Hey Friends,
November has come. Days got shorter and I spend more time in darkness, under artificial light, longing for the summer sun. And yet, this kind of grey weather has its own charm and I quite enjoy running with this tranquil rainy background. Everything seems calmer, quieter on the surface, but the city is, of course, as always full of urgency and rush. Every evening I leave the city to my running island in the middle of the river and see less and less people who have found the strength to keep their heartbeats up in the darkness — both because of running and just because it can be a bit scary (like when you are the only one doing a lapse around the island and hearing nothing but your own foot steps).
If you haven’t guessed it already, then this is Caesura, weekly-ish newsletter by me, Adil, saying hi to you and hoping you are keeping your head proudly up. And if you are not, that is fine as well — just remember, everything comes and go, and this shall pass too.
📕 The Psychology of Money
I have read literally zero personal finance books in my life. The Psychology of Money by Morgan Housel is thus, has a special honor to be the first one. I do not remember where exactly I learned about this book, probably upon some youtuber’s recommendation, but I do remember that it caught my attention because it was not a finance book per se, but rather “healthy relationship with money”-type of deal. And the heaven knows, we all need one.
My expectation was justified. The book is about thinking about money in a sort of realistic and humble way and is not a get-rich-quick scheme. It is not an advice how to earn more, but more of how to manage what you already have and how to make that process sustainable. When reading, you would be surprised of how many of all those things you already know, but in the form of an unconnected data points, and the book gives you the framework to draw a line between them.
It is a really good book for the purposes it sets to achieve — do read it, if you are interested.
Below I collected the main ideas of the book in the form of direct quotes. So, here it goes:
Less ego, more wealth. Saving money is the gap between your ego and your income, and wealth is what you don’t see.
Someone driving a $100,000 car might be wealthy. But the only data point you have about their wealth is that they have $100,000 less than they did before they bought the car (or $100,000 more in debt).
A young lawyer aiming to be a partner at a prestigious law firm might need to maintain an appearance that I, a writer who can work in sweatpants, have no need for. But when his purchases set my own expectations, I’m wandering down a “path of potential disappointment” because I’m spending the money without the career boost he’s getting.
When you define savings as the gap between your ego and your income you realize why many people with decent incomes save so little. It’s a daily struggle against instincts to extend your peacock feathers to their outermost limits and keep up with others doing the same.
Wealth is just the accumulated leftovers after you spend what you take in. And since you can build wealth without a high income, but have no chance of building wealth without a high savings rate, it’s clear which one matters more.
The wisdom in having room for error is acknowledging that uncertainty, randomness, and chance—“unknowns”—are an ever-present part of life.
A good rule of thumb for a lot of things in life is that everything that can break will eventually break.
The biggest single point of failure with money is a sole reliance on a paycheck to fund short-term spending needs, with no savings to create a gap between what you think your expenses are and what they might be in the future.
Sunk costs—anchoring decisions to past efforts that can’t be refunded—are a devil in a world where people change over time. They make our future selves prisoners to our past, different, selves. It’s the equivalent of a stranger making major life decisions for you.
The bigger the gap between what you want to be true and what you need to be true to have an acceptable outcome, the more you are protecting yourself from falling victim to an appealing financial fiction.
Optimism is a belief that the odds of a good outcome are in your favor over time, even when there will be setbacks along the way.
Define the cost of success and be ready to pay it. Because nothing worthwhile is free. And remember that most financial costs don’t have visible price tags. Uncertainty, doubt, and regret are common costs in the finance world. They’re often worth paying. But you have to view them as fees (a price worth paying to get something nice in exchange) rather than fines (a penalty you should avoid).
Growth is driven by compounding, which always takes time. Destruction is driven by single points of failure, which can happen in seconds, and loss of confidence, which can happen in an instant.
But problems correct and people adapt. Threats incentivize solutions in equal magnitude.
Save. Just save. You don’t need a specific reason to save. It’s great to save for a car, or a downpayment, or a medical emergency. But saving for things that are impossible to predict or define is one of the best reasons to save. Everyone’s life is a continuous chain of surprises. Savings that aren’t earmarked for anything in particular is a hedge against life’s inevitable ability to surprise the hell out of you at the worst possible moment.
See ya,
Adil