As a financial adviser, something I often notice when I meet people is a lack of financial clarity. I have spoken to multi-millionaires and Aged Pensioners who both worry they will run out of money or don’t have the resources to do all that they want. Increasing your net assets or the money in your bank account doesn’t directly result in greater levels of financial confidence and comfort because feeling good about your finances is not necessarily about what you are worth. It’s about how you think about your position.

A lesson I want everyone to learn is that doing well financially is not about what you earn or what you know. It is mostly about how you behave. I have worked with people that earn $500,000 a year that can’t seem to pay off their credit cards each month alongside Aged Pensioners who manage to put money away in savings each fortnight.

Now how do we change the way we think and behave? That’s the difficult task but it begins with understanding why we think and act the way that we do. This topic is covered incredibly well in the book The Psychology of Money which was written by author and American financial adviser Morgan Housel in 2020. Morgan explores the way people think about money and how to make better sense of this important area of our lives.

The following are some of the key lessons from this book worth sharing:

  1. Control = Happiness – The ability to do what you want, when you want, with who you want, for as long as you want, is priceless. When growing your wealth, the end goal should not focus on buying stuff but rather on buying control over your time. Happiness is a difficult thing to measure but studies show beyond a certain base level of income/assets, money does not buy happiness. Money buys you choice and it’s what you do with those choices that makes you happy. Having savings and investments to fall back on means you don’t have to stay in a job/business/relationship/living situation that is making you miserable. Control over one’s life is much more accurate predictor of happiness.
  2. “Enough” – The hardest financial skill we will ever need to learn, if we want to be happy, is to get the goalpost to stop moving. This social media driven world that we live in encourages our envy to grow just as our wealth grows which means we are not always getting closer to having enough even if our bottom line is improving. Looking at what we don’t have or how far we still have to go will not make us as happy as looking at what we do have or what we have achieved so far.
  3. Realising that wealth is what you don’t see – it might seem pretty obvious, but you get rich by not spending. Financial planning 101 is spend less then what you earn and spending money to show people how much money you have is the fastest way to have less money.
  4. There is a difference between getting wealthy vs staying wealthy – good investing is not just about making good decisions; it is about consistently not screwing up. There are many things never worth risking, no matter the potential gain. If certain investments start to look like a game of Russian Roulette (where you either win big or wipe yourself out), then you are taking too much risk.
  5. Allowing room for error – The most important part of the plan is to plan for the plan not going to plan. We need to be conservative with our assumptions (or expectations) and ensure that if things don’t work out exactly as we hope, we will still have a reasonable outcome from the hard work we have put in. We save for our short-term goals and we invest for our long-term goals because we can’t control the outcome of our investments, unless we have a long time to invest which allows those outcomes to average out over time.
  6. Surprises – The illusion of control is more persuasive than the reality of uncertainty. The honest truth is that none of us know exactly how our lives will turn out and in what areas we will be lucky or unlucky in life. We need to be prepared for life’s shocks. This is where reserves, insurances and legal documents or advice fit in to our plans.
  7. The importance of cash – Saving is a hedge against life’s inevitability to surprise you at the worst possible moment. Even though it doesn’t give us a great return, cash gives us control at these times of crisis. A small reduction in your returns during good times can help you avoid disaster during bad times. After all, the market can stay irrational for longer than you can stay solvent.
  8. Consistency is key – There are few financial variables more correlated to performance then commitment to the strategy. We don’t plant a seed and then dig it up every few days to see how the tree is growing. The first rule of compounding is to never interrupt it unnecessarily.
  9. Success demands a price – But the currency when you are an investor is not only dollars and cents. It is volatility, fear, doubt, uncertainty and regret. Every job looks easy when you are not the one doing it. We can look back at our actions or the actions or others and pinpoint the times when we should have done things differently but in the moment, we are all faced with an incomplete information set that we are doing our best to interpret. We need to have both conviction over our actions as well as the ability to recognise and accept when we are wrong or when we need help.
  10. High savings, patience & optimism are the real secrets to success – The most important tip to anyone that wants financial independence is to have a combination of these three things. High savings because this allows us to invest and build our reserves. It is ultimately the most important factor in any wealth building plan because regardless of what we manage to do with our investments and our tax, if we don’t control our spending and, we are filling up a bucket with a hole in the bottom. Patience because trying to get rich quick may end up with disastrous results. With patience, everyone has the ability to build wealth as this strategy will play out 100% of the time. And finally, optimism because the human race is resilient. We will face shocks and unimaginable change in our lifetimes, but we will always move forward, even if we have to take a few steps back first.


It is difficult to summarise a few hundred pages into a few hundred words, so I encourage you to get a copy of The Psychology of Money and read it for yourself and then reflect on what you have learnt and what’s important to you.

When you know what is important to you, a financial adviser can assist you to understand your options, prioritise, take action and ultimately assist you to live well.

Intrigued by what you have read? To hear Cara’s full presentation on The Psychology Of Money follow this link: