The Psychology of Money — Personal Finance Tips for Ordinary People

Source: CITIC Publishing House

When I went to college, I worked as a valet parker at a high-end hotel in Los Angeles.

I had a regular customer—a tech executive. He was a genius; in his twenties, he designed a core component for a wireless router and filed a patent. He had also founded and sold several companies. You could say he was a very successful man.

In my view, his relationship with money was a tangled mix of insecurity and childish foolishness—complex, but still foolish.

He carried around a stack of 100-dollar bills about 10 centimeters thick. He would show the money to everyone, whether they were interested or not. He also openly and loudly bragged about his wealth—especially when he was drunk—and often for no real reason.

One day, he gave one of my coworkers a few thousand dollars and told him, “Go to the roadside jewelry store and buy me some gold coins with a face value of 1,000.”

An hour later, when the executive got the gold coins, he and his friends went out to a pier overlooking the Pacific. They started skipping these coins like stones. They laughed and argued about who could throw them farther. And they did it purely because they thought it was fun.

A few days later, he broke a table lamp in the hotel restaurant. The manager told him the lamp was worth $500 and that he needed to pay for it.

“Pay me $500?” the executive asked, incredulous, as he pulled out cash as thick as a brick from his pocket and tossed it to the manager: “This is $5,000—now make it disappear from my sight immediately. Don’t insult me with stuff like this again.”

You might wonder how long someone like him could keep behaving like that. The answer is: not for long.

I heard a few years later that the guy had gone bankrupt.

One of the book’s important premises is that whether you succeed at personal finance has little to do with your IQ, but is closely tied to your behavioral habits. And behavior is hard to teach—even when you’re dealing with people with very high IQs.

A genius who can’t control his personal emotions may trigger financial disaster. But on the flip side—ordinary people who haven’t received professional financial education can also end up wealthy, relying on good behavioral habits that have nothing to do with IQ.

The first sentence of my favorite Wikipedia entry goes like this:

Ronald James Read, American philanthropist, investor, doorman, and gas station attendant.

Ronald Read was born in rural Vermont. He was the first person in his family to attend high school. Even more astonishing, he had to hitch rides to get to school every day.

For those familiar with Ronald Read, there isn’t much worth saying about him. His life was always plain and unremarkable.

Read worked for 25 years as an auto mechanic at a gas station, and then spent 17 years laying floors at a department store, JCPenney. At age 38, he bought a two-bedroom home for $12,000, and spent the rest of his life there. His wife died when he was 50, and after that he never remarried. A friend of his recalled that his biggest hobby was splitting wood.

Read died in 2014 at age 92. Right then, this ordinary doorman from the countryside made headlines around the world.

In 2014, 2,813,503 Americans died. Fewer than 4,000 of them had net financial assets over $8 million at the time of death—and Read was one of them.

In his will, the former doorman left $2 million to his stepchildren, and donated the remaining more than $6 million to local hospitals and libraries.

People who knew Read were confused. Where did all that money come from?

In the end, it turned out there was no secret source of wealth. He didn’t win a huge lottery, and he didn’t inherit a large fortune. Read saved every penny he could, then used it to buy blue-chip stocks—and after that, it was just a long wait. By the time decades had passed, those small savings, through compound interest accumulating day by day, had snowballed into more than $8 million.

That’s all there was to his journey from a doorman to a philanthropist.

Just a few months before Ronald Read died, a man named Richard also made headlines.

Richard Fuscone had everything Ronald Read didn’t. Fuscone graduated from Harvard, earned an MBA, and had worked in management at Merrill Lynch. In short, his career in finance was very successful, so he chose to retire in his 40s and became a philanthropist. Merrill Lynch’s former CEO David Komansky once praised Fuscone, saying he had “exceptional business instincts, outstanding leadership ability, excellent judgment, and an upright character.” Crain’s named him one of the “40 Under 40” successful business people. But what happened next was just like what that tech executive who was skipping coins experienced—everything was destroyed.

Around 2005, Fuscone took on massive debt to expand his mansion in Greenwich, Connecticut, covering nearly 1,700 square meters. The home had 11 bathrooms, 2 elevators, 2 swimming pools, and 7 garages. Maintenance alone cost as much as $90,000 per month.

Then, in 2008, the financial crisis hit.

This crisis nearly touched everyone, and Fuscone was no exception—his financial assets turned to dust. High debt and financial assets that were hard to liquidate pushed him into bankruptcy. “I currently have no source of income,” he allegedly told the bankruptcy judge in 2008.

First, the mortgage foreclosure right on his house in Palm Beach was canceled.

By 2014, his mansion in Greenwich met the same fate.

Five months before Ronald Read donated his assets to charity, Fuscone’s home—according to guests’ recollections, a “inspiring place where you could drink and dance freely on a transparent floor overlooking the indoor swimming pool”—was foreclosed and sold at a price 75% below the insurance company’s valuation.

Ronald Read was patient, while Richard Fuscone was greedy—that is the fundamental reason for the gap between the two men’s educational backgrounds and financial experience.

The reason I bring this up is not to say we should learn more from Ronald, or avoid repeating Richard’s fate—though that advice is also correct.

What makes these stories so fascinating is that they only happen in the realm of investing and personal finance.

In what other field could a person who hasn’t been to college, hasn’t had training, has no background or professional experience, and no social connections overwhelm someone who has had the best education and professional training, with a strong network behind them?

I can’t think of a second one.

You can’t imagine Ronald Read doing a heart transplant and performing better than a trained surgeon who graduated from Harvard Medical School. You also can’t imagine having Ronald design a skyscraper and having his designs surpass those of experienced architects. And it’s even more impossible to imagine a doorman outperforming the world’s top nuclear power engineer in nuclear physics.

Yet such things do happen in the field of investing and personal finance.

Regarding why these two extreme cases—Ronald Read and Richard Fuscone—coexist, people have proposed two explanations. One is that the outcomes of personal finance often come down to luck, having nothing to do with intelligence or effort. This statement is true to a certain extent, and this book will discuss it in detail later. Another explanation (and the one I think is more common) is that success in financial matters is not a hard science, but a soft skill—what you do matters more than how much knowledge you have.

I call this soft skill “the psychology of money.” The purpose of this book is to use small stories to show people that in personal finance, soft skills are more important than technical abilities. I’ll use an appropriate approach to help everyone—from Read to Fuscone, and everyone in between—so that you can make better financial decisions.

I gradually realized that these soft skills are being underestimated too much.

A lot of financial knowledge is built on math. You need to plug data into formulas, and then the formulas tell you what to do—and the mainstream view is that you need to follow them.

This is true in personal finance, too. People will tell you that you need to set aside an emergency fund for 6 months and save 10% of your monthly paycheck.

It’s also true in investing. We know there are precise historical correlations between interest rates and valuations.

It’s the same in corporate finance. CFOs can estimate the cost of capital precisely.

I’m not saying any of this is right or wrong. I’m saying that knowing what to do doesn’t mean that when you actually do it, your brain will operate exactly according to what you know.

There are two things that affect everyone, whether you’re interested or not—health and money.

The healthcare industry is one of the great achievements of modern science, and today, people everywhere are living longer. Scientific discoveries have repeatedly overturned doctors’ old ideas about how the human body works, so almost everyone has become healthier.

But in money-related areas—investing, personal finance, business planning—the situation is completely different.

In the past 20 years, the finance industry has attracted the smartest people from the world’s top universities. Ten years ago, finance engineering was one of the most popular majors in the School of Engineering at Princeton University. So is there evidence that all of this has made people better investors?

So far, I haven’t found any.

Over the past several thousand years, human society has made us better agricultural workers, more specialized electricians, and more advanced chemists through collective trial and error. But has trial and error made us better at personal finance? Has the probability of us going into debt gone down? Has our awareness of saving for emergencies improved? Have we been preparing for retirement earlier? Have we developed a realistic understanding of the relationship between money and happiness?

As for that, I still haven’t found convincing evidence.

I think the main reason is that the way we think about and learn personal finance is more like learning physics—full of rules and laws—rather than learning psychology, which focuses on emotions and their subtle changes.

For me, that’s the most important and most fascinating part.

Money is everywhere. It affects everyone, and it also makes many people find it difficult to understand. People have very different ideas about how to handle money. Knowledge and experience about money can also be applied to many other problems in life—risk, confidence, and happiness. Few other things can act like a powerful magnifying glass, helping you understand why people take certain actions. You could say that human behavior involving money is one of the greatest performances on Earth.

My understanding of the psychology of money developed gradually over the past 10-plus years as I kept writing about related topics. I started writing articles about finance and investing in early 2008—right before the financial crisis, at the darkest moment of the economic downturn of the past 80 years.

To explain clearly what was happening, I first had to figure out the situation. But after the crisis broke out, the first lesson I learned was that no one could accurately explain what exactly happened, let alone why it happened or how to respond. Every seemingly reasonable explanation would face an equally convincing rebuttal.

Engineers can determine why a bridge collapsed because when the forces in a specific area exceed a certain threshold, the bridge fails—that’s an accepted fact. Physical phenomena don’t invite controversy because they must obey the laws of physics. Financial phenomena are different: they’re determined by human behavior. What I did made sense to me, but you might find it hard to understand.

The more deeply I studied the financial crisis and wrote about it, the more I realized that to understand the financial crisis, you might need to start from psychology and history rather than from finance itself.

To understand why people get trapped in debt, you don’t need to study bank interest rates; you should study the history of human greed, insecurity, and optimism. To understand why people sell stocks at the bottom of a bear market, you shouldn’t focus only on the math of expected future returns; instead, think about the kind of anguish an investor feels when he’s calculating whether his investment behavior could endanger his family’s future life.

I particularly like a line from Voltaire: “History never repeats itself, but human beings are always doomed to repeat the same mistakes.” This is especially true for our financial behavior.

Basic Information

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Book title: The Psychology of Money (New and Expanded Edition)

English title: The Psychology of Money

Author: Morgan Housel

Translator: Julia

Price: 58.8 yuan

Publication date: April 2026

Format: 32mo

Number of pages: 312

Print sheets: 9.75

Book number: ISBN 978–7–5217–8503–6

Book Overview

Money is the most crucial topic each person has to deal with in life.

The essence of personal finance is not studying finance itself, but studying how people relate to money.

The key to getting rich and keeping wealth is not about knowing how much financial knowledge you have; it’s about how you overcome human weaknesses and recognize the true nature of how money works.

In The Psychology of Money (New and Expanded Edition), Morgan Housel shares 22 wealth lessons drawn from everyday life, using clear and humorous writing. He dissects the underlying logic of the world of money—directly and incisively. The whole book not only answers the practical question of “how to make money,” but also addresses the deeper need of “how to live with money.” In uncertain times, it inspires ordinary people to make wiser wealth decisions and offers them the gift of time.

At the same time, in this new edition, the author has greatly expanded the content.

If you’re a finance beginner, you’ll receive a straightforward, concise finance lesson that will benefit you for life. If you’re a seasoned investor, this book will also help you fill in gaps, strip away excess, and protect the hard-earned wealth you’ve built.

About the Author

Morgan Housel

Partner at The Collaborative Fund, bestselling author, and columnist for The Wall Street Journal. He has won the New York Times Sidney Award, and received the Best Business Writing Awards from the American Society of Business Editors and Writers twice, and was a finalist for the Gerald Loeb Award for Distinguished Business and Financial News twice.

He is the author of The Art of Money and The Psychology of Money, which sparked widespread discussion about money, human nature, and happiness. The Psychology of Money was selected for Douban’s “2023 Annual Business & Management Books,” and has sold over 10 million copies worldwide.

Table of Contents

Preface: The Greatest Show on Earth

1 No one ever truly loses their mind about money

Your personal experience with money

may be only one one-hundred-millionth of all related experiences in the world, yet it could still determine 80% of how you understand how the world works.

2 Luck and risk

Nothing is really as good as it seems.

And nothing is really as bad as it seems.

3 Never being satisfied

The hardest financial skill to master

is to teach the desire to chase returns to stop at what’s appropriate.

4 The secret of compounding

Of Warren Buffett’s $84.5 billion net worth,

$81.5 billion was earned after he turned 65.

Our thinking patterns are truly hard to understand for phenomena that seem so “absurd.”

5 Getting rich and staying rich

The key to smart investing

is not making the best decision every time,

but consistently avoiding major mistakes.

6 A few events determine most outcomes

Even if you’re wrong half the time,

you might still end up with a huge fortune.

Tail effects decide everything.

7 Freedom

Time freedom

is the biggest dividend money can bring you.

8 The luxury car paradox

No one will care about how much money you have

the way you do.

9 Wealth is what you can’t see 099

Bragging about wealth

is the fastest way to get poor.

10 Save money 107

The only factor you can truly control

is exactly what determines the few important things in your life.

How wonderful.

11 Being broadly rational beats being perfectly rational 117

Striving for broadly rational thinking,

often works better

than striving for perfectly rational thinking.

12 Unexpected events drive shifts in the overall picture 129

History is a study of change,

but, with a hint of irony, people often treat it as a tool for predicting the future.

13 Error-tolerance space 145

The most critical part of any plan

is to make provisions for the plan failing to go as expected.

14 No one is set in stone 159

Long-term planning is hard to realize

because people’s goals and desires change over time.

15 There’s no free lunch 169

Everything has a cost,

but not every cost comes with a price tag.

16 “You should buy this stock” 181

Beware of financial advice

from people

whose game rules

are different from yours.

17 The temptation of pessimism 191

Optimism is like a smooth-talking salesperson,

but pessimism is like a genuinely helpful good friend.

18 There’s always a beautiful story 207

The more you want something to be true,

the easier it is to believe stories that exaggerate what’s possible.

19 Steadfast in belief, but flexible in holding 223

The times have changed—and they keep changing.

To be a better investor, you need three key traits.

20 The power of consistency 235

If you want to achieve the greatest investment returns in your lifetime,

the wisest strategy usually isn’t to maximize annual return,

but to focus on those “pretty good” returns

that you can sustain over the long term.

21 14 practical suggestions for making wise investments 245

Concise and actionable.

22 A simple personal finance plan 255

How I apply the psychology of money myself.

Appendix: A brief history of how the mindset of American consumers formed

Acknowledgments

References

Sample pages