this in the book: Bill Gates and Warren Buffet. Bill Gates famously started Microsoft with Paul Allen in a garage. Many young founders look to Gates’s origin story for inspiration and draw the conclusion that if they just work hard enough, maybe they’ll be just as successful as him.

What Housel calls attention to in the book is how luck favored Gates and made it possible for him to become the famous founder he is today. Housel notes that of the 18 million high-school-age students in the United States in 1968, Bill Gates happened to be a student at a high school that had “the combination of cash and foresight to buy a computer.”

Gates didn’t build Microsoft because he’s fundamentally better than the rest of us. He built Microsoft thanks to the good fortune of being at the right school at the right time in history. Had he been born a year or two earlier or lived somewhere else, Microsoft would have never been created. At least not by Bill Gates.

The same is true of Warren Buffett. Many aspiring investors look to Warren Buffett as the pinnacle of achievement. And rightfully so. The Oracle of Omaha is currently the tenth-richest man in the world with a net worth of $137 billion.

Warren Buffett is a good investor but that’s not why he’s so wealthy. Luck also favored him. Housel writes:

“All of Warren Buffet’s financial success can be tied to the financial base he built in his pubescent years and the longevity he maintained in his geriatric years…Had he started investing in his 30s and retired in his 60s, few people would have ever heard of him.” (50, 49)

Warren Buffett is a skilled investor because he started young. He was born into a family with a worldview and access to information that made investing at a young age possible. The bulk of his wealth comes from the investments he effectively made as a child. It doesn’t matter how skilled of an investor you are, unless you too started investing young, you will never match the success of Warren Buffett.

Success isn’t what you think it is. Luck, risk, and skill all play a role in how success is achieved. When you benchmark your success against the unrealistic expectations set by other people, it makes it impossible to achieve.

There’s an additional example of this that Housel addresses in the book that’s even more relatable. It’s not just money and wealth that makes success an outlier, it’s an outlier when it comes to your job too.

Tech took over the labor market during the last decade, creating false demand for jobs that drove wages up. This changed how people pursued employment opportunities. Instead of settling for normal paying jobs at smaller employers, workers threw themselves at Big Tech companies. Now thanks to COVID, remote work, and the emergence of artificial intelligence, tech is starting to reduce the size of its workforce.

Many workers benchmarked their professional success against the opportunities provided by tech companies and the success of those working in Silicon Valley. Six-figure salaries and catered lunches were the norm in Mountain View and Palo Alto — clearly that had to become the norm elsewhere too.

There’s an obvious problem with this. The perceived success of tech work is an illusion. Housel argues that failure is actually more common than we think. Most of the “success” of the tech industry is actually driven by low probability tail events.

When you benchmark your success against perceived success in the world around you (with incomplete information, of course), you aren’t aware that your version of success is actually more probable and realistic than the people you are judging yourself against.

Housel shares some startling data points in the book:

“Google’s hiring acceptance rate is 0.2% Facebook is 0.1%. Apple’s is about 2%. The people working on these tail projects that drive tail returns have tail careers.” (76)

If you come from a no-name state school and have no experience in tech, it’s unrealistic to expect the same career outcomes that tech produces, just as it’s unrealistic to expect the same returns as Warren Buffett if you start investing decades after he did.

Success isn’t normal even if it’s normalized in the media. That isn’t to say you shouldn’t set goals or strive to be successful, but you should manage your expectations. Failing to land your dream job or start a company isn’t a sign of personal weakness. It means you’re actually more normal than you realize.

Building wealth is hard but keeping wealth is even harder. You should be striving to avoid ruin — not make as much money as possible.

One of the core themes in the book is around the idea of building wealth. That’s something you’d expect from a book devoted to money. Almost every piece of financial advice you read assumes wealth-building is your ultimate end goal.

Housel argues the opposite. Rather than trying to build wealth, you’d be better off doing whatever it takes to avoid ruin instead.

Wealth is actually a lot harder to build and sustain than you realize. According to most estimates, 70% of wealth is lost by the second generation. That means if you’re successful in building enough wealth to pass onto your kids, there’s a good chance that their kids will piss it all away.

Over time individuals lose connection to the lived experiences that shape their financial values. Frugality and discipline are lost as wealth becomes more and more abundant. Without strong financial habits in place, it’s easy to lose that which you haven’t earned.

Housel doesn’t raise this point directly in the book but it is certainly implied. With the odds stacked against your progeny, what’s the point in pursuing wealth in the first place?

The answer goes back to benchmarking success against an incomplete worldview. The point of wealth isn’t actually something to maintain or grow for the future. It’s more of a tool for social signaling in the present. It’s a way to shape the culture around you and how you fit in it.

Housel explains this concept with a paradox he titles “man in the car.” He argues:

“When you see someone driving a nice car, you rarely think, “Wow, the guy driving that car is cool.” Instead, you think, “Wow, if I had that car people would think I’m cool.”…There is a paradox here: “people tend to want wealth to signal to others that they should be liked and admired.” (93)

Wealth-building is really about Keeping up with the Joneses. Even if you renounce conspicuous consumption, there’s still a good chance that by pursuing a wealth-oriented goal, you’re participating in social groupthink. You’re not making “good” investments for yourself, you’re making decisions based on what everyone else is doing around you.

Building wealth requires you to play a game you’re not designed to win. It’s futile. As Housel argues in the book, the goal itself is meaningless knowing you’re statistically likely to lose the wealth you spend your entire life building. Meanwhile the rules of the game are constructed using incomplete information shaped by outlier events.

If this is how you view the game of money, then you should know it’s all built on a lie. And if your life is built on the pursuit of money, well then, isn’t that built on a lie too?

The game of money is a game shaped by things beyond your control. You’d be better off learning how to play a new game for yourself rather than playing the game you think you ought to be playing.

Instead of planning an unwinnable game, you’d be better off playing a game you can actually win. That game starts with designing a game as an individual rather than following the lead everyone else is setting for you.

Here’s what I mean. David Goggins is one of my personal heroes. I frequently listen to the audiobook of Can’t Hurt Me when I’m on a long run to keep me motivated.

I respect David Goggins and I admire him, but I will never be the next David Goggins nor do I want to be. Whether it’s trying to be him, the next Michael Jordan or building the next Uber, so often we try to become the next at something rather than just simply becoming the best version of ourselves. Benchmarking my success against David Goggins and defining my worth as an individual against him is a losing game I will never win.

Instead, you can take principles from successful individuals like David Goggins and use those principles to create a new game for yourself. Adopting a Day One Week One mentality is an example of a standard Goggins has set for himself that others can adopt as well. In an interview with CNBC, Goggins explains it like this:

“Think back to the last time you were trying to land a new position, he says: “Before you go to a job interview, you lay your clothes out. You’ve got your bowl out for your oatmeal, your protein shake, everything is laid out. You show up 30 minutes early. You’re prepped. You studied.”

When you’re job interviewing or starting a new role at work, you tend to be at your very best. “You’re an animal,” says Goggins. “You’re fighting for everything.”

But that mentality can start to fade. It “may last for a month or two,” he says, “but once you realize, ‘I got the job and I’m good,’ you start to fit in with everybody else.”

Over time, the “day one, week one” mindset is replaced with what Goggins calls the “I arrived” mindset.”

This same approach can be applied to personal finances. Housel recommends focusing on the things you can control rather than the things you can’t to create winnable standards for your life. He writes:

“Personal savings and frugality — finance’s conservation and efficiency — are parts of the money equation that are more in your control…Wealth is just the accumulated leftovers after you spend what you take in.” (104–105)

Part of that is being disciplined with how you spend your money. You can’t always control what comes in, especially if you depend on a single source of income from a W2 job. But you can control what goes out.

Housel also recommends “learning to be happy with less money.” Instead of chasing abstract goals set by other people using their standards of success as your own, you’d be better off lowering your own expectations. When you want less, it requires less to meet your needs. That delta gives you opportunities you never knew existed.

Instead of playing the game you think you’re supposed to play — go to college, get a good job, raise a family, and retire before you die — you should be looking inward. What is your starting place? How far can you realistically go within a lifetime? How far are you willing to go? And in the end, will it even matter?

Creating a new game for yourself based on standards and principles rather than playing everyone else’s game is the only game you can actually win. And once you start playing it you’ll likely find that your game is the only game that’s actually worth playing.

Final takeaway.

The idea of creating a new game for yourself — a game you can actually win — makes sense. In practice, though, it is much more difficult than you might realize.

Creating a new game isn’t just about coming up with new rules for yourself. It’s also about rejecting the standards society has set for you. It requires you to renounce the goals, ambitions, and beliefs of everyone else around you.

At the end of the day humans are social creatures. We want to feel like we belong. And if belonging entails playing a game of money that we’re designed to lose, we’re going to play it.

Freedom ultimately comes from your ability to liberate yourself from playing an unwinnable game. And that freedom comes with lowering your expectations so that you can deconstruct your wants from your needs.

Let’s take housing as an example to illustrate this point. Everyone knows that housing is unaffordable. Young people want to live independently and own their own homes but given the current state of the economy they can’t. The unaffordability of housing, however, does not make someone homeless nor does it deprive them of agency to take leadership over their own lives. There are options in between that young people have that they aren’t considering.

Even though the vast majority of housing is unaffordable it isn’t unaffordable everywhere. In Detroit, for example, the median home price is $99,000. While you might not want to live in Detroit, it is a place where young people can afford to live. It’s not the best option, but it’s still an option.

Shaking your fists in the air while lamenting the cost of housing from an overpriced apartment in Manhattan is an example of what it looks like to play an unwinnable game. Securing a remote job and working part-time on nights and weekends to save up for a down payment on a house in Detroit, on the other hand, is what it looks like to start playing a winnable game.

Opportunities are abundant, especially when it comes to money, but your worldview might be blinding you to them. Becoming aware of how your pre-existing narratives around money limit your worldview can help open you up to new opportunities.

The Psychology of Money is a book that will help you do just that. It’s a quick read filled with stories to shed light on how you think about money. I personally think this is one of the most important financial books you can read.

Add it to your reading list sooner rather than later. Pick up a copy where books are sold or get on the waitlist for it at your local library.