Psychology of Money: 5 Laws to Build Wealth | Finance Hacked
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FINANCE HACKED team would like to thank the audience for their interest and support of the Channel in the past time. We hope that the content of FINANCE HACKED will bring long-term value to the audience.
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Ever wondered why some people become incredibly wealthy while others struggle, even with similar backgrounds? Dive into the fascinating world of "The Psychology of Money" by Morgan Housel and discover 5 powerful, yet often overlooked, psychological laws that can dramatically impact your journey to financial freedom.
From understanding the surprising roles of luck and risk to mastering the power of compounding and recognizing your unique "financial DNA," this video breaks down complex concepts into actionable insights. Learn why pessimism can be a wealth killer, how focusing on the "long tail" can lead to investment success, and the crucial difference between being rich and truly wealthy.
Inspired by Lê Minh's aspirations and the wisdom of financial giants like Warren Buffett, this video reveals the mindset shifts necessary to build lasting wealth and achieve true financial well-being. Stop chasing fleeting formulas and start understanding the fundamental human behaviors that shape your financial destiny.
Timestamps:
[Optional: Add timestamps for each of the 5 laws for easy navigation]
Watch this video to learn:
How luck and risk influence your financial outcomes.
Why your personal experiences shape your money decisions.
The dangers of financial pessimism and the power of realistic optimism.
How the "long tail effect" works in investing and business.
The incredible power of compound interest and the importance of time.
The true meaning of wealth beyond material possessions.
Don't forget to SUBSCRIBE for more insights into personal finance and wealth building!
#PsychologyOfMoney #WealthBuilding #FinancialFreedom #MoneyMindset #InvestingTips #PersonalFinance #MorganHousel #FinancialLiteracy #CompoundInterest #WealthSecrets
----------------------------
FINANCE HACKED team would like to thank the audience for their interest and support of the Channel in the past time. We hope that the content of FINANCE HACKED will bring long-term value to the audience.
All contributions to support the development of the Channel, dear viewers can send to:
- PayPal: https://paypal.me/FinanceHacked
- Wise: https://wise.com/pay/me/hongnguyenphuongd
----------------------------
Ever wondered why some people become incredibly wealthy while others struggle, even with similar backgrounds? Dive into the fascinating world of "The Psychology of Money" by Morgan Housel and discover 5 powerful, yet often overlooked, psychological laws that can dramatically impact your journey to financial freedom.
From understanding the surprising roles of luck and risk to mastering the power of compounding and recognizing your unique "financial DNA," this video breaks down complex concepts into actionable insights. Learn why pessimism can be a wealth killer, how focusing on the "long tail" can lead to investment success, and the crucial difference between being rich and truly wealthy.
Inspired by Lê Minh's aspirations and the wisdom of financial giants like Warren Buffett, this video reveals the mindset shifts necessary to build lasting wealth and achieve true financial well-being. Stop chasing fleeting formulas and start understanding the fundamental human behaviors that shape your financial destiny.
Timestamps:
[Optional: Add timestamps for each of the 5 laws for easy navigation]
Watch this video to learn:
How luck and risk influence your financial outcomes.
Why your personal experiences shape your money decisions.
The dangers of financial pessimism and the power of realistic optimism.
How the "long tail effect" works in investing and business.
The incredible power of compound interest and the importance of time.
The true meaning of wealth beyond material possessions.
Don't forget to SUBSCRIBE for more insights into personal finance and wealth building!
#PsychologyOfMoney #WealthBuilding #FinancialFreedom #MoneyMindset #InvestingTips #PersonalFinance #MorganHousel #FinancialLiteracy #CompoundInterest #WealthSecrets
Category
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LearningTranscript
00:00Psychology of money, five laws to help you achieve wealth, a luxury car stopped, and
00:06Lamine was drawn to it.
00:09In his mind, he pictured himself behind the wheel.
00:13He longed to be like the car's owner, enjoying a life of material abundance.
00:20He dreamed of taking his parents on trips to see the beautiful sights they had always
00:25wished to see.
00:26He also hoped to buy his beloved a dazzling piece of jewelry she had admired through the
00:32shop window.
00:33He wished that even when buying a cup of coffee, he wouldn't have to worry about an extra payment
00:39of 5,000 dong.
00:42In reality, however, his wallet was empty, and he was merely an ordinary employee.
00:49So, how should Lamine address his concerns in life?
00:52How did those who started from nothing achieve success?
00:58And
00:59Coming from humble beginnings, why do some people possess wealth tens of thousands of times greater
01:06than others?
01:08Today, I want to introduce the book The Psychology of Money by Morgan Housel.
01:13In society, there are people who are extremely rich and others who are extremely poor.
01:21In fact, only a few truly understand the code of wealth, while most are busy chasing after
01:28it.
01:29Why do so many investment and finance books, filled with knowledge and specific formulas,
01:35fail to help people achieve financial success?
01:38It is because the economy is cyclical, and these formulas only work during certain phases.
01:47Therefore, we need to focus on universal principles, such as the nature of greed and fear in human beings.
01:56Voltaire once said,
01:58History never repeats itself, but man always does the same mistakes.
02:02This statement is especially true when applied to our behaviour regarding money.
02:09Housel argues that instead of merely examining historical events, we should search for the
02:14underlying psychological laws and human nature, and then consider how to leverage these discoveries.
02:22Many people believe that money is simply a matter of numbers, spreadsheets, and calculations,
02:29but that is a misconception.
02:30The wealth game is not just a dry math problem.
02:36It is a complex decision-making process involving human psychology.
02:42We are complex beings, and one's financial success depends not only on what they know,
02:48but also on how they behave.
02:51Simply put, an individual's financial decisions are tied to their psychological traits.
02:57Let's explore the psychological principles of money that can widen the gap between individuals by tens of thousands of times.
03:06The first principle, risk and luck, in 1968, there were about 300 million teenagers around the world.
03:15Among them, 300 students attended Lakeside School in Seattle,
03:20the only high school in the world at that time with a computer for programming education.
03:27It wasn't an ordinary computer but a device so advanced that even postgraduate students had never encountered it.
03:35For the students at Lakeside, this was a stroke of luck that changed everything,
03:40especially for a student named Bill Gates.
03:43In 1968, the chance for a high school student to have access to a computer was only about one in a million.
03:53Attending Lakeside gave Bill Gates a special competitive advantage.
03:58Gates candidly admitted in 2005 that without Lakeside,
04:02there would have been no Microsoft, most people know only Bill Gates and his classmate Paul Allen,
04:09the founders of Microsoft.
04:12However, among the talented computer students at Lakeside,
04:16there was also a third member, Kent Evans.
04:20Kent was just as intelligent and visionary,
04:23fully capable of becoming one of Microsoft's founders.
04:27But that never happened.
04:29Before graduating high school, Kent lost his life in a mountain-climbing accident.
04:37The probability of a high school student dying in a mountain-climbing accident was about one in a million,
04:43much like the chance Bill Gates and Paul Allen had to access a computer.
04:49Luck and risk, like wind and waves, determine a ship's journey.
04:55Although we can adjust the rudder and the sails,
04:58the ship's course and speed are ultimately influenced by external factors beyond our control.
05:06Therefore, always remember that survival must come first.
05:11Michael Moritz, CEO of Square Capital and a Billionaire,
05:16once shared in a famous interview that Square Capital became one of the most successful venture capital firms
05:22precisely because of its enduring perseverance.
05:25He noted that while some venture capital firms succeeded for only 5 to 10 years,
05:32Square Capital has withstood the test of time for 40 years.
05:37Similarly, Warren Buffett has stated that one of the secrets of investment success is not to lose capital,
05:44that is, to ensure you can continue surviving.
05:47Only when you remain standing do the opportunities to win increase,
05:53the path to financial success is full of twists and turns.
05:58Luck and risk play crucial roles in shaping our lives.
06:04Success is not solely the result of individual effort, nor is poverty entirely due to laziness.
06:10Behind it all lies an interweaving of factors such as family background and the environment in which one grows up.
06:19When someone enjoys success, they must recognize the role of luck.
06:24When they face failure, they need to understand the impact of risk.
06:28Only then can we develop a mature, correct view of money, avoiding overconfidence or self-blame
06:36while being prepared to adapt to any future uncertainties.
06:40Financial law number one.
06:42A person's financial success or failure cannot be solely attributed to themselves.
06:49The roles of luck and risk are indispensable.
06:52When learning from others' success stories, strive to identify universal patterns that can be widely applied
07:00rather than extreme cases that depend heavily on luck or risk.
07:05Extreme financial success stories are often very difficult to replicate.
07:10The second principle, your financial DNA, each person is born in different eras,
07:16lives in different parts of the world, and grows up in various economic environments.
07:23This leads to differences in income, perspectives on asset value, and money-related experiences.
07:31For example, those born in the 1950s and 1960s often believed that a stable government job was the key to a good life,
07:41whereas pioneers of free enterprise believed that entrepreneurship was the path to the life.
07:46They desired, take the stock market and inflation as examples.
07:52In the United States, those born in 1970 witnessed the SP500 index increase nearly tenfold,
08:00giving them a positive view of the market and a greater willingness to invest.
08:05Meanwhile, those born in the 1950s experienced a less-developed stock market,
08:11leading to a more pessimistic outlook and reluctance to invest.
08:15Those born in the 1960s went through a period of severe inflation,
08:21making them more aware of its impact and more pessimistic about it.
08:27Whereas those born in the 1990s, having experienced relatively low inflation, showed less concern.
08:34These very different experiences have strongly shaped their attitudes and behaviours regarding investment and financial decisions.
08:43People typically make financial decisions based on the information available at the time
08:48and the unique financial mindset they have developed.
08:52When making a decision, they believe it to be rational.
08:56Even if mistakes are made, they still trust that the choice at that moment was the best possible for improving their financial situation.
09:06Financial law number two, financial decisions are not based solely on logic or mathematics,
09:13they are shaped by each individual's experiences and unique worldview.
09:17Therefore, do not be too quick to embrace standardized financial advice,
09:24because what may seem irrational for others might be perfectly suited to your specific circumstances.
09:31The third principle, pessimism about wealth,
09:34people often say that one should remain optimistic,
09:37yet when it comes to money, most tend to lean toward pessimism.
09:41This inclination stems from deep within human nature.
09:47However, if we look back over the decades or even centuries of economic development since our birth,
09:55we realise that overall socio-economic conditions have steadily improved.
10:01So why do people tend to be more accepting of pessimism than optimism when it comes to assets?
10:07The reason is that good things take time to materialise, they do not happen in an instant.
10:15For example, if you choose the right investment market in the United States,
10:20even if the stock market drops 40% within six months,
10:25the decline immediately captures public attention and may even trigger government intervention.
10:30However, on average, every six years the US stock market tends to grow by over 140%,
10:39a fact that often goes unnoticed.
10:43Over the past 50 years in the US, medical advances have saved 500,000 lives annually.
10:51While rapid and unexpected events such as terrorism,
10:55airplane crashes or natural disasters easily dominate the news.
11:00Many tragedies occur overnight, yet miracles happening overnight are exceedingly rare.
11:06Before we delve deeper, remember to follow our channel for more truths about money
11:11and to help you quickly achieve financial freedom.
11:15Finance Hacked warmly greets you and our dear friends.
11:19It cannot be denied that pessimism acts as a warning in the two most important areas of life,
11:25money and health.
11:26Yet, pessimism can also become an obstacle to progress.
11:32In this process, we need to learn to extract constructive elements from pessimism
11:37and turn them into motivation for personal and social development.
11:42This is crucial, we need not be overly pessimistic.
11:47Even when faced with economic setbacks,
11:50we can trust that, over time, positive outcomes will ultimately arrive.
11:55Statistician Hans Rosling, a staunch advocate of possibility,
12:02encouraged evaluations based on reality rather than blind optimism or pessimism.
12:08Thus, the ideal state is to balance the two extremes,
12:13recognizing and preparing for risks while remaining open to future opportunities.
12:18Wars, trade conflicts, and continuous black swan events may leave you feeling confused about
12:26the global economy's direction.
12:29But when you read about global stock market crashes, economic crises, or other financial issues,
12:36remember that over time the world's economic situation tends to improve.
12:41Financial law number three, do not let pessimism about assets cloud your judgment.
12:48From a long-term perspective, realistic optimism usually leads to better financial success,
12:55while also enabling you to spot opportunities that pessimism might overlook.
13:00The fourth principle, the long-tail effect,
13:03in 1936, Heinz Berggruen fled Nazi Germany and settled in the United States.
13:09He later became one of the most successful art dealers in history,
13:15amassing a vast collection of artworks that included pieces by renowned artists such as Picasso,
13:22Paul Klee, and Henri Mattis.
13:26In 2000, by auctioning just a small portion of his collection,
13:30he raised over 100 million euros.
13:33What was his secret?
13:35Did he use special techniques, or was it simply luck?
13:42In reality, the method of successful collectors like him is very simple,
13:47they buy a large quantity of artworks and hold onto them for a long time.
13:53They wait until a few pieces in their collection gain fame and high value.
13:57Even if the majority of the works they own are of little value,
14:02just a small percentage becoming recognized masterpieces, like those of Picasso, is enough.
14:10This is the long-tail effect, only a few events or outcomes can determine the ultimate success.
14:17Berggruen's story offers a valuable lesson about investing.
14:21The long-tail effect applies to many aspects of business and investment.
14:28A clear example is the venture capital field.
14:32Most startups that receive venture capital funding fail, causing losses for the funds,
14:38but a few successful startups can yield returns of more than 20 times.
14:43Consider Amazon as an example.
14:47Amazon's success was driven by two major long-tail factors.
14:51Its e-commerce platform and the AWS cloud service.
14:56These two products alone were enough to compensate for all of Amazon's other unsuccessful investments.
15:04Such as the Amazon Fire phone or Amazon Destinations Travel Service.
15:10When the Amazon Fire project failed, Jeff Bezos did not apologize to shareholders.
15:15Instead, he remarked,
15:17If you think this is a big failure, then we are researching projects that could fail even bigger.
15:24Bezos understood that if just 1% of his investment projects achieved great success,
15:30then all the mistakes and failures of the rest could be accepted.
15:35In investing, the long-tail effect is common, yet most of us tend to overlook it.
15:40When an investment runs into problems, we often overreact.
15:46However, if you use the long-tail effect to plan your business, investment, and financial activities,
15:54you will not be overly affected by failures or mediocre outcomes.
15:58Warren Buffett, among nearly 500 stocks he selected, derived the bulk of his returns from only 10.
16:08A good investor only needs to be right half the time to be considered excellent.
16:13A great leader only needs to make the right decision half the time to be admirable.
16:19In every aspect of life, we must continually experiment and learn from our mistakes.
16:26Sometimes errors occur, but that does not mean success is unattainable.
16:32Final outcomes are often determined by a few key events.
16:36Financial law number 4, in investment and business,
16:40do not worry too much about frequent failures or mediocre results.
16:44Success often depends on a few major wins or key events that yield significant profits.
16:52The fifth principle, Warren Buffett's success.
16:57There is no doubt that Warren Buffett is regarded as one of the greatest investors in history.
17:03Astonishingly, 96% of Buffett's net worth was amassed after the age of 60.
17:10Few pay attention to the simple fact that the enormous numbers in Buffett's
17:14account stemmed not only from his talent, but also from time and perseverance.
17:20Not only was he an outstanding investor, but he had been an exceptional one since childhood.
17:27Warren Buffett began learning about investing at the age of 11,
17:32thereby harnessing the power of compound interest.
17:36The power of compounding is enormous.
17:38Suppose you invest $10,000 at an annual rate of 8%.
17:44After one year, you would have $10,800.
17:50If you reinvest all of that money at the same 8% in the second year,
17:55your earnings would be $864, meaning your principal grows year after year through compounding.
18:03Over time, after 50 years, the total amount would reach $469,166, or 46.9 times the original sum.
18:17This is precisely what Warren Buffett did.
18:20He started investing seriously at age 11, and by age 30, his net worth had reached $1 million.
18:29What if, at that point, Buffett had abandoned compound interest?
18:35If he had behaved like most 30-year-olds, spending most of his income on travel and flashy cars,
18:42he would have squandered his savings.
18:44Suppose he had only $25,000 remaining and continued investing at an impressive average return of 20.2%
18:54per year, today his net worth would only be about $11 million, a mere fraction compared to his actual
19:01wealth. Therefore, Buffett's financial success stems from building a strong financial foundation
19:09early on and maintaining long-term investments with compound interest.
19:15His secret lies in time and the power of compounding, consider another perspective.
19:21Although Buffett is one of the richest investors in history, in terms of average annual returns,
19:27he is not the best. For example, hedge fund manager Jim Simons achieved an annual growth rate of up to
19:3566% starting in 1988. However, Simons' net worth is only $21 billion, much lower than Buffett's.
19:47The reason is simple, Simons only found his investment rhythm in his 50s.
19:54This means he had only half the time for compound interest to work compared to Buffett.
19:59Had Simons enjoyed as long an investment period as Buffett, his net worth could have exceeded $6,000
20:07billion. Therefore, do not underestimate the power of compound interest. The earlier you start,
20:17the better, and even if the annual return seems small, it should not be overlooked.
20:23Human nature tends to think linearly, so we often fail to fully appreciate the
20:29exponential growth power of compound interest. Although its long-term benefits are enormous,
20:36compounding is frequently underestimated. We must learn to overcome our intuitive biases,
20:43recognize the value of patience and persistent effort, and not let the pursuit of immediate
20:49gratification rob us of long-term growth opportunities. The wisdom of compound interest applies not only to
20:57finance, but also to accumulating knowledge, improving skills, and personal development.
21:05Learning a little every day may seem insignificant, but over many years it can build an expansive system
21:11of knowledge and exceptional expertise. Compound interest reminds us that great achievements are not
21:19the result of sudden bursts of effort, but of continuous, repeated small efforts over time.
21:26Remember, miracles are often hidden in ordinary, persistent endeavors. Financial law number five,
21:33people tend to focus on short-term gains and overlook the long-term impact of compound interest.
21:40Understanding and leveraging the power of compounding is key to achieving lasting financial success.
21:49It is not about chasing quick profits, but about pursuing stable, sustainable growth over time,
21:56people always long to become richer in order to feel happier.
22:01However, according to Morgan Housel, the key to happiness lies in the ability to control
22:06your own time and do what you want. Many work hard to pursue material wealth,
22:13yet in the process, they forfeit the freedom to control their time.
22:19Although we may be wealthier than ever before, research shows that the freedom to control one's
22:25time and life is the main factor that brings happiness, more so than salary, house size, or career ambitions.
22:32Aspiration, a fundamental aspect of human nature, is the original driving force behind social
22:40progress but also the root of personal financial difficulties. On the path to wealth, people often
22:48ignore the wisdom of knowing when enough is enough. They wager what they already have to chase
22:55unnecessary desires, a meaningless gamble that increases financial risk and distorts the true
23:02nature of happiness. Many become trapped in an endless spiral of material pursuit, forgetting that
23:09genuine happiness does not come from the endless accumulation of wealth but from a balance between
23:15desire and achievement. Knowing when to stop is not only a principle in financial management but also
23:22an art of living. It teaches us to strike a balance between money and desire, to avoid being swept away by
23:30insatiable demands, thereby protecting our inner peace and finding true happiness. Thus, the ability to
23:38control your own time is the greatest reward and ultimate goal in the pursuit of wealth.
23:45Conversely, if you only chase money in search of happiness without managing your time, it is like
23:51pouring water into a leaky bucket, no matter how much you pour, it will continue to leak.
23:57Similarly, no matter how much wealth you accumulate, if you cannot enjoy your free time, you will not
24:05truly savor the fruits of your labor, and happiness will be short-lived. The greatest intrinsic value of
24:13money lies in its ability to give us control over our surroundings, the freedom to choose our work,
24:19the ability to retire when we wish, and the confidence to live without constant worry about survival.
24:26Happiness does not come directly from money, but from the sense of control over your life that money provides.
24:35Compared to income or living conditions, the true source of happiness is the ability to decide what to do,
24:42when to do it, and with whom.
24:44When considering how to build wealth or invest assets, the primary question should be whether it grants you the
24:51free time you the free time you can control, because having free time to do what you want is often more
24:56valuable than any material riches, for many, paying upfront for an asset is often more challenging than
25:03earning it. We tend to believe that those driving Lamborghini supercars are very rich.
25:11But appearances can be deceiving.
25:13In reality, many people live extravagantly by relying on debt to sustain their lifestyles.
25:22Wealth is not directly linked to one's spending habits, whether it's the car they drive, the diamond rings they wear,
25:30or the large houses they live in.
25:33True wealth is associated with financial assets that are not being actively used,
25:38assets that generate passive income through interest, appreciation, or rental yields.
25:45We often dream of having others' respect and admire us by displaying symbols of wealth,
25:51but that expectation frequently falls short.
25:55Instead of admiring your wealth, others may see it as a benchmark for their own goals and self-worth.
26:02The process of building wealth often involves risk-taking.
26:08An entrepreneurial spirit, and seizing opportunities, requiring exceptional judgment and execution.
26:16However, once wealth is accumulated, the focus should shift to preservation.
26:23At that point, the wealthy must remain humble, respect the market,
26:27recognize the fragility of their assets, and understand the role of luck in their success.
26:33Living frugally, investing cautiously, avoiding the blind replication of past successes,
26:41and always being prepared to face unforeseen events, humility, caution, and risk management are key.
26:48Accumulating wealth requires self-control and restraint.
26:52When someone chooses not to chase after luxury cars, extravagant watches, or first-class upgrades,
27:01they are practicing another form of wealth preservation.
27:05We can easily be swayed by the flashy appearances of those labeled as rich,
27:10idolizing them as role models.
27:13Yet, truly wealthy people are those who own financial assets that continually generate passive income.
27:20They often live modestly without ostentation while still maintaining incredible wealth.
27:28In contrast, many people with flashy appearances actually face significant financial risks.
27:36We commonly mistake wealth for consumption,
27:39but true wealth is the ability for your assets to continually increase in value.
27:43The key to wealth lies in self-control, asset accumulation, and investing in the future.
27:52In this era of extreme consumerism,
27:55maintaining personal value and resisting the pull of external consumer behaviors is a form of inner wealth.
28:03Understanding the true meaning of wealth and enriching the soul is a state of being we should all pursue.
28:09The wealth rule, remember that allowing your financial assets to continuously appreciate in value is the way to achieve long-term, stable income.
28:20Instead of equating wealth solely with material consumption such as luxury cars or high-end goods,
28:27focus on accumulating real wealth and do not be deceived by flashy appearances.
28:33Goodbye and see you next time.