Money is one of the few areas in life where intelligence and education don’t guarantee success. Our behaviors, emotions, and habits are far more important.

What can you do to be smarter with money? Are there universal principles that can truly help improve your financial situation? Absolutely. Let’s explore how the psychology of money shapes your financial life - and how to use three key principles from Morgan Housel’s The Psychology of Money to turn knowledge into action.

Our personal experiences with money are a tiny fraction of a percent of what has happened in the world, but the truth is that for us, it's 80% of how we see the world. Your personal history defines how you handle your finances and the choices you make. This often happens unconsciously – you may not even realize it.

Housel brilliantly illustrates this in his book, citing the example of how different generations approach investing money very differently. This is because during their most formative years – adolescence and early adulthood – they may have observed very different economic conditions and stock market performance.

People who came of age during the bull market of the 1980s and 1990s tend to view stocks more positively. This leads them to have a positive attitude toward investing in the stock market. In contrast, people who came of age during periods of market stagnation often developed a far more cautious view of investing.

People's financial behavior is a consequence of personal experiences that have shaped their perception of the world. So, for example, the fact that you can't convince your parents to manage their finances, get their estate planning in order, and save more for retirement isn't because they don't trust you or don't want to listen. Most likely, something in their personal experience has caused this attitude.

Once you realize how much your personal experiences shape your decisions, you can start intentionally seeking broader, more objective perspectives.

If our expectations rise with every new achievement, then simply earning more won’t automatically make us feel satisfied. This hunger for "more" will follow you like a shadow. There's a great definition of happiness that says that happiness is the difference between your results and your expectations. Therefore, one of the best things you can do for your finances is to lower your expectations about your lifestyle and stop comparing yourself to others. What does this mean in practice?

First, since our expectations rise with each new result, there's no level at which we'll magically feel: yes, now I'm rich. There's always someone several levels higher, with a bigger yacht or a nicer house. Therefore, we must consciously and intentionally set this level for ourselves. Second, since we know this is the most difficult skill in finance, it's definitely worth making it easier by using smart systems.

For example, one of the most practical applications of this principle is creating a solid household budget. If you simply let your money flow mindlessly from expense to expense, you'll spend more and more, never reaching that point of "I have enough." What happens when you start budgeting? First and foremost, you have control over your money. You determine how you spend money and see all your expenses at a glance. You know exactly how much money you need to cover your needs and how much you spend on various whims.

The most important part of any financial plan is deciding what you'll do when things don’t go according to plan. In his book, Housel advises always leaving room for mistakes in finances. This is simply accepting the fact that uncertainty, chance, and fate are an inherent part of our lives. The only way to cope with them is to increase the gap between what you think will happen and what might. A safety margin, also known as room for mistake, is your reserve. It's the only effective way to navigate a world ruled by probability, not certainty. A simple rule of life: something will eventually go wrong. Plan for it in advance.

Ensure your emergency fund and safety cushion are adequately sized. This is your financial buffer that will protect you from unexpected and costly life events. In today's world, a cushion is an absolute must for a financially secure family. Determine how much you need. It can be for example a cushion equivalent to six months of your family's expenses. Remember to update your cushion if your spending levels change. If you're spending more, your family has grown, you've moved to a larger home, etc., it's a good time to review your cushion.

Write down on paper exactly what could go wrong this year and what you'll do if it does happen. Some common situations include a long-term illness, job loss, a serious car breakdown, or a large increase in mortgage payments. Write down your plan for each of these situations so you're prepared.