How to Make the Most of Your Money in the New Year — ft. Morgan Housel

Summary

Prof G Markets: How to Make the Most of Your Money in the New Year ft. Morgan Housel

Published on December 19, 2024 by Vox Media Podcast Network

---

Introduction

In this insightful episode of Prof G Markets, host Scott Galloway engages in a deep conversation with renowned financial thinker and New York Times bestselling author, Morgan Housel, known for his work on the psychology of money. The discussion centers around managing financial stress during the holidays and crafting impactful financial plans for the upcoming year.

---

Financial Stress During the Holidays

The Dual Nature of Holiday Cheer

Scott begins the episode by highlighting a significant statistic: "9 in 10 Americans say that the holidays are a cause of significant financial stress" ([02:42]). He probes into why this season, often associated with joy and celebration, becomes a period of anxiety for many.

Thanksgiving vs. Christmas: A Tale of Two Holidays

Morgan Housel differentiates between Thanksgiving and Christmas, emphasizing that Thanksgiving tends to be less stressful as it focuses on "good food and family and friends" without the pressures of gift-giving ([03:11]). In contrast, Christmas introduces "ridiculous amount of social pressure" due to the expectations surrounding presents.

The Burden of Gift-Giving

Housel shares a personal anecdote: "My mom would always bring up when I was a kid that Christmas was my worst holiday because I was always disappointed" ([03:51]). He explains how the need to find the perfect gift can lead to both financial strain and emotional distress, often leaving one dissatisfied despite receiving numerous presents.

Cultural Emphasis on Gifts

Scott questions whether America's cultural obsession with gift-giving contributes to financial stress. Housel agrees, stating, "It is very easy to assume that if you had more money and if you were spending more money and if you had nicer things, your life would be better... for most people, it is wrong most of the time." ([05:10])

---

Shifting Focus from Money to Relationships

Money Isn't the Panacea

Housel delves into the misconception that money can solve all personal issues. He highlights that "the core of what you're getting at is so much more complex than money... relationships... are the problems that money has the lowest role in terms of fixing and happiness." ([05:10])

Valuing Genuine Connections

Morgan illustrates the importance of meaningful gestures over material gifts: "she writes me a poem... It's something that... is something that... makes me so happy" ([06:10]). This underscores the idea that "you're showing me a level of thoughtfulness and love that you cannot get with a price tag and a credit card."

Friendship Over Presents

Housel compares the value of gifts versus genuine friendship, noting that while gifts are appreciated, "what I actually want is your friendship, and that's what means the most to me." ([07:29]). This highlights the deeper emotional connections that sustain long-term happiness.

Impact on Kids

When discussing gifts for children, Housel acknowledges that kids "have a little bit more pent up demand for physical things" but observes that his children seem happier during Christmas compared to his own childhood, possibly due to the gifts being more spaced out and less emotionally overwhelming ([08:58]).

---

Managing Financial Stress and Building Resilience

From Poverty to Prosperity

Reflecting on his own upbringing, Housel shares, "the first 10 years of my childhood were extremely poor... but the core to my identity and feeling loved... did not change that much from my poverty years to my better years." ([11:13]). This experience taught him that "money can be an incredible tool to live a better life... but if you view it as the sole source of your comfort and your admiration from others, you're almost certainly going to be disappointed."

Embracing Financial Resilience

Scott inquires about transitioning away from money-centric happiness. Housel responds, "once you've experienced what money can and cannot do, it pushes you more towards your wife, your kids, your five good friends." ([12:52]). He emphasizes that personal experiences shape one's understanding of money's role in life.

---

Handling Bonuses Wisely

Bonuses as Deferred Compensation

Scott brings up the topic of end-of-year bonuses, questioning how they should be perceived and utilized. Housel clarifies, "They think of it as deferred compensation... it's actually part of your deferred salary." ([18:31]). He warns against treating bonuses as regular income, especially considering their unpredictable nature.

Investing Windfalls

Housel advises that non-standard windfalls, such as bonuses, should be "invested" rather than spent immediately. He explains, "If you spend this, it's going to become part of your expectations that you also need to spend this next month and the month after." ([18:31]).

Building a Financial Cushion

He underscores the importance of having a financial cushion to "endure unexpected problems" in one's career, health, or personal life. Housel suggests, "If you don't have any of that cushion... what you should do with your bonus is probably save it." ([20:26]).

Avoiding Financial Obsession

While advocating for saving, Housel cautions against becoming overly fixated on saving money, which can lead to an "identity controlled by money." He advises using money as a tool for independence without letting it dictate one's identity ([21:59]).

---

Cultivating Effective Financial Habits

Systems Over Goals

Housel critiques the efficacy of New Year's resolutions, especially those tied to specific dates, arguing that "the people who have good financial habits don't need goals. They just practice those systems daily." ([29:58]). He emphasizes the importance of integrating financial discipline into daily routines rather than relying on temporary resolutions.

Understanding Spending Motivations

He encourages listeners to "dig a couple layers down... why am I bad with money? I'm bad with money because I spend too much." ([31:42]). This introspection helps address root causes like envy and social aspirations that drive excessive spending.

Reflecting on Genuine Happiness

Housel shares a personal reflection: "What made me happy in Maui was not the fact that we spent a shitload of money... What made me happy was uninterrupted time with my kids." ([33:11]). He advocates for prioritizing experiences and relationships over material expenditures.

---

The Psychology of Spending

Money as a Tool

Housel articulates, "Money is a tool in my life. It's a very good tool. But it's nothing more than that. It's a tool. It does not control me." ([22:51]). He stresses the importance of maintaining control over money to achieve true financial independence.

Managing Envy and Jealousy

Addressing common emotional challenges, Housel advises, "The guy in the Ferrari... there are almost certainly things going on in his life that I cannot see... So what is visible tends to be the things that matter way less than things that are invisible." ([37:55]). This perspective helps mitigate feelings of envy by acknowledging the hidden struggles behind others' outward success.

Prioritizing Core Values

When asked about his personal values, Housel responds, "my wife, my kids and my personal health" are paramount, placing them above financial success ([40:47]). He emphasizes that "money can give you a better life... but it pales in comparison to other things in your life that are going to be more meaningful."

---

Advice for Younger Professionals

Saving Early and Balancing Enjoyment

Reflecting on his younger years, Housel shares, "I've been a very big saver... saving well over half my paycheck" ([41:58]). He advises young professionals to build strong saving habits early but also to find a balance to enjoy their youth and freedoms without excessive restraint.

---

Housel's Upcoming Book: "The Art of Spending Money"

Morgan Housel concludes by introducing his forthcoming book, "The Art of Spending Money," which delves into the psychological aspects of spending. He explains, "It's a psychological look at envy, jealousy, social aspiration, what actually makes people happy, contentment." ([44:02]). The book aims to provide readers with a nuanced understanding of their personal relationships with money, moving beyond simple directives to explore the deeper emotional drivers of spending.

---

Conclusion

In this episode of Prof G Markets, Morgan Housel offers a profound exploration of the relationship between money, happiness, and societal pressures during the holidays. By emphasizing the importance of relationships over material wealth, advocating for smart financial habits, and addressing the psychological drivers of spending, Housel provides listeners with valuable insights to navigate their financial lives more thoughtfully and meaningfully in the New Year.

---

Notable Quotes:

• Morgan Housel ([03:11]): "Christmas becomes I have to get presents for everybody, and everyone has to get presents for me... it's a huge stress."

• Morgan Housel ([05:10]): "It's very easy to assume that if you had more money, your life would be better... for most people, it is wrong most of the time."

• Morgan Housel ([07:29]): "What I actually want is your friendship, and that's what means the most to me."

• Morgan Housel ([18:31]): "If you expect your bonus, it's not a bonus and you're almost certainly going to be disappointed someday."

• Morgan Housel ([22:51]): "Money is a tool in my life... It does not control me."

• Morgan Housel ([37:55]): "The guy in the Ferrari... what is visible tends to be the things that matter way less than things that are invisible."

• Morgan Housel ([40:47]): "My wife, my kids and my personal health... nothing else matters more than those three."

• Morgan Housel ([44:02]): "It's a psychological look at envy, jealousy, social aspiration, what actually makes people happy, contentment."

---

This comprehensive analysis captures the essence of Morgan Housel's discussion on managing money, particularly during the holiday season, and offers actionable insights for listeners to enhance their financial literacy and security in the New Year.

Transcript

[Crucible Moments]

Support for the show comes from Crucible Moments, a podcast from Sequoia Capital. We've all had turning points in our lives where the decisions we make end up having lasting consequences. No one knows this better than the founders of some of today's most influential companies, and Crucible Moments lets listeners in on the make or break events that defined major Companies like Dropbox, YouTube, Robinhood and more told by the founders themselves. Tune in to season two of crucible moments today. You can listen at crucible moments.com or wherever you listen to podcasts.

[ACLU]

Support for this show comes from the aclu. The ACLU knows exactly what threats a second Donald Trump term presents and they are ready with a battle tested playbook. The ACLU took legal action against the first Trump administration 434 times and they will do it again to protect immigrants rights, defend reproductive freedom, safeguard free speech, and fight for all of our fundamental rights and freedoms. Join the ACLU today to help stop the Extreme Project 2025 agenda. Learn more at aclu.org.

[Intuit SMB Media Labs]

Successfully reaching the right small businesses can be challenging. Intuit SMB Media Labs gives you the power to do more by connecting you with the small businesses that need you most. Connect with an audience of 36 million, unlock growth opportunities and expand your reach with tailored insights from Intuit SMB Media Labs. Learn [e-mail].

[Scott Galloway]

Welcome to Prof. G Markets. Scott is unfortunately out sick today, or that's what he's telling us, so we're going with it. And so today we're speaking with Morgan Housel, the New York Times bestselling author of the Psychology of Money and a partner at the Collaborative Fund. And we speak with Morgan about financial stress around the holidays and how to create impactful financial plans for the new year. This was, I think, an important conversation about the holidays and the stress that we often feel, or at least that I certainly feel. Morgan is an expert on the psychology of money and how money affects our brains. So I thought this was a really insightful conversation and I hope you enjoy it. Morgan, really great to have you back on profit markets. Thank you very much for joining us.

[Morgan Housel]

Good to see you, Ed.

[Scott Galloway]

So we wanted to talk with you today because it is the holidays and for many that is a pretty fun and cheerful time. But it's also a very stressful time, largely due to money. So I just want to start off with this one stat, which is that 9 in 10Americans say that the holidays are a cause of significant financial stress. So pretty obvious question, why is it such a stressful time? Financially but more importantly, what can we do about it?

[Morgan Housel]

So many people think about Thanksgiving and Christmas, and Thanksgiving, I think, tends to be a happier time for people because it's just good food and family and friends, and that's it. There's no. There's no. There's no gift gifts. There's no expectations. It's like, let's eat some good food and tell some good stories and drink some good wine and all have a good time. Christmas becomes I have to get presents for everybody, and everyone has to get presents for me. And I hope I get you the right thing. I hope you get me the right thing. And one of us is bound to be disappointed, that's all. That's always been the case. My mom would always bring up when I was a kid that Christmas was my worst holiday because I was always disappointed. They got me nice presents. I had a great childhood. But whatever they got me, I wanted something more. And I was always. It was like the day of the year when I got everything. I got, like, as, you know, presents galore was my unhappiest day of the year because my expectations were so high. I think as an adult, it turns into, if I don't get you the right present, you're. You're not going to like me. Like, I have to be really thoughtful about this. And then as your social circle grows and you get presents for 20 people, that's a huge stress. It's a massive stress. Like, not even the cost of it, of course. That's a big thing you're putting on your credit cards, whatever it might be, but just the social stress of getting it right. That you don't have that with Halloween, you don't have it with New Year's. Christmas is this one that has, like, ridiculous amount of social pressure. And I think there is a lot of evidence that, like, mental health tends to bottom around Christmas. It's a tough time for, period. A lot of that is because of their families. Sometimes it can be a reminder of the family that you don't have, or broken bonds, whatever it might be. But I'm sure, like, finance plays a big role in there. Compare how people feel about the Fourth of July, which is like, oh, day off of work and it's sunny and I'm going to go to the beach with my friends. And Christmas is like a month of financial and emotional trauma for people.

[Scott Galloway]

So, I mean, there are two things in there that cause the stress you mentioned. It's the family aspect, but it's also mainly gifts. Do you think that America Places too much emphasis culturally on giving gifts. Do you think our gifting culture might be a bad thing?

[Morgan Housel]

I think it's generally true. Overall, this has nothing to do with Christmas. But it's true that it is very easy to assume that if your life is not going well and you're unhappy with who you are, you're unhappy with your career, you're unhappy with your family, it's very easy to assume that if you had more money and if you were spending more money and if you had nicer things, your life would be better. That's a very easy assumption to make. And by and large, for most people, it is wrong most of the time. It's not that money cannot buy happiness. It can, but it is too easy to assume that if you had more money, all your problems would go away. And particularly for a lot of people, their problems are their health and their. Their relationships, their friendships, their marriages, the relationships with their kids. Those are the core to a lot of their problems. And those are the problems that I think money has place the lowest role in terms of fixing and happiness. And so I think that's. That's the assumption that we make, is like, if I had nicer stuff, then people would love me more, and if I bought you a big present, you might love me more. And I think those are. Those are very easy financial assumptions to make. But then you realize that, like, the core of what you're getting at is so much more complex than money. It's a. It's a. It's a social endeavor. And my wife and I, you know, we. We've been together for almost two decades. And many, many years ago, we were like. We stopped buying each other gifts. Like, we have everything we need. And it's like, it doesn't. It doesn't make any. Any difference to me. I love you. And so what my wife started doing, she does this. For several years. For my birthday, she does this. She writes me a poem. And she's so absurdly talented at this. It'll be a poem of, like, something that happened in my life. She's so good at it. They're always funny. They always rhyme. And it's something that. Like a big thing that happened to me that year that is a million times more meaningful to me than if my wife bought me a sweater or something that would mean nothing to me. Like, this is not my expertise in the slightest. But the thoughtfulness of that makes me so happy. And I think at the core of it, it's because she is buying me something that money Cannot buy. Like, she's showing me a level of thoughtfulness and love that you cannot get with a price tag and a credit card.

[Scott Galloway]

Yeah. Scott and I recently had a conversation about gifts, and our conclusion was that there isn't really, like, a social or cultural code on who's supposed to get gifts and also how much money you're supposed to be spending on those gifts. It sounds like you have establish some of your own code around gifting with your wife. Are there any other rules or recommendations on how people can go about gifting during the holidays?

[Morgan Housel]

No, I think it's different for everyone, and I think how my wife do it too. A lot of people would disagree with that, and they would say that the gifts they get their spouse bring so much pleasure and joy. So this is not black and white. Everybody is different. I've often noticed, too, for a lot of my friends, some of whom send Christmas presents, But what I absolutely love about them is once in a while they'll text me and be like, hey, haven't caught up with you in a while. How you doing? Let's jump on the phone, just catch up with you. If I compare, I have one friend. I will not name him. Every year he sends me a case of wine for Christmas, which I love and appreciate. And about once in a quarter, he texts me and says, hey, how you doing? Let's catch up and talk about life. I appreciate the wine he sends me, but I love our quarterly phone calls A hundred times more. A hundred times more. And I think a lot of people fall into that category of like, yes, I appreciate your gifts. I like your gifts. Your gifts was very thoughtful. But what I actually want is your friendship, and that's what means the most to me. I think this is especially true when you have a little bit more money and you're like, look, when. When you're a kid and you have nothing, I'm like, if I want that toy, like, Christmas is my only shot. That's. That's my only shot at getting it. As you become an adult and you have your own money, and by and large, for a lot of people listening to this podcast, they roughly have everything that they need and most of what they want. That's true for probably the majority of people listening to this. And then so you turn the things that money can't buy, like genuine friendship and whatnot. And I think if you are counting on Christmas to, like, accentuate that, it's going to lead to some disappointment.

[Scott Galloway]

What about with your kids? I'm sure they would not accept A token of friendship for a Christmas gift.

[Morgan Housel]

I should try that this year, see how that goes over. No, I think it's normal when you're a kid a. Because you don't have your own money. Look, I myself as an adult, if I want something, I usually go and get it. I don't have to wait till Christmas. Kids usually have to wait till Christmas. So their allowance or whatever. So there is so much more pent up demand for physical things that kids have. But I think it's also true that kids are, it's easier for them to make friendships. You know, my, my kids have started at a new school day, 2:48 hours and they had like five new best friends. Whereas for me, I'm like you. I have to know you for seven years before I let you into my friendship circle. This is easier for kids to make friendships. So for adults, I think those genuine friendships because they're so rare, just so much more meaningful than it is for a kid that just wants a new toy. When I was a kid, this is not black and white, I'm going to grossly exaggerate this, but I roughly got no presents throughout the year and then Christmas was a bonanza. Like not, not actually, but it was close to that. And I feel like my kids get more presents throughout the year and then Christmas is like cool, it's fun, but it's more mediocre than it was. I don't know which one of those is better because as I said earlier, Christmas for me as a kid, it was the only. It was the one day per year that I got presents. It was a bonanza. It was a huge day. And according to my mom, I was always pissed off. I was always disappointed. I think it was so emotionally overwhelming that I just could not handle what was happening to it. Whereas I've, I've noticed that my kids actually seem to do better and are happier during Christmas than I was when I was a kid. And maybe that's because it's more spaced out and it's not just this emotional, just dumpster at the end of the year just being dropped on you. Yeah.

[Scott Galloway]

I think the other interesting thing about this time of year is it's sort of like a summary of what has happened in the previous year. And I think when you're giving gifts, especially with your family, I feel like for a lot of people it's sort of a reflection of like this is how we're doing right now. And I think if you've had a, a tough 20, 24, you know, the Holidays seem to sort of exaggerate that. And on the other, on the flip side, if you had a really great year, it might exaggerate that too. But for people who have had kind of like a tough year and they're feeling that, that financial stress, what are some like tools and strategies that, that you can employ to deal with that and, and to come back stronger next year?

[Morgan Housel]

I think you're, you're absolutely right. And when I was a kid, I've, I've, I've written about this before, spoke about it, but the first 10 years of my childh were extremely poor. They were students. We were poverty by, by any level. And then my dad became a doctor when I was 12. And then things like very abruptly shifted. It was not, we were not rich by any standards. He was an ER doctor, but it was, it was a very stark shit happened in one year. And I remember that year, I think it was 1993 or something like that where it was like everything changed. But what I think is true when I look back to my poverty years, let's say that my parents loved me just as much, I was just as happy, I had just as much fun with my friends. The things that actually were core to my identity and feeling loved really did not change that much from my poverty years to my better years. And so I think if you view money as the panacea to all your problems, either to your problems or your ability for other people to admire you, that's the problem. Money can be an incredible tool to live a better life. Spending money can make you happy. Like this is not to say money can't make you happy, but if you view it as the sole source of your comfort and your admiration from others, you are almost certainly going to be disappointed.

[Scott Galloway]

How do you make that shift? I mean, I agree with you rationally. It's like, yeah, this isn't the source of, you know, this can't be the source of all of my happiness. But I feel like it's very hard on a day to day basis to, to really practice that and to really embrace that in your, in your daily life. Like it's just money just sort of permeates around everything you do. So how do you kind of practice that and, and, and really employ that in your everyday life?

[Morgan Housel]

You are absolutely right that it's easier said than done. And I think it is true that there are some people who are just much better naturally at it than, than others. If you are, if you're the kind of person who has had any kind of financial windfall or if you know somebody who has, I think a lot of those people would say, like, were you or that person materially happier, better off after the windfall? The answer might be yes, because money can make you happier. But did it feed your soul to the extent that you thought it would? I think that's the answer is probably no. So I think once it's probably one of those things that you cannot actually work on until you've experienced yourself or watched somebody else experience it. And I've noticed this with myself, having had a couple good years in my career, that it has pushed me more towards my wife, my kids, my five good friends. It's pushed me more towards that because I have seen, yes, I've seen what money can do more starkly. I've seen what it cannot do. And that has made me be like, oh, you know what's actually going to make me happier? Spending time with my kids. And it's done that in a way that I did not understand five years ago when I was doing less well in my career. And I think I'm grateful for that. So I think that's a roundabout way to answer your question, but I think there's no way to actually put it into practice until you've experienced it firsthand. A lot of things, things with money are like that.

[Scott Galloway]

We'll be right back. And if you're enjoying the show so far, hit follow and leave us a review on Profg Markets. Stay with us.

[Morgan Housel]

Fox Creative.

[Ian Mitchell]

This is advertiser content from Zelle. When you picture an online scammer, what do you see?

[Unknown Speaker]

For the longest time, we have these images of somebody sitting crouched over their computer with a hoodie on, just kind of typing away in the middle of the night. And honestly, that's not what it is anymore.

[Ian Mitchell]

That's Ian Mitchell, a banker turned fraud fighter. These days, online scams look more like crime syndicates than individual con artists. And they're making banks. Last year, scammers made off with more than $10 billion.

[Unknown Speaker]

It's mind blowing to see the kind of infrastructure that's been built to facilitate scamming at scale. There are hundreds if not thousands of scam centers all around the world. These are very savvy business people. These are organized criminal rings. And so once we understand the magnitude of this problem, we can protect people better.

[Ian Mitchell]

One challenge that fraud fighters like Ian face is that scam victims sometimes feel too ashamed to discuss what happened to them. But Ian says one of our best defenses is simple. We need to talk to each other.

[Unknown Speaker]

We need to have those awkward conversations around. What do you do if you have text messages you don't recognize? What do you do if you start getting asked to send information that's more sensitive? Even my own father fell victim to a, thank goodness, a smaller dollar scam. But he fell victim and we have these conversations conversations all the time. So we are all at risk and we all need to work together to protect each other.

[Ian Mitchell]

Learn more about how to protect [e-mail] Zelle and when using digital payment platforms, remember to only send money to people you know and trust.

[Intuit SMB Media Labs]

When it comes to SMB marketing, reaching the right small and medium sized businesses can be challenging. Intuit SMB Media Labs gives you the power to do more by connecting with the small businesses that need you most. With access to an audience of 36 million, you can target effectively and at scale. By leveraging insights from small business audiences. You can target businesses by industry size, maturity, location and more and drive growth across new and existing channels like Social, Programmatic and ctv. Spend wisely and do more with audiences tailored to your business. Learn [e-mail] it.com when it comes to SMB marketing, reaching the right small and medium sized businesses can be challenging. Intuit SMB Media Labs gives you the power to do more by connecting with the small businesses that need you most. With access to an audience of 36 million, you can target effectively and at scale. By leveraging insights from small business audiences, you can target businesses by industry size, maturity, location and more and drive growth across new and existing channels like Social, Programmatic and ctv. Spend wisely and do more with audiences tailored to your business. Learn [e-mail].

[Scott Galloway]

We'Re back with Profit Markets. Speaking of windfalls, one thing that I wanted to touch on is that around this time of year a lot of people, probably a lot of people listening to this podcast may be getting bonuses end of year bonuses. Just from a psychological perspective, I've always found bonuses very interesting because it's like on the one hand it's sort of framed as a gift. I mean it is bonus to the base. Many other people would say that no, this is just like regular income that was sort of factored in from the beginning. As it is bonus season right now. I'd just love to get your perspective on how you think about bonuses and what would be your advice to someone who's receiving a bonus and maybe doesn't know what to do with that money.

[Morgan Housel]

You're right that most people do not think of it as a bonus like by the definition of that word, they think of it as deferred compensation. Like they are owed that money, it is part of their compensation. This happened to get all of it in December. I remember many years ago I was speaking with a guy who was at the time, I think he was the head of HR at Google maybe 10 or 15 years ago. And he said the way that they think about it at Google is people live off their salary, play with their bonus and retire on their stock. This is like a rough framework for, for how to do it. And I think that there's actually some wisdom in there that if you are counting on your bonus to live off of that, by, by, by definition it's not a bonus, that's just part of your deferred salary. But it probably not so many companies, banker people in finance realize this very starkly. When you have a year in 2008 and your bonus falls 80% or whatever it might be, or maybe it was zero. And if you are counting on that bonus to live off of, that's trouble. And so I don't know if I have much advice other than everything in finance is about expectations. And if you expect your bonus, it's not a bonus and you're almost certainly going to be disappointed someday. And so any kind of like non standard windfall that I've had in my career, I've invested. And I think the reason that I invested is because I know that if I spend this, it's going to become part of my expectations that I also need to spend this next month and the month after and the month after and it's not going to be there. And you can make a ton of money and be disappointed if you expect all of it. If the gap between your expectations and your circumstances breaks, doesn't matter how much money you make, you're going to become disappointed. And I think it is the most fraught and the most troublesome when your bonus becomes your expectation.

[Scott Galloway]

So how much of that money do you think or how much just in terms of spending? I know you're writing a book about this should be the money that we play with. I mean I love that term. You said bonuses of playing with, but you said when you had a big windfall, you've invested it. How do you think about play money? What can we just spend on? To what extent should we be spending on frivolous things?

[Morgan Housel]

I will paraphrase Scott Galloway, who I think has said this many times where I'm paraphrasing him. I don't wanna put words in his mouth. But he's like, he hit his number. He spent money frivolously and gave a lot of money away. He said it much more eloquently than that. But I think what's important to that is that he waited until he hit his number. How I've always thought about it for my whole career is always having this calculation I have in my head of if I get laid off or if everything collapses from here, how long can I support this current lifestyle that I have if things get real nasty? That's always been really important to me. And for a lot of people, that answer is zero. That if they got laid off next month, they'd be in deep shit. And I think that's like, bonus season is a good time to read, reevaluate that. Because if you are in that situation, then the answer is, how much of your bonus should you play with? The answer is probably none of it. You should probably save it. That's always been really important to me because every single one of you, me, you, everyone listening to this, at some point in their career will come across a big, unexpected problem in their career, in their health, in their marriage, in the economy, whatever it might be. And your ability to endure that is going to be completely based off your ability to do it, financially at least, is completely based off of your ability to defer your previous compensation. And so if you don't have any of that cushion and that calculation of, if things get bad, how long can I last? If your answer to that question is not good, then the answer to what you should do with your bonus is probably save it.

[Scott Galloway]

Absolutely. And also, it seems like building in that habit is a really important thing. Just the habit of knowing that every year when I get this amount of money, I'm just going to put it away and I'm going to put it in the stock market.

[Morgan Housel]

It's also true that you can overdose on that mentality. And if you talk to a lot of financial advisors, they will tell you that one of the biggest problems that they face with clients is you have clients who have saved up, up a ton of money for retirement. They've done. They. They won. They won the game. They saved up millions of dollars for retirement, and now they're 70 years old and they cannot spend it. They can't even spend a very reasonable amount of it because saving money and watching their net worth go up became core to their identity, and they cannot break away from that. That's. That's a problem, too. And so if you can use money As a tool to give yourself independence and to live a great life and spend money on things that make you happy, on you and your family and friends. But never let it become part of your identity so much that it is controlling you more than you use it as a tool. That's the spot you want to get to.

[Scott Galloway]

Yeah. We just did a big episode talking about spending money, and we spent maybe an hour trying to figure out what it means to be a good spender. What does spending your money. Well. Mean to you?

[Morgan Housel]

To me, it means that it is always within my control. That I am not saying, God, I want to buy this, but I can't afford it at that point. Money is controlling me. Or if I say this thing doesn't give me any joy, but I'm still going to buy it anyways, that is money controlling me too. The extent that I can be like, money is a tool in my life. Toolbox that I use, and I use it every day. And it's a powerful tool. It is a damn good tool. But it's nothing more than that. It's a tool. It does not control me. I am perfectly in control of it. If you are a car mechanic, the wrench in your toolbox does not control you. You use it. It's a very good tool. It helps you use it every day. But the wrench does not control the work that you do. You are controlling it. And I think if you can use money to that purpose, and I think it is actually extremely common that money controls the person, controls their identity, controls their desires. And I think there's actually a lot of very wealthy people who are like, why do I have this gigantic mansion? Why do I have four of them? They don't bring me any happiness. And in fact, they are burdens. They are huge. Time sucks and cost sucks. And I don't even go to this fourth house that I have. It's because money was controlling you and you didn't know what to do with your money. But you're like, I guess I should go buy another house or another car or do this. It doesn't even bring me that much happiness. So the more that it can truly be like you are in control of it, that's the only time you're getting actual independence from your money.

[Scott Galloway]

Yeah. It was this very similar conversation we had with Ramit Sethi where it's like, it feels like so much of the money conversation ultimately gets down to having a very strong understanding of what it is you actually want. And it's like all of these different Distractions. I feel like it's the same with the holidays too, where you're getting all of these ads telling you, oh, you gotta buy this, you gotta buy this. Like, just so many distractions trying to pull you in different directions, trying to, like, convince you, like, this is what you want. But I feel like what you're kind of describing there is, like, if you have a very solid, concrete understanding of what it is that you want in life, you're. You're a lot more impenetrable in terms of, like, money controlling you.

[Morgan Housel]

Yeah. I think one way to think about this is if you were. It's. It's. It's a stupid thought exercise. But if you are on a deserted island, maybe with your friends and family but nobody else, like, no. No one in society can see you, so there's no. There's no need to show off because nobody's watching you. What kind of life would you live? What kind of house would you live in? What kind of car would you drive? What kind of clothes would you wear? And I think most people in that situation would choose utility over status. If there's no upside to status because you know that nobody is watching you, you would be like, hey, like, rather than a Ferrari, I'd probably want a pickup truck that's, like, way more utility than. Than status. And rather than just an absolute monster house, I would want a really nice house with a good view, because that makes me happy. I don't care what you think about, it makes me happy. And so viewing it as utility versus status through the lens of, like, what if nobody was watching? Because the truth is, almost nobody is watching. Nobody's paying attention to you as much as you are. Nobody is thinking about you as much as you are. They are busy thinking about themselves. So it's actually a great thought exercise because it's close to reality. Like, how would I live if nobody was watching? Is a great thought exercise because the truth is, very few people are watching.

[Scott Galloway]

We'll be right back.

[ACLU]

Support for this episode comes from AT&T. What does it feel like to get the new iPhone 16 Pro with AT&T? Next up, anytime. It's like when you first pick up those tongs and you're now the one running the grill. It's indescribable, like something you've never felt before. All the mouth watering anticipation of new possibilities, whether that's making a perfect cheeseburger or treating your family to a grilled baked potato, which you know will forever change the way they look at potatoes. With AT&T next Up Anytime you can feel this way again and again. Learn how to get the new iPhone 16 Pro with Apple Intelligence on AT and T and the latest latest iPhone every year with AT and T. Next Up Anytime AT and T Connecting changes everything. Apple intelligence coming fall 2024 with Siri and device language set to US English. Some features and languages will be coming over the next year. $0 offer may not be available on future iPhones. Next Up Anytime feature may be discontinued at any time, subject to change additional fees. Terms and Restrictions apply. See att.com iPhone for details.

[Morgan Housel]

Else.

[Ian Mitchell]

Support for this podcast comes from Anthropic. You already know that AI is transforming the world around us, but lost in all the enthusiasm and excitement is a really important question. How can AI actually work for you and where should you even start? Claude from Anthropic may be the answer. Claude is a next generation AI assistant built to help you work more efficiently without sacrificing safety or reliability. Anthropic's latest model, Claude 3.5 Sonnet, can help you organize thoughts, solve tricky problems, analyze data, and more. Whether you're brainstorming alone or working on a team with thousands of people, all at a price that works for just about any use case. If you're trying to crack a problem involving advanced reasoning, need to distill the essence of complex images or graphs, or generate heaps of secure code, Claude is a great way to save time and money. Plus, you can rest assured knowing that Anthropic built Claude with an emphasis on safety. The leadership team founded the company with a commitment to an ethical approach that puts humanity first. To learn more, visit anthropic.com Claude that's anthropic.com Claude.

[Intuit SMB Media Labs]

Look, we're all tired of multitasking and keeping those mental tabs open day after day after day. Why not quiet all the noise and go for a drive that will feel like a reward in a Toyota Crown? Whether you're looking for a sleek sedan or an impressive suv, the Toyota Crown family comes with the quality and reliability that Toyota is known for, along with bold and elegant exterior styles make every drive an experience that captivates the senses. Learn more@toyota toyota.com toyotacrownfamily toyota let's go places.

[Scott Galloway]

We're back with profit markets. The other big ritual that we all do over the holidays is New Year's resolutions, and I was just doing a little bit of research here. It turns out the number one most common New Year's resolution in America today is saving money. It's more popular than working out and eating healthier and losing weight. So I'd love to just pivot to New Year's resolutions. Do you think New Year's resolutions are effective? And do you think, you know, setting a goal of saving money is a good way to actually ultimately save money?

[Morgan Housel]

It's hard to go against that. If someone has a resolution to become better financially, how do you say that's a bad thing? Of course that's good. But, but there's the famous quote from Charlie Munger where he said, when teaching money to people, they either understand it instantly or never. I think there actually is like a grain of truth to that. It's kind of a harsh statement, but there's a grain of truth to it. And I say that because if you need January 1st to become better at finance, it's probably not going to last. And like, that's. If you're like, look, it's December and I can spend frivolously, but come January 1st, I'm going to start saving. No, you're not. No, you're not. And so the people who, who have good financial habits don't need goals. They just practice those systems daily and it comes naturally to them and they're not forced. I think the more you have to force a good financial behavior, of course, the, the less durable it's going to be. And the people who do well are the people who are like, look, I've, I've been a saver for, for years and years, and I, it just comes naturally to me. I, I enjoy doing it. I like the benefits that I get from saving. I like the independence and the cushion that I get from savings. And I don't need an artificial constraint like January 1st to. To it. So on one hand, great. If people are vowing to be better with their finances, of course that's good. I also think that in virtually all of those circumstances, it's not going to be durable.

[Scott Galloway]

Yeah, I mean, I feel like the research just shows that New Year's resolutions are just very ineffective. But what are some other more effective ways that we can establish some decent financial habits? I mean, say someone wants to make some sort of change or they want to improve in some aspect. Are there any strategies or tools that they could use to start establishing a better framework for 2025?

[Morgan Housel]

This is not universal advice because some people really are in bad situations outside of their control. But for a lot of people, if you aspire to save more money in the new year, that's a symptom of a Deeper cause, which is you're not saving enough money. And for a lot of people, that's because you're spending too much money. And you're spending too much money because you have social aspirations that you can't afford, or you think that spending that money is going to make you happier, whatever it might be. So for a lot of people, like, they need to dig a couple layers down, deeper and be like, why am I bad with money? I'm bad with money because I spend too much. And I spend too much because I think my friends will admire me more if I had nicer clothes, because I think that I would be happier if I had a bigger house, those kind of things. And it's not that a bigger house won't make you happy, but like, you. You. You need to dig a couple layers down to do it. I do think a big, nice house can make you happy because it makes it easier to spend time with your friends and family, and that's what's actually making you happy. So for a lot of financial goals, you just need to dig a couple layers beneath the surface and be like, well, why do I want that? I want that because there's this hole. Well, why is there a hole? There's a hole because I feel like I don't have enough good friends. Okay, well, you need to focus on that, and the money's not going to get you there. That's a different problem.

[Scott Galloway]

Have you done this? I mean, just practically speaking, would you recommend someone kind of sits down instead of sitting down and writing down, okay, this year I'm going to do this year. This, this, this. Like, is there, like, a practical thing that we can do where you maybe take a look at the things in your life that are important to you or some sort of, like, concrete way to address what you just said?

[Morgan Housel]

I think it sounds so trite, but I think it's so important. Take a good hard look about what is the days that you've actually been happier. And it's not for everybody, but I think for a lot of people, and this is true for me, that the happiest days you've had did not require a lot of money. I thought about this a couple years ago when we took a really nice family vacation to Maui. And it was great. We didn't hold anything back. It was a wonderful vacation. And as I was sitting on the beach building sandcastles with my two little kids, I was like, this is a 10. This is a 10 out of 10. This is so great right now. But then a Couple of weeks after we got home, I was like, playing Legos with my kids on our living room floor, and I was like, look, if building sandcastles in Maui on a fancy resort in maui is a 10. Playing Legos at home with them is like a nine or nine and a half. Like, it was actually really close. Because what made me happy in Maui was not the fact that we spent a shitload of money and stayed at a nice resort. What made me happy was uninterrupted time with my kids. And I could actually do that at home without spending as much money. So actually, if you dig down to be like, what actually made me happy about that? Was it the fact that I spent a lot of money? Or did spending a lot of money allow me to do something different in my life? That actually, if I'm honest about it, did not require spending a lot of money. It was an uninterrupted time. So for a lot of people, vacations do make them happier, but it's not because you need to fly across the world to be happier. It's because what vacations give you is uninterrupted time away from work, uninterrupted time with your friends and family, and that's what's making you happy. Like, understanding what the core of the motivation is is really important.

[Scott Galloway]

What are some of, like, the main things that you learned about spending? Because I know that you're writing this spending book. What are some of the main learnings you. You've taken away from that research?

[Morgan Housel]

I think what's so much in finance, this is true for investing, too, is that we teach it like, it's math and it's analytical, but at its core, it's all social. And so the key to spending money is not understanding what purchases are going to make you happier or less happy. Because, look, the book I'm writing is called the Art of Spending Money. It's not called the Science of Spending Money because everybody is different. You cannot make formulas here, by the.

[Scott Galloway]

Way, now that you say that, I think we accidentally stole that title from one of our episode titles. So I. Sorry.

[Morgan Housel]

That's fine. Go for it. No worries. Yeah, but look, I think that the core to understanding the spending that's going to make you happy is really digging deep and understanding things like envy and jealousy and social aspiration and those kind of topics. It's not a science of. There's a lot of times you get these really, these statements like, spend money on experiences, not on things. It's not that that's bad. But I think it's very surface level. Whereas if you dig deeper into, like, envy and jealousy, you really get at the core of why some spending makes you much happier than others. And so I think understanding the emotional side of it rather than the surface level. Spending money on this is good and that is bad. It's almost never that black and white. But if you can get to the core of your own personal relationship with envy and jealousy and social admiration and social aspiration, you get much closer to a good spending habit.

[Scott Galloway]

Did you learn things about yourself writing this book? Because it sounds like it's a very personal, an emotional experience.

[Morgan Housel]

I feel like everything I've written in my entire career has been like, trying to understand my own relationship with money, whether that's investing or. I feel like all of it is just a diary entry that I phrased a little bit differently. So, yeah, as I mentioned earlier, kind of as I made a little bit more money in my career, more than I realized what money can do to make me happier, I realized very starkly what it cannot do. And that was actually a wonderful realization because it pushed me towards more meaningful pursuits. I'm happier with my life with a little bit more money than I had five years ago. But I think one of the main reasons I'm happier is because it made me realize that what's actually going to make me happy is health, sleep, friendship, marriage, kids. And so realizing that has been a big eye opener for me personally.

[Scott Galloway]

You mentioned jealousy and envy as like, two big drivers of what's sort of like getting us to spend so much. And I would imagine that the conclusion, I'm sure, is like, you know, spending your life being jealous and envious is just not a very good life lived. But I would be curious to know if you have found that there is a way to deal with that at a personal level. Because I'll just tell you, from my experience, it's a little hard to not feel envious at times. And I wish I could just kind of be like, stop. It doesn't matter. That guy has a Ferrari you don't like. Well, who cares? He's probably not even happy or whatever it is. But it's like trying to extinguish those emotions. While I know at a rational level they're not adding anything to my life, I do find that it's kind of a hard thing to detach myself from. So I'd be curious to get your thoughts on, like, how to deal with that.

[Morgan Housel]

You're right, Ed, that it is difficult. And I'd Be lying if I said that, like, I'm susceptible to those. Of course. Of course. Everybody is. What I think they become easier to extinguish, is when you really constantly remind yourself that, I can see your car. I can see your house. I can see your clothes. I can see your jewelry. I cannot see your relationship with your spouse. I cannot see your relationship with your children. I cannot see your mental health. And that's what actually makes a difference. It was really interesting. I live in Seattle, so Bill and Melinda Gates were like our king and queen. And Bill Gates, people have their different views about him, but my view is always like, look, the guy worked ridiculously hard, became the richest man in the world, created the most important technology company of a generation, and then gave. Gave, gave virtually all of it away towards, like, curing malaria and stuff. I was like, look, he's not a perfect person. People have their individual views on him, but, like, pretty damn good life, if you wanted to summarize it. And then three years ago or so, they get divorced, and you realize, like, you. You look behind the curtain, and you're like, look, there's a big one. But you look behind the curtain and you're like, look from the outside. This look, like, literally a fairy tale life. But then the curtain is pulled back. You're like, oh, no, actually, there is some shit going on there. There. There's some really bad things happening. But that was invisible to everybody during all that time. And the other thing I bring up a lot is the book the Snowball, which is Warren Buffett's biography. Kind of the most elaborate biography on him. Goes into extreme detail about things that people have known for a while. Is that his personal. Warren Buffett's personal life has not been perfect by any means whatsoever. That's a polite way to put it. There have been times where it's been miserable. And that was really important for me, as someone who has looked up to him and admired him for decades, to realize, like, look, I can see his investing returns. I can see his ranking on the Forbes 400 list. I cannot see his relationship with his children. But inside his head, things like that probably matter way more than his ranking on the Forbes list. So what is visible tends to be the things that matter way less than things that are invisible. So the guy in the Ferrari. Yes, he's got a cool car. Yes. I might be envious of that car. There are almost certainly things going on in his life that I cannot see that. If I had a full picture of his life, I'd be like, look, that car is pretty cool, but you're dealing with a lot of shit in your life that I am too. And therefore, would my life actually be materially better if I had a nicer car? Probably not, because the other things that move the needle more would be the same.

[Scott Galloway]

Do you have a ranking system of your own values in terms of which things are actually important to you? Because I feel like that's a big part of this is defining what it is that you want and what it is that is meaningful to you and how to spend well and use your money well. You need to understand, well, okay, at the top I've got, I don't know, my kids or my wife or my family. And that. Do you prioritize it in any way?

[Morgan Housel]

I don't know if I rank it or prioritize it, but you're right. The three things, I don't know what order this would be in are my wife, my kids and my personal health. Like nothing else matters more than those three. And you can imagine a world where me or anybody is very wealthy, has an incredible career, but they're on their fifth divorce, their kids don't talk to them and they weigh 300 pounds and sleep three hours a night. Is that success? Not in my book in the slightest. And I would much rather make $100,000 a year and have a wife who loves me and kids who admire me and be in good health and have a good conscience than make a million dollars a year and have none of those things. And so you can say on one hand that money is very important and money can give you a better life and money is an incredible tool and it pales in comparison to other things in your life that are going to be more meaningful.

[Scott Galloway]

As we start to wrap up here, do you have any advice for people my age? Ish. I'm 25, so I'm a young person around money and around spending around honestly, anything going into 20, 25, if you had to advise, you know, young, hard working professionals who want to make a, make this a good year, do you have any advice for them?

[Morgan Housel]

I don't know if this is advice, but it's a reflection on when I was 25. Since I've been, you know, 16 and earned my first dollar, I've been a very big saver. It came naturally to me. I was always saving well over half my paycheck, no matter where I was. And I think there are some times when I look back when I was 25 and didn't have kids and had a lot more freedom than I do now that I'm grateful for the savings habits that I had. And I also wonder if I should have loosened up a little bit. A lot of that is because you, Ed, are almost certainly going to be making more money at age 40 than you are today at age 25. So you might be, you know, and so not you, me in particular, but other 25 year olds might be working very hard to save $1,000, and when they're 40, $1,000 will come to them by snapping their fingers, you know, and so the life that you were giving up, both because you are young and you have fewer commitments at 25, you might be going way out of your way to save an amount of money that in 15 or 20 years will come very easy to you. And so I am grateful for the saving skills that I had at 25. And sometimes I do wonder if I should have loosened up a little bit because I didn't know what I know today, which is that once you have kids and more responsibility and your career is more ingrained, you're not going to be able to have the kind of freedom to go out and do the kind of things that you could at 25.

[Scott Galloway]

A final question for me. I'm wondering if you have any New year's resolutions for 2025, or at least maybe some goals of your own that you want to accomplish next year.

[Morgan Housel]

I just finished my book, it'll come out next year. So writing a book is difficult and takes a lot of time, takes a lot of focus. And so now that that's behind me, I think I aim and aspire to sleep better, which is always a big problem of mine, to eat better, which is a problem of mine, and focus on some of those things that have absolutely nothing to do with money that are very easy to overlook when you are in the pursuit of finishing a big work project.

[Scott Galloway]

Morgan Housel is a partner at the Collaborative Fund. He's the New York Times bestselling author of the Psychology of Money. And same as ever, his books have sold more than 5 million copies and have been translated into more than 50 languages. Morgan, as we wrap up here, do you wanna just give us like a summary of the art of spending money and what our listeners might learn from it?

[Morgan Housel]

Yeah, I mean, I mentioned a little bit earlier that it is not called the Science of Spending money. It is called the art of Spending money because it's a little bit different for everybody. So at no point in the book do I say, this is how you should spend or this is how you should not spend. It's actually quite the opposite. It it is a psychological look at envy, jealousy, social aspiration, what actually makes people happy, contentment. Those kind of topics in the typical storytelling fashion that I like to do, I like to find examples of how other people have done done well or done wrong and try to tell their stories in a very quick, hopefully punchy way. Moving on from chapter to chapter.

[Scott Galloway]

Awesome. Thank you so much Morgan. This was great.

[Morgan Housel]

Thanks.

[Scott Galloway]

This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our Associate producer is Alison Weiss, Mia Silverio is our research lead, Jessica Lang is our Research associate, Drew Burrows is our Technical Director, and Catherine Dillon is our Executive Producer. Thank you for listening to Profg Markets from the Vox Media Podcast Network. If you liked what you heard, give us a follow and join us on Monday for our Ask Me Anything episode on Prof. G Markets.

[Morgan Housel]

Lifetime Jesus, you have and kind reunion as the water.

[ACLU]

Support for the show comes from AT and T. What does it feel like to get the new iPhone 16 Pro with at and T Next Up Anytime? It's like when you first light up the grill and think of all the mouth watering possibilities. Learn how to get the new iPhone 16 Pro with Apple Intelligence on AT and T and the latest iPhone every year with AT and T. Next up Anytime AT and T connecting changes everything. Apple intelligence coming fall 2024 with Siri and device language set to US English. Some features and languages will be coming over the next year. $0 offer may not be available on future iPhones. Next Up Anytime feature may be discontinued at any time, subject to change additional fees. Terms and restrictions apply. See att.com iPhone for details. The number one selling product of its kind with over 20 years of research and innovation. Botox Cosmetic Adobotulinum Toxinae is a prescription medicine used to temporarily make moderate to severe frown lines, crow's feet and forehead lines look better in adults.

[Botox Cosmetic]

Effects of Botox Cosmetic may spread hours to weeks after injection, causing serious symptoms. Alert your doctor right away as difficulty swallowing, speaking, breathing, eye problems or muscle weakness. This may be a sign of a life threatening condition. Patients with these conditions before injection are at highest risk. Don't receive Botox cosmetic if you have a skin infection. Side effects may include allergic reactions, injection site pain, headache, eyebrow and eyelid, drooping and eyelid swelling. Allergic reactions can include rash, welts, asthma symptoms and dizziness. Tell your doctor about medical history, muscle or nerve conditions including ALS or Lou Gehrig's disease, myasthenia gravis or Lambert Eaton syndrome, and medications including botulinum toxins, as these may increase the risk of severe serious side effects. For full safety information, visit botoxcosmetic.com or call 877-351-0300.

[ACLU]

See for yourself at botoxcosmetic.com.