The task of managing money may often feel like walking on a tightrope, especially for those people who are either aspiring to get wealthy or stay wealthy. At first, it sounds like they’d go hand in hand, right? But in reality, they require completely different skills and mindsets. This idea, explained beautifully in Morgan Housel’s "The Psychology of Money", is one that applies to nearly everyone, especially those of us in India who are navigating our own financial journeys.
Writes Morgan, “There are a million ways to get wealthy and plenty of books on how to do so. But there’s only one way to stay wealthy; some combination of frugality and paranoia”
To understand how these two factors can transform the approach for someone navigating their financial journey, let’s begin with a quick story about two fictional individuals:
Ramesh, the Ambitious Climber
Ramesh grew up in a modest family in Jaipur while dreaming of a life of abundance. Fueled by ambition he worked tirelessly to establish a successful textile business. Over time, as his business grew, he made bold decisions and took calculated risks while reinvesting most of his profits.
By the time he was in his 40s, Ramesh’s wealth grew but so did his appetite for risk. He took up massive loans to expand the business, confident that his success would continue. However, when hit with a market slump and dry demand, Ramesh’s debts became unmanageable. Within the next five years, his business shrunk and wealth started drying up.
The reason behind this downfall was Ramesh’s inability to prioritise stability over expansion at crucial stages of his life.
Nitin, the Cautious Steward
On the other hand is Nitin, an IT software engineer from Pune, who kept a very different approach to money. A few years into his career, Nitin started a tech startup and built it up to a scale that was acquired by a multinational company. Overnight, he found himself with a significant amount of wealth.
However, unlike Ramesh, Nitin was not a casual risk-taker. With a very cautious approach and paranoia of managing so much money, he splits his money into diversified investments and takes help in managing the funds wherever needed. Most importantly, he ensures that a chunk of this wealth is set aside as an emergency fund.
When the pandemic hit and industries were disrupted globally, Nitin’s finances did not spiral out of control because of diversified investments and an emergency savings fund. While many of his peers panicked about crashing markets, he had a safety net that allowed him time to ride out the storm.
The difference? Nitin was not just focused on getting wealthy but he also understood how to stay wealthy and planned accordingly.
The contrasting fates of Ramesh and Nitin highlight one truth; while ambition and optimism can help you accumulate wealth, it’s humility and caution that preserve it.
Morgan Housel tries to emphasise this aspect of managing money where Getting Wealthy requires risk-taking, a positive outlook, and bold action, Staying Wealthy, on the other hand, demands frugality, paranoia, and an understanding of the unpredictable nature of life.
Two Pillars of Finacial Longevity
What can one do to strike the right balance? Here are two principles from the book that offer timeless guidance:
1) The Power of Survival: We often chase extraordinary returns, while the real secret to building wealth lies in longevity. Morgan stresses the concept of ‘compounding’ which only works when you allow time to do its magic. He points out that Warren Buffett’s incredible fortune is not just a result of smart investments, but it’s his ability to stick around for decades without wiping out that truly sets him apart.
In practical terms, this means having a financial cushion to weather storms. For instance, an emergency fund of at least six months' expenses might seem unnecessary during a bull market. But when a crisis strikes, be it a job loss, a medical emergency, or an economic downturn, it can mean the difference between survival and financial ruin.
2) Room For Error: “A plan is only useful if it can survive reality. And a future filled with unknowns is everyone’s reality.” Morgan stresses that a good plan would never pretend this wasn’t true; it embraces it and emphasises any room for error.
The more an individual needs any specific element of their plan to be true, the more fragile their financial life becomes. If there’s enough room for error in your savings rate you can say, “It’d be great if the market returns 8 per cent a year over the next 30 years, but if it only does 4 per cent a year I’ll still be OK,” the more valuable your plan becomes.
The author says, “Many bets fail not because they were wrong, but because they were mostly right in a situation that required things to be exactly right.” Therefore ‘Room for error’ (often called margin of safety) is a very significant force in finance.
This can come in many forms: A frugal budget, flexible thinking, and a loose timeline, anything that lets you live happily with a range of outcomes.
The Bottom Line
Getting wealthy should not be the ultimate goal of building a financially secure future, the true challenge lies in staying wealthy. As the story of Ramesh and Nitin reminds us, staying wealthy requires a focus on survival, humility, and preparation.
For anyone managing money, the wisdom lies not just in making bold moves but in knowing when to step back, plan for the unexpected, and prioritize sustainability over short-term gains.
As Morgan Housel reminds us, “More than I want big returns, I want to be financially unbreakable.” And perhaps that’s the lesson we should all take to heart in our financial journeys.
Also, follow Outlook Money's Budget 2025 expectations stories here.
