📚The Book in 3 Bullets

• Humans are not rational beings, so we should stop treating our finances like we are and aim to be reasonable with our financial decisions.

• Freedom with how to spend your time is what building wealth is for. If you don’t control your time, it’s difficult to be consistently happy.

• The path to wealth is made by saving more and wanting less. No matter how much money you make, if you fail to establish good savings habits, you will never build wealth.

✍️ My Top Quotes

• Doing well with money has a little to do with how smart you are and a lot to do with how you behave. And behavior is hard to teach, even to really smart people.

• There is no reason to risk what you have and need for what you don’t have and don’t need.

• The highest form of wealth is the ability to wake up every morning and say, “I can do whatever I want today.”

• The only way to be wealthy is to not spend the money that you do have.

• No one is impressed with your possessions as much as you are.

📖 Summary & Notes

1. No One’s Crazy: Your personal experiences with money make up maybe 0.000000001% of what’s happened in the world, but maybe 80% of how you think the world works.

• The person who grew up when inflation was high experienced something the person who grew up with stable prices never had to.

• Studying history makes you feel like you understand something. But until you’ve lived through it and personally felt its consequences, you may not understand it enough to change your behavior.

• Some lessons have to be experienced before they can be understood.

• The lowest-income households in the U.S. spend $412 a year on lotto tickets, four times the amount of those in the highest-income groups.

• The 401(k)—the backbone savings vehicle of American retirement—did not exist until 1978.

• It should surprise no one that many of us are bad at saving and investing for retirement.

• We all make decisions based on our own unique experiences that seem to make sense to us in a given moment.

2. Luck and Risk: Nothing is as good or as bad as it seems.

• The cover of Forbes magazine does not celebrate poor investors who made good decisions but happened to experience the unfortunate side of risk. But it almost certainly celebrates rich investors who made okay or even reckless decisions and happened to get lucky. Both flipped the same coin that happened to land on a different side.

• The line between “inspiringly bold” and “foolishly reckless” can be a millimeter thick and only visible with hindsight.

• Focus less on specific individuals and case studies and more on broad patterns.

• The trick when dealing with failure is arranging your financial life in a way that a bad investment here and a missed financial goal there won’t wipe you out so you can keep playing until the odds fall in your favor.

3. Never Enough: When rich people do crazy things.

• The hardest financial skill is getting the goalpost to stop moving.

• Happiness is just results minus expectations.

• You need to know when you have “enough.” There are many things never worth risking, no matter the potential gain.

4. Confounding Compounding: $81.5 billion of Warren Buffett’s $84.5 billion net worth came after his 65th birthday. Our minds are not built to handle such absurdities.

• Buffett’s fortune isn’t due to just being a good investor, but being a good investor since he was literally a child.

• Good investing isn’t necessarily about earning the highest returns, because the highest returns tend to be one-off hits that can’t be repeated. It’s about earning pretty good returns that you can stick with and that can be repeated for the longest period of time. That’s when compounding runs wild.

5. Getting Wealthy vs. Staying Wealthy: Good investing is not necessarily about making good decisions. It’s about consistently not screwing up.

• There are a million ways to get wealthy and plenty of books on how to do so. But there’s only one way to stay wealthy: some combination of frugality and paranoia.

• Getting money is one thing. Keeping it is another.

• Getting money requires taking risks, being optimistic, and putting yourself out there. But keeping money requires the opposite of taking risk. It requires humility, and fear that what you’ve made can be taken away from you just as fast.

• Few gains are so great that they’re worth wiping yourself out over.

• Compounding only works if you can give an asset years and years to grow. A year of growth will never show much progress, 10 years can make a meaningful difference, and 50 years can create something absolutely extraordinary.

• Compounding doesn’t rely on earning big returns. Merely good returns sustained uninterrupted for the longest period of time will always win.

• Room for error, often called margin of safety, is one of the most underappreciated forces in finance. It comes in many forms: A frugal budget, flexible thinking, and a loose timeline—anything that lets you live happily with a range of outcomes.

6. Tails, You Win: You can be wrong half the time and still make a fortune.

• Long tails—the farthest ends of a distribution of outcomes—have tremendous influence in finance, where a small number of events can account for the majority of outcomes.

• Anything that is huge, profitable, famous, or influential is the result of a tail event—an outlying one-in-thousands or millions event. And most of our attention goes to things that are huge, profitable, famous, or influential. When most of what we pay attention to is the result of a tail, it’s easy to underestimate how rare and powerful they are.

• It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.

7. Freedom: Controlling your time is the highest dividend money pays.

• The highest form of wealth is the ability to wake up every morning and say, “I can do whatever I want today.”

• The ability to do what you want, when you want, with who you want, for as long as you want, is priceless. It is the highest dividend money pays.

• Money’s greatest intrinsic value is its ability to give you control over your time.

• Doing something you love on a schedule you can’t control can feel the same as doing something you hate.

• Compared to generations prior, control over your time has diminished. And since controlling your time is such a key happiness influencer, we shouldn’t be surprised that people don’t feel much happier even though we are, on average, richer than ever.

8. Man in the Car Paradox: No one is impressed with your possessions as much as you are.

• 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.”

• People tend to want wealth to signal to others that they should be liked and admired. But in reality, those other people often bypass admiring you not because they don’t think wealth is admirable, but because they use your wealth as a benchmark for their own desire to be liked and admired.

• You might think you want an expensive car, a fancy watch, and a huge house. But you don’t. What you want is respect and admiration from other people, and you think having expensive stuff will bring it. It almost never does.

• If respect and admiration are your goals, be careful how you seek them. Humility, kindness, and empathy will bring you more respect than horsepower ever will.

9. Wealth is What You Don’t See: Spending money to show people how much money you have is the fastest way to have less money.

• We tend to judge wealth by what we see because that’s the information we have in front of us. We can’t see people’s bank accounts. So we rely on outward appearances to gauge financial success. Cars. Homes. Instagram photos.

• Wealth is the nice cars not purchased. The watches not worn, the clothes forgone and the first-class upgrade declined.

• The only way to be wealthy is to not spend the money that you do have.

• 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.

• The world is filled with people who look modest but are actually wealthy and people who look rich who live at the razor’s edge of insolvency. Keep this in mind when quickly judging others’ success and setting your own goals.

10. Save Money: The only factor you can control generates one of the only things that matters. How wonderful.

• Building wealth has little to do with your income or investment returns and lots to do with your savings rate.

• Wealth is just the accumulated leftovers after you spend what you take in.

• Past a certain level of income, what you need is just what sits below your ego.

• Savings can be created by spending less. You can spend less if you desire less. And you will desire less if you care less about what others think of you.

• You don’t need a specific reason to save.

• Intelligence is not a reliable advantage in a world that’s become as connected as ours. But flexibility is.

• If you have flexibility you can wait for good opportunities, both in your career and for your investments.

• Having more control over your time and options is becoming one of the most valuable currencies in the world. That’s why more people can, and more people should, save money.

11. Reasonable > Rational: Aiming to be mostly reasonable works better than trying to be coldly rational.

• Don’t aim to be coldly rational when making financial decisions. Aim to just be pretty reasonable. Reasonable is more realistic and you have a better chance of sticking with it for the long run, which is what matters most when managing money.

12. Surprise: History is the study of change, ironically used as a map of the future.

• Things that have never happened before happen all the time.

• If you rely too heavily on investment history as a guide to what’s going to happen next, you’ll likely miss the outlier events that move the needle the most, and, history can be a misleading guide to the future of the economy and stock market because it doesn’t account for structural changes that are relevant to today’s world.

• The correct lesson to learn from surprises is that the world is surprising. Not that we should use past surprises as a guide to future boundaries; that we should use past surprises as an admission that we have no idea what might happen next.

13. Room for Error: The most important part of every plan is planning on your plan not going according to plan.

• History is littered with good ideas taken too far, which are indistinguishable from bad ideas. The wisdom in having room for error is acknowledging that uncertainty, randomness, and chance are an ever-present part of life.

• Room for error lets you endure a range of potential outcomes, and endurance lets you stick around long enough to let the odds of benefiting from a low-probability outcome fall in your favor.

• You can be risk-loving and yet completely averse to ruin. The idea is that you have to take risk to get ahead, but no risk that can wipe you out is ever worth taking.

• You can plan for every risk except the things that are too crazy to cross your mind. And those crazy things can do the most harm because they happen more often than you think and you have no plan for how to deal with them.

• A good rule of thumb for a lot of things in life is that everything that can break will eventually break.

• The biggest single point of failure with money is a sole reliance on a paycheck to fund short-term spending needs, with no savings to create a gap between what you think your expenses are and what they might be in the future.

• The most important part of every plan is planning on your plan not going according to plan.

14. You’ll Change: Long-term planning is harder than it seems because people’s goals and desires change over time.

• An underpinning of psychology is that people are poor forecasters of their future selves.

• You should aim, at every point in your working life, to have moderate annual savings, moderate free time, no more than a moderate commute, and at least moderate time with your family to increase the odds of being able to stick with a plan and avoid regret than if any one of those things falls to the extreme sides of the spectrum.

• We should also come to accept the reality of changing our minds. Some of the most miserable workers I’ve met are people who stay loyal to a career only because it’s the field they picked when deciding on a college major at age 18.

• Sunk costs—anchoring decisions to past efforts that can’t be refunded—are the devil in a world where people change over time. They make our future selves prisoners to our past, different, selves. It’s the equivalent of a stranger making major life decisions for you.

15. Nothing’s Free: Everything has a price, but not all prices appear on labels.

• The volatility/uncertainty fee—the price of returns—is the cost of admission to get returns greater than low-fee parks like cash and bonds.

16. You & Me: Beware of taking financial cues from people playing a different game than you are.

• Bubbles do their damage when long-term investors playing one game start taking their cues from those short-term traders playing another.

• When someone on the news says, “You should buy this stock,” keep in mind that they do not know who you are. Are you a teenager trading for fun? An elderly widow on a limited budget?

• Few things matter more with money than understanding your own time horizon and not being persuaded by the actions and behaviors of people playing different games than you are.

17. The Seduction of Pessimism: Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you.

• Optimism is the best bet for most people because the world tends to get better for most people most of the time. Pessimism isn’t just more common than optimism. It also sounds smarter.

• Optimism is a belief that the odds of a good outcome are in your favor over time, even when there will be setbacks along the way.

• When directly compared or weighted against each other, losses loom larger than gains. This asymmetry between the power of positive and negative expectations or experiences has an evolutionary history. Organisms that treat threats as more urgent than opportunities have a better chance to survive and reproduce.

• Pessimists often extrapolate present trends without accounting for how markets adapt.

• Threats incentivize solutions in equal magnitude. That’s a common plot of economic history that is too easily forgotten by pessimists who forecast in straight lines.

• It’s easier to create a narrative around pessimism because the story pieces tend to be fresher and more recent. Optimistic narratives require looking at a long stretch of history and developments, which people tend to forget and take more effort to piece together.

18. When You’ll Believe Anything: Appealing fictions, and why stories are more powerful than statistics.

• The more you want something to be true, the more likely you are to believe a story that overestimates the odds of it being true.

• Everyone has an incomplete view of the world. But we form a complete narrative to fill in the gaps.

• Hindsight, the ability to explain the past, gives us the illusion that the world is understandable. It gives us the illusion that the world makes sense, even when it doesn’t make sense. That’s a big deal in producing mistakes in many fields.

• Coming to terms with how much you don’t know means coming to terms with how much of what happens in the world is out of your control. And that can be hard to accept.

• We focus on what we know and neglect what we do not know, which makes us overly confident in our beliefs.

19. All Together Now: What we’ve learned about the psychology of your own money.

• Less ego, more wealth. Saving money is the gap between your ego and your income, and wealth is what you don’t see. So wealth is created by suppressing what you could buy today in order to have more stuff or more options in the future. No matter how much you earn, you will never build wealth unless you can put a lid on how much fun you can have with your money right now, today.

• Manage your money in a way that helps you sleep at night.

• If you want to do better as an investor, the single most powerful thing you can do is increase your time horizon. Time is the most powerful force in investing.

• Become okay with a lot of things going wrong.

• Use money to gain control over your time, because not having control of your time is such a powerful and universal drag on happiness.

• Be nicer and less flashy. No one is impressed with your possessions as much as you are.

• Save. Just save. You don’t need a specific reason to save.

• Avoid the extreme ends of financial decisions. Everyone’s goals and desires will change over time, and the more extreme your past decisions were the more you may regret them as you evolve.

• Respect the mess. Smart, informed, and reasonable people can disagree in finance because people have vastly different goals and desires. There is no single right answer; just the answer that works for you.

20. Confessions: The psychology of my own money.

• Important financial decisions are not made in spreadsheets or in textbooks. They are made at the dinner table. They often aren’t made with the intention of maximizing returns, but minimizing the chance of disappointing a spouse or child.

• Independence doesn’t mean you’ll stop working. It means you only do the work you like with people you like at the times you want for as long as you want.

• Independence, at any income level, is driven by your savings rate. And past a certain level of income, your savings rate is driven by your ability to keep your lifestyle expectations from running away.

• Live considerably below your means and establish that habit early in life.

• Most of what we get pleasure from—going for walks, reading, podcasts—costs little, so we rarely feel like we’re missing out.

• Comfortably living below what you can afford, without much desire for more, removes a tremendous amount of social pressure that many people in the modern first world subject themselves to.

• We keep a higher percentage of our assets in cash than most financial advisors would recommend—something around 20% of our assets outside the value of our house. This is also close to indefensible on paper. We do it because cash is the oxygen of independence, and we never want to be forced to sell the stocks we own.

• I think for most investors, dollar-cost averaging into a low-cost index fund will provide the highest odds of long-term success.

• We invest money from every paycheck into these index funds—a combination of U.S. and international stocks. There’s no set goal—it’s just whatever is leftover after we spend.

• Effectively all of our net worth is a house, a checking account, and some Vanguard index funds.

• One of my deeply held investing beliefs is that there is little correlation between investment effort and investment results.

• My investing strategy doesn’t rely on picking the right sector or timing the next recession. It relies on a high savings rate, patience, and optimism that the global economy will create value over the next several decades.