“Money has many ironies. Here’s an important one: Wealth is what you don’t see.”
~Morgan Housel
Having the opportunity to chat to Morgan Housel the other week on the Australian Finance Podcast was a major highlight as both a podcast host and as a fan of his work over at the Collaborative Fund. He can explain financial concepts and ideas in a way that resonates and sticks with a huge audience.
If you’ve only got time to listen to one podcast episode this month, I’d highly recommend tuning into this one.
Here is a notable excerpt from Morgan’s book, The Psychology of Money, which explores the difference between wealthy and rich.
“We should be careful to define the difference between wealthy and rich. It is more than semantics. Not knowing the difference is a source of countless poor money decisions. 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. Same with those who live in big homes. It’s not hard to spot rich people. They often go out of their way to make themselves known.
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.”
One of the big ideas that Morgan spoke about was the importance of reading widely outside of your normal circle of interests and not spending too much time reading finance books. This allows you to take in a wider array of ideas, which so often link back to your money, life and relationships anyway.
He illustrated that point by sharing a recent excerpt from a book he was reading about trees. When a tree grows up in a forest next to others, it’s competing for resources, and grows up much more slowly. This gives the trunk time to harden and the tree is much stronger once it’s grown up.
Conversely, a tree growing up all by itself has no competition for resources and greedily grows up towards the sky as quickly as possible. This doesn’t give the tree a chance to strengthen its trunk, and makes it much more susceptible to rot and fungus.
What was the lesson there from this unrelated book on the life-cycle of trees?
When you try and invest before you’ve put in the foundations (paying off debt, emergency fund, learning the basics) you might start off really well, but it won’t be sustainable over time.
If you take the slow and steady route and take the time to properly establish your foundations prior to investing, you’ll have a much better chance of success over time.
Speaking of establishing your foundations, we’ve got a great range of free personal finance courses over on Rask Education just waiting for you to dive into!
Learn more on this week’s episode of The Australian Finance Podcast and be sure to check out Morgan’s new book, The Psychology of Money.
- Grab a copy of Morgan’s new book The Psychology of Money or the The Psychology of Money Audiobook
- Morgan Housel (@morganhousel)
- Financial Advice For My New Daughter · Collaborative Fund
- Financial Advice for My New Son
- How To Decide : Annie Duke
- Chris Hill (@TMFChrisHill)
- Motley Fool Money – Motley Fool Podcasts
- Other great episodes of The Australian Finance Podcast: Is FI/RE right for you? Special guest Lacey Filipich, How to land your dream job in uncertain times (and the future of work) & Setting Your Financial Goals For 2021.