Welcome to this week's newsletter!
One of my favorite finance books is Psychology of Money by Morgan Housel. Unlike many financial books that focus on numbers and strategies, Housel's work delves into the psychological aspects of money management, offering timeless wisdom that I think is sometimes more important.
I want to share with you the 4 Wealth Lessons from this book. I picked up a different book earlier this week called Your Money or Your Life by Vicki Brown, and it has similar theme, and I just had to pick up Housel's book again because "it's that good".
1. The Importance of Avoiding Lifestyle Creep
Lifestyle creep occurs when a person's standard of living improves as their income increases, leading to higher spending and little or no improvement in savings. Housel highlights this as a common pitfall that prevents people from achieving financial freedom.
Nurses, who often experience income growth as they gain experience or take on additional shifts, are particularly susceptible to lifestyle creep.
How this can apply to you: To avoid lifestyle creep, you should resist the urge to upgrade their lifestyle with every pay increase. When I became a nurse, my initial spend was on a $45k car that I DID NOT NEED. I did it because everyone else I knew who are new grad nurses are buying new cars.
So, instead you should focus on maintaining a modest standard of living while directing any additional income towards savings, investments, or paying off debt. This disciplined approach will accelerate their journey towards financial freedom.
2. Understanding the Role of Luck and Risk
Housel emphasizes that luck and risk are two sides of the same coin in the world of finance. He explains that success in money management is often a mix of good decisions and fortunate circumstances. Conversely, even the best plans can be derailed by unforeseen risks.
How this applies to you: Acknowledging the role of luck and risk in financial outcomes can help you stay humble and avoid overconfidence in their investment decisions. Diversifying investments, maintaining an emergency fund, and being prepared for unexpected expenses (like medical emergencies or job loss) are practical steps to mitigate financial risk.
3. The Power of Compounding
One of the most powerful concepts in Housel's book is the power of compounding. Compounding, or earning interest on interest, can turn small, consistent investments into substantial wealth over time. This principle is especially relevant for nurses, who may start their careers with significant student debt and modest salaries.
How this applies to you: Starting to invest early, even with small amounts, can lead to significant growth over time. You should take advantage of employer-sponsored retirement plans, especially if there is a matching contribution, and consider opening a Roth IRA or other tax-advantaged accounts. The key is consistency; regular contributions, no matter how small, can grow exponentially through the power of compounding.
If you want to learn how to invest (in less than 2 hours), I am hosting a masterclass next week called Investing 101 for Nurses. It is on early bird price this week ($100 OFF) so make sure you register. Use PROMO CODE: INVESTREADY
4. The Importance of Financial Independence Over Being Rich
One of the core messages in The Psychology of Money is the distinction between being rich and being financially independent. Rich, as Housel describes, is often the visible display of money (fancy cars, big houses), while financial independence is the ability to live life on your terms, free from the constant worry of money. I used to strive to be that "rich auntie", but now all I really want at the end of the day is be able to do what I want in life.
Focus less on acquiring material possessions and more on building a financial cushion that allows for flexibility in career choices, the ability to take time off, or even retire early if desired.
How this applies to you: To achieve financial independence, you should prioritize saving and investing over spending on luxury items. Setting up automatic savings plans, contributing regularly to retirement accounts, and investing in low-cost index funds can help build the financial security needed to navigate the uncertainties of the profession.
Lastly, The Long Game: Patience and Discipline
The final takeaway from The Psychology of Money is the importance of playing the long game. Good things TAKE TIME. Achieving financial freedom is not about quick wins or making risky bets; it's about patience, discipline, and making consistent, small steps towards your goals over time.
In conclusion,
I love this book so much! The Psychology of Money offers valuable lessons that can be applied to anyone's financial journey, but they are particularly relevant for nurses seeking financial freedom. By prioritizing financial independence, understanding the role of luck and risk, harnessing the power of compounding, being reasonable in decision-making, avoiding lifestyle creep, embracing frugality, and playing the long game, nurses can build a secure financial future.
The principles outlined in Housel's book are not just about making more money but about creating a life of financial security, freedom, and fulfillment.
Hope that this is helpful for you.
My question is, have you read this book? What are your key takeaways from it?
Stock Market News
- US inflation data supports likelihood of September rate cuts - US consumer prices rose 0.2% in July, in line with expectations, reinforcing predictions that the Federal Reserve will cut interest rates in September.
- Announcement of Starbucks new CEO drives stock prices to go up- Starbucks announced that Brian Niccol, the current CEO of Chipotle, will take over as its new chief executive.
- Mars is buying the snack-focused company for $35.90 billion in cash, bringing together several of the largest U.S. candy and snack brands.
- Stock prices are back to the prices the prior week proving once again that "crashes" are part of a healthy, normal economy. Stay invested!
Quote of the Week
If life is a never ending loop of dirty dishes and dirty laundry, then that means that life is a never ending loop of home cooked meals and clean, comfy clothes.
Perspective really is everything. I know that sometimes, it can be hard to look at the positive side of things-- but trust me when I say, that you will feel so much better if you do. It's all in your head sometimes.
Have a great week ahead!
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