Money is a fascinating topic, at least partly because it intersects with so many other fascinating topics. While your personal financial plan should be simple, to fully understand money you need to have at least a basic understanding of many other topics such as psychology, economics, politics, sociology, mathematics (particularly statistics and probability), philosophy, and history. Indeed, I have found some of my favorite personal finance ideas, concepts, and stories in books that aren’t about personal finance. With that in mind, here are 10 of my favorite personal finance books that aren’t really about personal finance.
The Time Paradox: The New Psychology of Time that Will Change Your Life by Phillip Zombardo and John Boyd
Time is money and money is time. While the relationship is complicated people have recognized for centuries that time and money are closely connected. This book identifies 6 unique time perspectives. The time perspectives are: Past-Positive, Past-Negative, Present-Hedonistic, Present-Fatalistic, Future, and Transcendental. Everyone identifies more strongly with one or two of these time perspectives than the rest.
All of time perspectives have positive aspects to them except for Past-Negative and Present-Fatalistic, which are almost always destructive. A balance between the other perspectives is necessary for happiness.
Because money is so closely tied to time, how you view time has a big influence on your money behaviors. Here is a link to a website where you can take a short quiz to identify your personal time perspective profile and find out what it means. My score was high in Past-Positive and Future perspectives, but low in the Present-Hedonistic perspective. This rings true for me and suggests I need to try harder to enjoy the present.
This book gave me a clearer picture of the relationship between time and money, which has helped me make better money decisions. I found the book and associated website both extremely interesting and very useful.
Thinking Fast and Slow by Daniel Kahneman
I have been fascinated by the field of behavioral economics since I first stumbled on it about 10 years ago. As an observer of human behavior the idea that humans are often irrational didn’t surprise me, but the discovery that everyone tended to be irrational in the same ways (what Dan Ariely calls Predictably Irrational) was a revelation.
Kahneman, along with his collaborator Amos Tversky, basically discovered this fascinating field. They did so by posing hypothetical situations to each other. If both of them tended to look at the situations in the same irrational way they figured they probably weren’t alone, so they designed experiments to find out. Speaking of this unique approach Kahneman latter stated, “People thought we were studying stupidity, but we were not. We were studying ourselves.”
It is difficult to overestimate the influence the field of behavioral economics has had on personal finance and investing. In 2002 Kahneman was awarded the Nobel Prize in Economics for his work in behavioral economics. Tversky died in 1996 and so wasn’t able to share in the award.
This book summarizes some of the key findings of this fascinating field. Financial progress requires minimizing your mistakes, and learning about the ways we tend to be irrational is an important step in making better financial decisions.
The Marshmallow Test: Why Self-Control Is the Engine of Success by Walter Mischel
Walter Mischel designed the famous Marshmallow Test in the late 1960s. The Marshmallow Test and numerous follow-up experiments highlighted the importance of delayed gratification, or self-control, in living a happy and successful life.
Once this was established, the vital question was if self-control was inherited, or if it could be learned. Mischel spent much of his life studying the question, and in this book he presents the hopeful message that, “The traditional belief that willpower is an inborn trait that you either have a lot of or you don’t (but cannot do much about either way) is false. Instead, self-control skills, both cognitive and emotional, can be learned, enhanced, and harnessed so that they become automatically activated when you need them.”
This book offers practical advice on how to improve self-control, and since financial progress requires a healthy dose of delayed gratification this is vital reading for anyone trying to rewrite their financial story.
How Not to Be Wrong: The Power of Mathematical Thinking by Jordan Ellenberg
Ellenberg wrote this book to answer the age-old question posed to math teachers: “When am I going to use this in real life?” He answers the question with a lot of great stories about how mathematical thinking can be used to solve common problems all of us face. Some of the stories are about investing and they are all fascinating.
Don’t be scared away from this book just because you might have had a rocky relationship with math in school. I certainly did, but I loved the book. The math is not that difficult, and the focus is on a way of thinking, not on formulas or calculations. All of us need to use math every day to manage our money, and this book will get you thinking about smarter ways to accomplish this.
Nudge: Improving Decisions about Health, Wealth, and Happiness by Richard Thaler and Cass Sunstein
This book is about how those with influence (choice architects), whether in private enterprise or government, can influence our behavior by the way they present choices. This can be done by changing the default option (what happens if no decision is made), limiting the number of choices available, changing the order in which the choices are presented, requiring disclosure of information, and many other tactics.
There is no doubt these tactics have a profound impact on behavior, which has the potential to be kind of creepy in a 1984 big brother kind of way. The authors acknowledge this but believe these tactics are completely ethical as long as freedom of choice is preserved. For example, if the default option is enrollment in a 401(k), opting out should be simple and straightforward.
While this is an interesting philosophical debate I found the book’s real value to be its potential to help individuals make better choices on our own. After all, we are all the primary choice architects of our own lives, and we have the power to use many of these same ideas to influence our own behavior.
Thaler once stated, “If you want to encourage someone to do something, make it easy.” This principle can also be used to influence yourself. In other words, if you want to do something, make it as easy as possible to do. This book gives you the tools you need to do just that.
Richard Thaler won the Nobel Prize in economics in 2017 for his work on behavioral economics. His most well-known innovation, The Save More Tomorrow plan, is presented in this book.
The Quest of the Simple Life by William J. Dawson
If you thought the Minimalist movement was a recent phenomenon, think again. This book was written almost 100 years ago by an English minister but contains many of the same concepts and ideas promoted by modern minimalists.
While the ideas are similar, the writing is completely different. Most writing today is simply a tool to convey information. While Dawson wanted to convey a message, he also saw writing as an art form, and he was a master artist.
The book is about an accounting clerk living in London who longed to escape the city for the simple life in a country cottage. The book is a work of fiction but it reads like a first-hand account. After only a page or two you will recognize that the book is from another era, and that you are in for a real treat.
The message of this book is important and the book is a delight to read. Best of all, the Kindle version is available for free on Amazon. What could be better than a fantastic book for free?
Investing: The Last Liberal Art by Robert G. Hagstrom
Warren Buffett’s partner, Charlie Munger, believes that to be a good investor you need to read widely on topics that have nothing to do with investing. Hagstrom found this concept compelling, which is what lead him to write this book.
In the book Hagstrom summarizes some of the “big ideas” from various fields and discusses ways in which these ideas can be applied to investing. Fields covered include physics, biology, sociology, psychology, philosophy, literature, and mathematics. The result of this unique approach was a book that I found to be both fascinating and thought-provoking.
Happy Money: The Science of Happier Spending by Elizabeth Dunn and Michael Norton
We have been told our whole lives that money can’t buy happiness but most of us don’t believe it. Dunn and Norton were also skeptical, which lead them to ask some interesting questions such as: Does money fail to make us happy because it can’t make us happy, or because we are not using it properly? If we spent it differently, could money make us happy?
A review of the research revealed some interesting conclusions. While more money in general buys surprisingly little additional happiness, there were exceptions. Dunn and Norton identified five principles of happier spending, as follows:
Using these five principles will help you squeeze the most happiness you can out of the resources you have. This book was extremely interesting and offered very specific and practical advice to increase your happiness by spending your money differently.
Factfulness: Ten Reasons We’re Wrong About the World – And Why Things Are Better Than You Think by Hans Rosling
Is the world falling apart around us or are things better now than ever before? This is an important question, and we should expect our schools and other institutions to present an accurate picture. Unfortunately, this is not happening.
In this book Rosling presents the results of a quiz he has given to thousands of people in many countries on world conditions. The results are astounding. People, on average, score far worse than they would if they were selecting answers randomly, and the answers uniformly present a view of the world far more pessimistic than reality. While conditions in the world are improving vastly, most people have the impression that things are worse than ever. And to make matters worse, on many of the questions the more education you have, the worse you perform.
Rosling gives some reasons on why he thinks this is happening. Rosling’s theories are interesting but in the end it represents a colossal failure of schools, media, and other institutions to convey the truth. This book is important because having a correct picture of world conditions – both where we are now and the direction we are moving – is vital to our happiness, mental health, and where and how we choose to spend and invest our money.
Bill Gates has called this book “one of the most important books I’ve ever read – an indispensable guide to thinking clearly about the world.” In fact, Gates liked the book so much that he has offered to buy an electronic version of it for everyone who graduates from college in 2018.
The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb
Investing is all about managing risk, and this book presents an interesting way to think about risk. Taleb defines a Black Swan as an event that is (1) improbable, (2) highly impactful, and (3) can’t be predicted in advance, but looking backwards it seems obvious that it would happen.
Taleb believes we should divide the things we measure by statistics into two areas Mediocristan and Extremistan. Mediocristan should be reserved for areas where Black Swans don’t occur. Standard statistical tools such as the bell curve work well in Mediocristan. Extremistan is where events subject to Black Swans reside, and Taleb believes that standard statistical measures are misleading and harmful when measuring risk in Extremistan. Unfortunately, economics and finance are firmly in Extremistan. The result, according to Taleb, is that we significantly underestimate the risk of investing.
The book is long and difficult to read, and Taleb is often overbearing and overconfident. Nevertheless, the book does offer an interesting and useful way to look at the risk of investing. The lesson for investors is to expect and be prepared for Black Swans.