The Psychology of Money

The Psychology of Money explores how money moves around in an economy and how personal biases and the emotional factor play an important role in our financial decisions, as well as how to think more rationally and make better decisions when it comes to money.

Are you a greedy person? Of course not! Or at least, that’s what you tell yourself. We all like to think highly of ourselves and blame our misfortune on bad odds. This is the case of Jesse Livermore, a stock market trader born in 1877.

Prior to the notorious market crash that occurred in 1929, he took a short position, betting on the decline of the market. He made over $100 million, the equivalent of $1.6 billion today!

Instead of enjoying his riches for life, however, the winning trade made Livermore feel invincible. Naturally, it wasn’t long until he lost everything he had earned by placing all the wrong trades. The sudden downfall pushed him to the edge, and he eventually, sadly, ended his life one night.

The problem was that his success made him want even a bigger slice of the cake, although he already had more than anyone could wish for. The lesson here is: Don’t be greedy, and learn to be humble.

When you already have what you wished for or accomplished significant goals in your life, learn to be grateful, maintain your status, and enjoy the present, instead of always seeking more and more. When you’re scared of losing everything you have, you won’t be happy to risk it all for potential gains.

Most people know that investing takes time. They even want to stick to their investments through good and bad, but then the fear of missing out or envy get in the way — sometimes both at the same time! Managing your emotions is one of the most important things you can work on if you want to become financially independent. Always remember that your journey will be different from any other person you know, so there’s no need to compare yourself to them or be jealous of anyone’s greater assets. Just take the example of Rajat Gupta, the former CEO of McKinsey. Although he came from a modest background and made it to $100 million in net worth, he still was envious of Warren Buffett for being a billionaire. As such, he committed insider trading, which is one of the most common yet dangerous financial crimes for investors, and got charged with a substantial prison sentence for it. In other words, he let envy get the best out of him and paid for it a thousandfold. Was it worth it? Definitely not. However, his misfortune serves as a…