Do not buy a house...
Do not buy a house...
Advice by 'Psychology of Money' author Morgan Housel...
If you’re a finance geek like me then you’ve likely read the book ‘Psychology of Money’ - Morgan Housel. If you have not read it, then I would highly recommend it!
The book explores different elements of money such as:
Getting wealthy vs staying wealthy (which require implementation of different skill sets)
The power of compounding (which Warren Buffet has benefited from greatly)
Why saving money is important
How our individual perceptions of money form and affect our financial decisions
One of my favourite quotes from the book is:
Use money to gain control over your time, because not having control of your time is such a powerful and universal drag on happiness.
So when he was a guest on the Diary of the CEO, of course I had to listen to his perspective of money and here are my thoughts on segments of the interview.
Do not buy a house
Personally, this statement is one of my pet-peeves because it is too simplistic. It does not take into consideration the different facets around property buying such as personal preferences, the economy, property opportunities and asset diversification.
I do agree that property buying is a big deal and is not for everyone but a blanket statement like the above is misleading.
There are instances where renting is a better option than home ownership. For example, renting offers increased flexibility, may be cheaper or may not be appropriate for the current life stage etc.
However, others could argue that home ownership may be more favourable as it offers increased security and stability and may be linked to legacy etc.
Property is not the only investment strategy as others may offer a greater return i.e. investing in stocks. However, with investing in stocks, dollar cost averaging is important as is when you sell the stocks. During COVID, many had a negative portfolio but those who were not forced to sell managed to recover. The best investors have a diversified portfolio and cash for the unexpected which leads to my next point.
Risk is what you did not see coming
I found this comment very interesting. Morgan went on to expand on this idea further by stating the definition of risk is what is left after you have ‘mitigated’ everything else. He later evidenced by using Warren Buffet and his love for liquidity as an example. Warren Buffet’s (greatest investor of all time) investment company Berkshire Hathaway in 2022 had $35.811B as liquid cash - they have cash to buy when the market has a great opportunity.
He explained that roughly every decade there is something that we never expect i.e. financial crisis, COVID etc. No matter how many forecasts you do, you just cannot see them coming. However, those who have cash usually have a safety buffer. A buffer to ride through the financial impact of the risk and to take advantage of any opportunities arises.
This cash is also separate to an emergency fund and is part of your portfolio allocation which can make it look conservative.
Don’t play it safe
This is another interesting idea that I have heard many people say. It’s the concept of taking the most risky / unorthodox path in a career than sticking to the normal trajectory.
Why?
When you are younger, usually you are more risk tolerant and learn faster. For example, by working in a start-up, you may work closely with the CEO as the teams are smaller and failing is ingrained in the culture (usually).
My overall thoughts…
Definitely read the psychology of money because it is not like a typical finance book; it will challenge your thoughts of money
Never take statements at face value because they do miss key parts that influence/can influence an individuals decision.
There is no easy way for defining your career and creating wealth because we all have different values and personal situations.
What is your take? Let me know in the comments⬇️
Yours truly,
Dr Uyiosa xo
(lover of healthcare, business & healthcare)