The Psychology of Money Chapter 3: Never Enough

You’ve likely heard of Bernie Madoff, one of the most infamous financiers in modern history for his Ponzi scheme of over $60,000,000,000 (that’s $60 billion, if there are too many 0’s to count). What you may not know is that he was a very successful and legitimate businessman prior to his troubles. He helped people buy and sell stocks at a lower price, and was so good at it that his firm made between $25-50 million per year – all while offering lower prices for everyone else.

Housel tells another truly rags to riches story of Rajat Gutpa, who was an orphan in India and before 50 was a CEO worth $100 million. The problem? He hung out with billionaires, and wanted to be one of them. He engaged in insider trading as part of his attempt to get more, and went to prison for it.

The question might seem crazy to us (see chapter 1), but for this chapter we need to ask with Housel, “Why someone worth hundreds of millions of dollars would be so desperate for more money that they risked everything in pursuit of even more?”

Housel’s point is not, nor am I advocating that it is a problem to have or earn huge sums (defining this is subjective, but we’ll safely assume that hundreds of millions of dollars is a huge sum). Quite the contrary, Madoff only made his legitimate revenue by helping millions of people save money and make our financial markets more efficient. It was a win-win.

The takeaway is that “there is no reason to risk what you have and need for what you don’t have and don’t need.” You can take $1,000 to Vegas and not be in financial ruin if you lose it all. And while I don’t recommend gambling as a wealth building strategy, we do recommend taking small, measured risks with surplus (what we don’t need for now) to increase wealth that we will need and even beyond our needs for later. Housel’s insights to remember for those times in life when we have a surplus

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

2. Social comparison is the problem here.

3. “Enough” is not too little

4. There are many things never worth risking, no matter the potential gain.

Freedom, independence, family and friends, being loved by those who you want to love you, happiness – all things that are invaluable. To the extent that you have these, don’t risk losing them to gain something that you want but don’t need. The things invaluable to you are what should be at the core of your plan, and at the core of what financial risks we take – and don’t take – to get you where you want to be.

Until next time, happy reading!