10 Money Lessons From Morgan Housel

If you aren't already following these principles, 2024 might be a good starting point

- Vivek Kaul

Over the last few years, Morgan Housel has become a very popular writer and blogger on personal finance. His two books, The Psychology of Money and Same as Ever, have extensively covered the idea of how to go about managing one’s money. In this piece, we will look at the basic ideas that Housel espouses and how you can go about implementing them in your own personal journey of earning money and saving it.

1 THE WARREN BUFFETT PRINCIPLE

As cliched as it might sound, the power of compounding remains the most powerful way of building wealth. As Housel writes in The Psychology of Money: "If something compounds—if a little growth serves as the fuel for future growth—a small starting base can lead to results so extraordinary they seem to defy logic." Housel offers the example of Warren Buffett. At the time of writing the book (it was published in 2020), Buffett’s net worth was $84.5 billion. Of this, $84.2 billion was accumulated after he turned 50.

Housel carries a thought experiment to make a very interesting point. At the age of 30, Buffett’s net worth was $1 million. But let’s say he was more like a normal person and had a net worth of around $25,000 when he turned 30. Now, what if he managed to generate an extraordinary return of 22% per year on this amount, how much would the $25,000 be worth at the age of 60? Take a guess. It would be worth $11.9 million. Yes, you read that right. Which is almost like zero in comparison to $84.5 billion that Buffett was worth. The real compounding happened only after he turned 50.