This is Ronald James Read. He led an everyday life working as a gas station attendant and janitor for 42 years. But when he died in 2014, his name made the headlines of all major newspapers.

This is Rajat Gupta. He was the CEO of McKinsey, the world's most prestigious consulting firm, by his mid-40s. And soon, his net worth rose to 100million. He was a complete financial success in any metrics you measure. In 2008, he also made headlines, but for a different reason.

Ronald Read was worth nearly $8 million upon his death and left about $5 million to his local library and hospital. He didn't inherit any wealth. He didn't win the lottery. What did he do specifically to get there? He led a simple life and just consistently invested in the stock market.

Rajat Committed insider trading during the 2008 financial crisis to make some quick cash and ended up in prison.

What differentiates these two? How can someone with no education, no relevant experience, no resources, and no connections end up in a better financial state than someone who possesses all these?

In any other field, this is impossible. A truck driver cannot perform surgery better than Harvard Harvard-trained cardiologist. An artist cannot build faster running processors than Apple's engineers. But such things happen in investing. Because Investing is not the study of finance. It's the study of how people behave with money. And that's exactly the root concept in the book "The Psychology of Money" written by Morgan Housel.

Let me tell you this. You won't get any stock recommendations or 100x strategies from this book. But this book will change how you look at investing and finances. Once you have read this blog, you will learn two key things that can be crucial for your financial success. Before we start, a short disclaimer. I am just a random dude on the internet trying to be less wrong today than I was yesterday. None of this is meant to be taken as financial advice. So take this information but make your own decisions.

Why People Fail Financially

It all makes sense

I always wondered why people buy lottery tickets, especially those who don't have much money to spare. Because a simple calculation says that the chances of winning are 1 in a million. But what I missed to understand is that those who are trying their luck in a lottery, don't see the probability part. All they see is hope. Hope that they can somehow move out of the day-to-day hustle trying to make ends meet, take their kids to college, get access to quality healthcare, and live their dream. When you think like that, it all makes sense.

Similarly, we can see people in our lives who are reluctant to invest in the stock market. According to the author, most people base their decisions on their financial situation during early adulthood. For example, someone born in the early 70s would have seen considerable growth in the stock market. But for those born in the early 40s or 50s, there were vast periods in which the stock market did nothing. So they will be more reluctant to invest.

Another example is the great depression during the early 30s. In cities across the world, people lost their jobs and were thrown out of their homes. They had to starve and sleep in parks and streets. For them, a pack of newspapers to wrap themselves and escape the cold would be worth more than the stock of any company. For people who have gone through such experiences, it's pretty natural that they would want to hold most of their savings in valuables or cash, even if that does make less sense economically.

It's one thing to read about those experiences through books but different going through one. That's because real-life experiences leave an emotional impact that is hard to document and measure. People from different generations, raised by different parents who earned different incomes and held different values in different parts of the world, learn very different lessons. And when that's the case, a view about money that one group of people thinks is outrageous can make perfect sense to another.

So keep that in mind when you see someone talking about a great investment strategy that doesn't make any sense to you. Your rationale might not be theirs.

Role of Luck & Risk

It's easier for us to assume that the success or failure of a person is entirely due to the quality of their decisions and actions. But what we have to understand is that being present at the right time in the right place or pure luck plays a far superior role than any calculated money decision. For example, we credit the success story of Bill Gates to his qualities such as his ability to think critically, intelligence, and hard work. But did you know that he was one in a million teenagers to have access to a school computer in 1968?

That's not some little luck. This is Kent Evans. He was a friend of Gates, and he was also good at computers at an early age. But he died in a mounting accident when he was 17. There was a good chance he could have founded Microsoft if this one-in-a-million-odd disaster hadn't happened. The author says You are one person in a game with seven billion other people and infinite moving parts. The accidental impact of actions outside of your control can be more consequential than the ones you consciously take.

There is a perfect example of this from my personal life. The reason why I could get a job in Germany was because I met a street sweeper. After I passed out from the university, I got a call to attend an interview with a German company. This was a dream job, so I started preparing for this. On the interview day, I woke up early, got ready, took my bike, and rode to the address where the interview was supposed to be scheduled.

It was a bit of a struggle to find the place, but somehow I got to the address in the interview later. I parked the bike nearby, walked to the building, and knocked on the door. Nothing. I knocked a couple of times, and nothing. I looked around, and there was no one to be seen. No one from the company and no candidates. I confirmed the address once again on the interview letter and then thought, maybe I got it all wrong. So I walked back to my bike and headed back home. When I reached the gate, I saw an old person sweeping the pavement.

For a moment, I thought of riding past him, but then I stopped my bike, removed my helmet, and asked him. Do you know if an interview is going on around here? Then he glanced his eyes from the floor, looked at me, and then pointed me to the back of the building. I thanked him, turned my bike, got to the other side of the building, and there it was. The Interview place. I got the job, and the rest is history.

It wouldn't have mattered how many grades I got in the university or how well I prepared for the interview. If that person was not there standing with the broom near the gate, my life would have taken a different path. The author put it in perfect words.

Some people are born into families that encourage education; others are against it. Some are born into flourishing economies encouraging entrepreneurship; others are born into war and destitution. Realize that not all success is due to hard work, and not all poverty is due to laziness. Keep this in mind when judging people, including yourself.

The takeaway here is that stop blindly copying the path taken by successful people. Instead of focusing on the actions of specific individuals, focus more on broad patterns. For example, a common trait shared by most successful people is reading more books or taking more risks. Watch out for such patterns. And be mindful of who you admire and who you look down upon. Those at the top may have been the benefactors of luck, while those at the bottom may have been the victims of risk.

Never Enough

Talking about patterns, we could see a common one among people who got broke after doing well financially. This is artist Bernie Madoff. His firm was already making 25 million to 50 million a year. That was enough for him to live luxuriously for the rest of his life. But he had other plans. Once you have millions, you only stop at billions. So he masterminded a Ponzi scheme that made him ultimately lose everything and end up in jail.

You might be thinking, that guy is stupid; if I get 50 million dollars, I would just do whatever I want and be happy for the rest of my life. Maybe not because of this thing. Lifestyle creep.

For example, maybe you are someone who takes public transport to travel around. One day your boss said, my dear employee, you got yourself a promotion and a salary hike. That calls for some celebration. You take a taxi back home. The next day, while you wait for the bus to the office, you think I earn more; why should I go on the crowded bus when I can afford to buy a car? And there, ladies and gentlemen, is what's called the lifestyle creep.

As you make more money, what once seemed like luxuries become necessities. You can't earn less because you can't afford a car anymore and can't even remember how you lived without one. The goalpost keeps moving.

There is another reason why people never seem satisfied with what they earn. It's called keeping up with the Joneses. So you just got promoted and are enjoying your life driving to the office in your brand-new car. You drive past the bus you used to take and make a sadistic glance at those who still have to travel on the bus. You reach the office, and while walking to your desk, you see an open envelope on your colleague's desk, and there is a paper nearby. It's the salary slip. You look around to see if someone is watching and then glance at the number. You are shocked.

Guess what he is making 1000$ more than you. Suddenly the whole world crashes around you. In a moment, you are back on the bus, and you are unsatisfied with your financial situation. You will never be satisfied once you start comparing yourself to someone else. There is always gonna be a bigger fish in the ocean. And if you go chasing after it, you could end up like Bernie Madoff, losing everything you have. In the words of the author

There are many things never worth risking, no matter the potential gain.

Reputation is invaluable.
Freedom and independence are invaluable.
Family and friends are invaluable.
Being loved by those who you want to love you is invaluable.
Happiness is invaluable.

And your best shot at keeping these things is knowing when it's time to stop taking risks that might harm them. Knowing when you have enough.

The Unforeseen

On 11th September 2001, two hijacked airplanes crashed into both towers at the World Trade Center in New York. And the events that happened after this horrific incident seriously harmed the U.S. economy and created a global economic recession. No way we could have predicted such an event, no matter how many history books we refer to. According to the author, there is an important lesson to learn here.

We don't have to go back much into the past. We have an example from our recent history. Think about the coronavirus crisis and its impact on the world economy. The markets crashed, governments started pumping money, and now we see one of the worst inflation rates in decades. That single event might have changed your financial life in more ways than the 1000s of calculated decisions you took in the past few years.

But we still keep making predictions based on past historical data. The problem is that when we rely too much on past data to predict the future, we miss accounting for these once-in-a-lifetime events, which make the most impact.

Also, many modern financial concepts didn't exist in the past. Hence, we don't have enough data to do the analysis. Geologists can look at a billion years of historical data and form models of Earth's behavior. And doctors – kidneys operate the same way in 2018 as they did in 1018. However, this is not exactly the case for financial data. For example, Bitcoin was unheard of 14 years ago. Now, it is a trillion-dollar thing. Or take the public markets.

The S&P 500 did not include financial stocks until 1976; today, financials make up 16% of the index. Technology stocks were virtually non existent 50 years ago. Today, they're more than a fifth of the index.

So don't rely blindly on historical data to make your financial decisions. If you still have to, look at the recent history and not the Flintstones times. The only thing that remained constant over the years is how people behave in times of greed fear, and stress. That's the only thing you can rely on and trust from the past.

Respect for Money

A report from CNBC shows that an average consumer overspends his budget by $7,400 a year. And the main reason behind that is we care too much about others' opinions about us. We think that by owning a luxury car or the latest iPhone, people look at you with respect.

This is the man-in-the-car paradox. Imagine when you see someone in a Porsche; what's the first thought that comes to your mind? Oh, this person owns a Porsche; he is so cool and sophisticated, let me respect him, No. You would be thinking how cool it would have been if I had that car. I know that because I would be thinking the same thing. Instead of Wow, the guy driving that car is cool, most people think, Wow if I had that car, people would think I'm cool. More horsepower doesn't mean more respect. Maybe in the world of horses. But not here.

But when we make a purchase, how would we know if we are overspending to satisfy our ego or because we want it? There is a way. If you can't show anyone the thing you bought, what would you do? Would you still be buying it?

Know that what earns respect are qualities such as intelligence, compassion, and leadership. If you are after respect, try building that instead of buying more horses. By learning to be humble and ignore others' opinions, you'll naturally want less. When you want less, you'll spend less and save more.

Rich vs. Wealthy

No, According to the author, it's not the same. Being rich is not the same as Being wealthy. Rich is a current income. If you earn in a million range currently, you are probably rich. You can easily say if someone is rich by their clothes or the car they drive. But wealth is hidden. It's the income not spent. The nice cars were not purchased. The diamonds were not bought.

The watches were not worn, the clothes were forgone, and the first-class upgrade declined. So you can never be sure if someone is wealthy because you can't see it from the outside, and unfortunately, you can't look into their bank accounts. So keep an eye on who you look forward to as your financial guru. People who show their wealth and live a rich, affluent life buying luxuries may be in a bad financial situation and be one step away from being broke.

And once you accumulate wealth, the strategies you follow will be different from what got you there. To earn money, you have to take risks, be optimistic, and put yourself out there. But keeping money requires the opposite of taking the risk. It requires humility.

Singer Rihanna nearly went broke after overspending and sued her financial advisor. The response from the advisor was this: Was it really necessary to tell her that if you spend money on things, you will end up with the things and not the money?

So those are the main lessons from the book "psychology of Money' about why we make bad financial decisions. But the more important thing is to know how to make better ones. One good investment you can make is to head to Amazon, buy the actual book, and read it yourself.

Why do We Fail to Achieve Financial Success? - The Psychology of Money, Morgan Housel