At The Money: The Art of Spending Money with Morgan Housel

Summary

Podcast Summary: Masters in Business – "At The Money: The Art of Spending Money with Morgan Housel"

Episode Information:

• Title: At The Money: The Art of Spending Money with Morgan Housel
• Host: Barry Ritholtz, Bloomberg
• Guest: Morgan Housel, Author of The Psychology of Money and The Art of Spending Money: Simple Choices for a Richer Life
• Release Date: May 22, 2025

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1. Introduction

In this episode of Masters in Business, Barry Ritholtz engages in a deep conversation with Morgan Housel, acclaimed author and expert on the psychology of money. The discussion centers on the often-overlooked aspect of personal finance: the art of spending money. Housel’s insights draw from his upcoming book, The Art of Spending Money: Simple Choices for a Richer Life, where he explores how mindful spending can lead to greater life satisfaction.

2. The Subjectivity of Spending Money

Timestamp: 02:20

Morgan Housel begins by distinguishing the art of spending from the science of spending. He emphasizes the subjective nature of spending decisions, stating:

"I didn't call this book the Science of Spending Money because I don't think that exists. Science implies that there is a one size fits all rule, and that's not the case."
— Morgan Housel [02:20]

Housel argues that spending is deeply personal and varies significantly from person to person. Unlike investing or earning, which often have more standardized advice, spending requires an individualized approach that considers personal values and psychological factors.

3. The Science Behind Money and Happiness

Timestamp: 04:03

Barry Ritholtz steers the conversation towards the academic research on money and happiness. Housel explains that the impact of money on happiness is contingent on one’s current emotional state:

"If you are already a happy person, money can make you happier. But if you are a depressed person or a miserable person, more money will not make a difference."
— Morgan Housel [04:03]

He further elaborates that money serves as a lever for enhancing existing positive aspects of life, such as relationships and health, rather than fixing underlying issues. This underscores the importance of addressing personal well-being before viewing money as a solution to all problems.

4. Social Signaling and Status Spending

Timestamp: 06:24

The discussion moves to the concept of spending for social signaling versus personal satisfaction. Housel shares his perspective on how most spending is driven by the desire to impress others:

"A lot of spending is for social signaling. You just want to show other people who you are and how successful you are."
— Morgan Housel [06:24]

He advises focusing spending on a core group of loved ones rather than seeking approval from the broader, often indifferent public. By doing so, individuals can align their spending with genuine relationships and personal happiness rather than superficial status symbols.

5. The Illusion of Visible Wealth

Timestamp: 09:09

Housel delves into the concept of wealth being invisible compared to its visible manifestations. He explains:

"Wealth is what you don't see. Wealth is the cars that you didn't purchase and the giant house that you didn't buy."
— Morgan Housel [09:09]

He highlights the misconception that visible symbols like luxury cars and large houses equate to true wealth. In reality, genuine wealth is often hidden in savings, investments, and financial security that aren't immediately apparent to others. This invisibility leads to a distorted view of success and can drive unnecessary status-driven spending.

6. Self-Awareness in Spending Decisions

Timestamp: 10:16

Barry and Morgan discuss the necessity of self-awareness in making spending decisions, balancing both emotional and rational considerations. Housel shares a personal anecdote:

"When we bought our first house, we ignored the spreadsheets and went with what felt right. It turned out to be a great decision because it created lasting memories."
— Morgan Housel [10:38]

He emphasizes that significant financial decisions often involve emotions that spreadsheets alone cannot capture. By aligning spending with personal values and emotional fulfillment, individuals can make choices that genuinely enhance their quality of life.

7. Peace of Mind as the Ultimate Return on Spending

Timestamp: 12:35

One of the key themes Housel explores is the pursuit of peace of mind through spending. He articulates:

"I want to use money as a tool in my life to leverage who I want to be, not the other way around."
— Morgan Housel [12:44]

Housel advocates for using money to gain control over one’s time and priorities, allowing for a simpler and more fulfilling life. This approach shifts the focus from material accumulation to achieving personal freedom and well-being.

8. Conclusion

Barry Ritholtz wraps up the episode by summarizing the essence of Housel’s philosophy on spending:

"Spending money can bring you happiness if you go about it the right way. If you're not just flexing and showing off, if you're spending time with friends and family and loved ones, if you're using money as a tool to achieve certain aims, then go out and spend money."
— Morgan Housel [13:46]

The conversation concludes with a reinforcement of mindful spending as a pathway to a richer, more satisfying life, encouraging listeners to prioritize meaningful experiences and relationships over superficial displays of wealth.

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Key Takeaways:

• Subjectivity of Spending: Spending decisions are personal and should reflect individual values and circumstances.
• Money and Happiness: Money can enhance happiness for those already content but is ineffective as a solution for deeper unhappiness.
• Avoid Status Spending: Focus spending on meaningful relationships rather than seeking approval from a broad audience.
• Invisible Wealth: True wealth lies in savings and financial security, not in visible luxury items.
• Self-Awareness: Balancing emotional and rational factors leads to more fulfilling spending choices.
• Peace of Mind: Using money as a tool for personal freedom and well-being leads to a simpler, happier life.

Morgan Housel’s insights offer a nuanced perspective on spending, urging listeners to cultivate self-awareness and prioritize genuine happiness over societal pressures.

Transcript

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[Barry Ritholtz]

It Baby Baby Is there an art to spending your own money? We spent a lot of time around these parts discussing earning and of course, investing money. But how often do we really think deeply about spending it? I'm Barry Ritholtz and on today's edition of at the Money, we're going to discuss how you should think about spending your cash. To help us unpack all of this and what it means for you, let's bring in Morgan Housel. He's the author of the Psychology of Money. The book has received widespread acclaim and has sold over 7 million copies worldwide. His new book, the Art of Spending Money, Simple Choices for a Richer Life, arrives in October. So Morgan, you've covered human behavior and nature. What led you to say, I want to write about a new book about the art of spending money?

[Morgan Housel]

Well, thanks Barry. The first reason was I didn't call this book the Science of Spending Money because I don't think that exists. Science implies that there is a one size fits all rule for for you and I, and that's not the case. I call it the Artist Spending money because art is subjective. It is often contradictory. It is different from person to person, and that's really what spending is. The reason why I wanted to tackle this is because you just alluded to this. There is so much commentary, so much ink has been spilled, so much good ink has Been spilled on how to invest, how to grow your career, how to earn more money. Very little on spending money. And I think the reason why is because it is assumed that everybody knows how to do it, which is spend more and you'll be happier, you'll be better off, and it doesn't really matter what you spend it on. Sometimes you hear a little bit nuance of spend on experience versus things. But to me there is so much more in the psychology of spending. When you dug into the deep mechanics of envy and jealousy and getting attention and copying other people, there were so many good stories to dig in there that might seem, you know, not exact, not really deep. This is not astrophysics, it's just basic psychology. But it tends to be ignored, particularly, particularly in finance where all the attention is how do you just get more money? And you kind of leave it to assumption of what you're going to do with the money after you get it.

[Barry Ritholtz]

So let's talk a little bit about the science behind some of the things you're discussing there. There's been a lot of academic research. Does money make you happy or happier? At what point are there, does the rule of diminishing returns kick in? What does the science of spending look like? Before we get to the art of spending?

[Morgan Housel]

One of the things I think is really interesting is that what a lot of the research shows is that if you are already a happy person, money can make you happier. But if you are a depressed person or a miserable person, whatever it might be, that it will not. And it's easy to just kind of contextualize this into a real person's life of if you are in a bad marriage and you hate your career and you have a two hour commute and just go on down the list, you're an alcoholic, you're obese. If you, if you take that person and you give them more money, will they be happier? And the answer is no, of course not. Because all of those other aspects of their life are going to override whatever money can do for them. But if you also take somebody who's in a great marriage, loves their career, they're happy, they're healthy, they sleep eight hours, they have a good set of friends and you give that person more money, there's a good chance that they're going to use that money to just leverage what they're already doing to spend more time with the friends who they already love to spend more time getting healthier and eating good food. And so money can really just, just leverage the, the person who you already are and the lifestyle that you're already living. But it. I. I think a lot of people go straight with that when they are unhappy and they think if only I had more money, all my problems would go away.

[Barry Ritholtz]

And one of the interesting things in the academic literature that I recall seeing a few years ago was when they draw these charts of money potentially making people happier. Divorce is a giant red flag. People in the middle of a divorce or people who have recently been divorced, that. That's a really challenging road to hoe, isn't it?

[Morgan Housel]

I think what it comes down to is that having more money is so quantifiable that we use it as a crutch for all of our problems. For example, if I said I would have a better life if I was a 10% better dad, what does that even mean? What does a 10% better dad. There's no way to quantify it. But if I said I would have a better life if my salary went up by 10%, you can easily quantify that, wrap your head around it. So we chase that and we assume that that's going to be the solution to all of our ills. Even if becoming a better dad might make me a happier, better person, but since it's impossible to quantify, I just ignore it and pretend that it doesn't exist.

[Barry Ritholtz]

You alluded to impressing others. How should people avoid spending money for status and symbolism as opposed to bringing themselves satisfaction and happiness?

[Morgan Housel]

I'm the first to say I love nice things. I like a nice house, I like a nice car, I like nice clothes, I like nice vacations, I travel well, et cetera, et cetera. I'm not saying live like a monk by any means, but what is true is that a lot of spending is for social signaling. You just want to show other people who you are and how successful you are. To me, the next layer below that is, well, who are you trying to impress? And are they even paying any attention to you? And this is different for every person. But for me, me, the people in my life who I want to love me are my wife, my kids, my parents, and maybe two or three friends. And I. I really want their love and affection and admiration. And I want to do things, including with my money, to help them and to give them a better life so that they will love me back. That's the truth. But after that small set of, you know, seven people or whatever, it falls very quickly from there. And then there's another layer below that of, like, work associates, who I love having a good time with and having a nice dinner with, but then really collapses from there. And I could not care less what 99.9% of the world thinks of my house or my car or my clothes, because they're not paying any attention. It is so easy to overestimate how much other people are looking at your stuff. Your house, your cars. They're not paying any attention. They're busy worrying about themselves and thinking about themselves. And so when you frame it like that, it's not to say, don't use your money to gain attention. It's use it to gain attention from the very small core group of people who you want to love you. There's a great quote from Warren Buffett where he says, the definition of success in life is when the people who you want to love you do love you. And I think you can twist that into thinking how you spend your money as well.

[Barry Ritholtz]

So in the modern era of social media and TikTok and Instagram, there's a lot of influential flexing, and they're trying to show off their lifestyle. I recall being on vacation at a place in Puerto Rico, and two lounges over, was this woman who, instead of just lying there and enjoying the beautiful sun and surf, read a book, whatever, she was just constantly taking selfies doing. And so I finally had to say, hey, what are you doing? So, oh, I'm an Instagram influencer. And so you're not just gonna kick back and enjoy this. So, no, this is work. You and I had a conversation a couple of years ago that's so related to this. Let's see if you recall this. You know, the person driving down the street in the loud Lamborghini, or the person around the corner from you with the giant house. You're only seeing one half of the balance sheet. You're only seeing their assets. We talked about, well, did they pay cash for that? Or they go deep into hawk in order to buy a house or a car to show off for the neighbors? Talk about that a little bit.

[Morgan Housel]

Yeah. Wealth is what you don't see. Wealth is the cars that you didn't purchase and the giant house that you didn't buy. That's what wealth is. It is money that you didn't spend that you can now save for either for future consumption or for independence today. That's what wealth is. And so I can see your car, I can see your house. I can see your watch and your clothes. I cannot see your bank account or your brokerage statement. So the. The most important part of wealth, literally, in my View, the definition of wealth is invisible to everybody. And that is so unique in life because if you take like physical fitness, you can see somebody's physique. It's right there. And so, you know, kind of who to admire and who to chase. Oh, that, that person's in great shape. I should ask them what they do. I should ask them their diet and try to mimic what they do. But if you see somebody with a mansion or a, or a Ferrari or whatever it is, you don't know that they got that by success. That may, may be the picture of leverage. And they, it's possible that they haven't slept in two weeks wondering how they're going to make their next Ferrari lease payment. And so we have kind of like a fake view of who we're chasing and what we should do, because wealth that we're chasing is invisible.

[Barry Ritholtz]

So this comes back to the concept of spending as an art. And in one of the sections of the book, you talk about self awareness over spreadsheets. How self aware do we need to be in order to be more artful spenders towards happiness and life satisfaction?

[Morgan Housel]

I think every big, big financial decision, spending decision is, is two parts head and heart. It is, yes. Like, if you're buying a house, of course, it's not just a spreadsheet. I tell the story that when my wife and I bought our first house nine years ago, we, we found the listing on Zillow and we're like, oh, that, that looks great. Let's go check it out. But we're, this is just information gathering. We're, this is just, we're just going to go look at it and, but we're not making any decisions here. And we pulled into, and as soon as we pulled in the driveway, my, my wife gasped and she said, I love it. And at that point, forget the spreadsheets, forget the, like, the, like the valuation comps. That is all hard at that point. But here's the thing. We don't regret that in the slightest. It was, it was a great house. And we had Christmas mornings with our kids. Both of our kids were, you know, were born not in that house, but we brought them home as newborns in that house. So many amazing memories that you could not track on a spreadsheet.

[Barry Ritholtz]

I'm laughing because the very first house my wife and I bought, I don't know, 29 years ago, we pulled into the driveway, I looked at her face and I just said, oh. And that was the first house we bought. The house I'm in for the past almost 15 years, we pulled up the driveway, and same as your wife, she's like, wow. And I'm like, oh, here we go again.

[Morgan Housel]

Real estate's an interesting one, too, because does buying a big, fancy house make you happier? If you phrase it like that, the answer is no. But does spending more time with your spouse, your kids, your friends, your neighbors, does that make you happier? Absolutely. And can a big house make it easier to have your friends over? Like, yes. So there's an indirect path to which, yes, spending money on a great house can make you happier, but it's not because of the house. It's because it makes it easier to spend time with people that you admire and love.

[Barry Ritholtz]

So let's bring this back to a theme that I have seen in all of your writings, all of your books. I've known you for how many years? 15 years, just about.

[Morgan Housel]

Sounds right.

[Barry Ritholtz]

Going back to Vancouver, Peace of mind as the ultimate spending return. Tell us about that.

[Morgan Housel]

I think it's different for every person. There are. There are certainly people out there that would go crazy if they were not stressed out and if they were not pushing themselves to the max every day. But the vast majority of people, including myself, what I want out of money is a simple life. Now, simple doesn't mean cheap or frugal. Simple can be extravagant. But it's simple in the sense that you are using money as a tool. It's not. It's not using you. It's not conducting your behavior or your activities. I want to use money as a tool in my life to be. To leverage who I want to be. And for me and I think you and many other people, that is like. Like doing the best work that I can, but having full control over my schedule, doing a lot of reading, working when I want, with whom I want for as long as I want, being in control over my time. That's what I want out of money. Using it as a tool rather than it using me to say, morgan, this is how you should spend your money. You should get these people's attention. That guy's car is faster than your yours, so you need to upgrade. That is when money is using you rather than you're using it.

[Barry Ritholtz]

Perfect way to sum this up and to end Morgan Housel's new book, the Art of Spending Money. Simple Choices for a Richer Life, arrives in October. To wrap up. Spending money can bring you happiness if you go about it the right way. If you're not just flexing and showing off, if you're spending time with friends and family and loved ones. If you're using money as a tool to achieve certain aims, well then have at it. Go out and spend money. Just don't post everything you do on Instagram. I'm Barry Ritholtz. You're listening to Bloomberg's at the Money.

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