← THE ED MYLETT SHOW
THE ED MYLETT SHOW
The Psychology of Money | Simple Money Rules That Will Make You Rich with Morgan Housel
00:57:25
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- [00:00]
Ed Mylett
So hey guys, listen, we're all trying to get more productive and the question is, how do you find a way to get an edge? I'm a big believer that if you're getting mentoring or you're in an environment that causes growth, a growth based environment, that you're much more likely to grow and you're going to grow faster. And that's why I love Growth Day. Growth Day is an app that my friend Brendan Burchard has created that I'm a big fan of. Write this down growthday.com forward/ed. So if you want to be more productive, by the way, he's asked me, I post videos in there every single Monday that gets your day off to the right start. Got about $5,000, $10,000 worth of courses that are in there that come with the app. Also, some of the top influencers in the world are all posting content in there on a regular basis, like having the avengers of personal development and business in one app. And I'm honored that he asked me to be a part of it as well and contribute on a weekly basis. And I do. So go over there and get signed up. You're going to get a free tuition, free voucher to go to an event with Brendan and myself and a bunch of other influencers as well. So you get a free event out of it also. So go to growthday.com forward/ed. That's growthday.comed.
- [01:05]
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- [01:44]
Ed Mylett
I can say to my new Samsung Galaxy S25 Ultra, hey, find a keto friendly restaurant nearby and text it to Beth and Steve. And it does without me lifting a finger so I can get in more squats anywhere I can. 1, 2, 3. Will that be cash or credit?
- [02:01]
Morgan Housel
Credit.
- [02:01]
Ed Mylett
4 Galaxy S25 Ultra. The AI companion that does the heavy lifting so you can do. You get yours@samsung.com compatible with select apps. Requires Google Gemini account. Results may vary based on input. Check responses for accuracy. This is the Ed Miler show. All right, welcome back to the show everybody. So probably the number one topic that trends on our show, and we do it about once a quarter is money. And so I know today's podcast is going to be so rewarding for so many of you with new information that you've not heard before. And so we're going to talk about today, really, the psychology of money, but a bunch of tactical stuff, too, if I'm being honest, after having read this man's book, and by the way, the title of his book is the Psychology of Money, and it's Blowing Up. And you're gonna see why it's blowing up here in a minute because we've got a ton to teach you regarding your mindset on money. I don't know if we could cover anything more important during these times right now, which are pretty tumultuous when it comes to markets and interest rates and things like that. So, Morgan Housel, welcome to the show, brother. We got a lot to talk about today.
- [03:14]
Morgan Housel
Thanks so much for having me, Ed.
- [03:16]
Ed Mylett
It's good to have you. Let's start out with something very basic. Most people are broke. They don't know they're broke, but they're broke because they get a paycheck every single month and they spend it at the mall or they blow it on Amazon. But they are broke, meaning they are a couple missed paychecks away from devastation in their lives. Why are most people broke?
- [03:36]
Morgan Housel
Well, there's two, two different ways to look at this, Ed. One, at the very high level, you know, there are 8 billion people on this planet. My, my guess is probably 5 billion of them are well fed, they have adequate shelter, they are adequately clothed. And to the extent that that that is true, virtually all of their problems in life come from their expectations because their definition of what a good, happy life should be is above that. Now, that is is how it should be. We live in a modern world where people should have more than basic food and shelter. But the point I'm trying to make is that for a lot of people, their financial misery, if they have that or their financial disappointment, is because they are expecting a life that is in excess of what they can have. And therefore, the key to their problems is not always to earn more money, although that can be a huge component of it. It's to put as much emphasis in managing your expectations as you do in improving your circumstances. And there are a lot of people who are, who are by any definition, rich. They might earn millions of dollars per year. And to your point, they are broke. They are financially and psychologically broke. They are financially broke because they Spend. They spend everything that they earn, if not more. They're psychologically broke because despite earning that much income, they expect to earn that much to, to, to live a lifestyle that is in, in excess of that. Millionaires look up to billionaires, billionaires look up to center billionaires, et cetera. The other point here is I, I made this point in my book and I made these definitions up myself. This is not academic research, but the difference between rich and wealthy, and rich in my definition was you have a paycheck to make your car payment and your mortgage and your rent, and you go out to dinner. That's like, that's rich. Wealthy is the money that you didn't spend. It's money in the bank that is invested, that is saved. That gives you a sense of independence and autonomy. It's the money that you did not spend. And I, I, I, I made this point too, that when most people say, I want to be a millionaire, what they actually mean is, I want to spend a million dollars. And that to me is, that's literally the opposite of a millionaire. A millionaire is somebody who made a million dollars and did not spend it. And look, I'm not, I'm not a complete miser. Save everything. Don't go out to dinner. Buy your clothes at Kmart. That's, that's not my philosophy at all. But to me, the highest calling of money is independence and autonomy. That's what's going to give you the best life. And I'm a fan of nice homes and nice cars and nice clothes, all of it. But what I, what I want out of money, and what I think most people actually want out of money, too, is independence. And you're going to get that from, that you don't spend.
- [06:02]
Ed Mylett
I think you're right. And I, I think about my own mindset, by the way. I know what everybody thinks. They think, well, once I make more, then I'll establish these patterns, these savings patterns. And that is one of the great lies of life, that if you can't believe it or not, even on minimum wage, find a way to put $10 a month away, $15 a month away. Just creating the habits of what a wealthy person, to your point, does. You won't do it when you're making 75,000 a year. You won't do it when you're, when you make 75,000, you're driving a, you know, a Honda. When you get to 100 now you got a Lexus. And maybe you own a house instead of rent. And then when you make 150. You're going to get around to it then, except now you got a bigger house and now you drive a Mercedes. And this number, this finish line keeps moving. And so it really is what you teach in your books, which is the mindsets of wealthy people. And it shouldn't be predicated on your income. You either pay yourself first and save some money or you don't. And I have friends, to your point, Morgan, who make $600,000 a year, who are baroque, they do have a Bentley and they actually have a second little beach house. But they are broke, stressed and heading for the wrong place. And I have other friends who are schoolteachers. In fact, I was just thinking of my brother in law. He's an airplane mechanic and his wife is a part time nurse. They are now in their 60s, they have their home paid off and they have seven figures in their 401k and seven figures outside of their 401k. They are wealthy people who have never made lots and lots of money. So now that we know what the broke people do, what are the top three patterns that rich people do? What do they do that's different? Paint the contrast.
- [07:45]
Morgan Housel
I think if there's the biggest one, Ed, it would be that their benchmark of success is internal. It is, it stays confined in the walls of their own house. And their level of success is, am I my spouse, my kids, maybe two or three of my friends do. Do I use my money to make them happy and give them a better life? I've called this the humble bubble, where it's like I, I want to live inside of a bubble where my measure of success is confined to the walls of my own house. And the reason that's the case is because as soon as I start looking at you and other people and people on Instagram and Twitter and saying, do I have more than they do? Is my house better than theirs? That's a game that you can never win. And I think the people who are actually wealthy who can use their money for independence, they measure their success relative to a very small group of people who they actually love and admire rather than an endless group of strangers online. That's, that's a big part of this. The other thing is like how relative wealth is. Chris Rock made this joke and like most comedy, it's funny because it's true. He said if Bill Gates woke up with Oprah's money, he'd jump out the window. And it's, it's, it's, it's so true that there are so Many people, to your point, who might earn $50,000 a year and they are actually wealthy, they have more money than they will ever need to be happy. And then there are people who make literally billions of dollars who wake up every morning feeling inadequate. And if, if you consider that like some people are just much more efficient at turning money into happiness than others. I've, I've written about my grandmother in law, my wife's grandmother, she's now deceased, but she, for 30 years she lived off of nothing. I think she made $1,700 a month and she had nothing else. No savings, no pension. And she was one of the happiest people you'll ever meet. She was so content. She loved going for walks in the morning and gardening and like talking to her kids. Like she, she had everything she needed and she had virtually no money. But she had psychological wealth. And I think that is a point for a lot of people, whether you, no matter how much money you make, if you have this component of psychological wealth or psychological debt that can, that can add to a little bit of money or it can subtract from a lot of money.
- [09:50]
Ed Mylett
Well, I, I'm loving this, by the way. I think we've developed in our culture an addiction to other people's approval. And if you suffer from that addiction, you're more than likely going to be broke. I mean, that's a bold statement to make, but for the most part, if you're addicted to gaining the approval of other people, particularly for shallow surface level things like your shoes or your purse or your car, you're probably gonna end up broke. And although you come from kind of a different world, the Instagram way of getting wealthy, that's taught by everybody now. And by the way, there's some validity to it. But I wanna cut to the chase a little bit today for giving people the perspective that they just no longer hear. The Instagram way to get wealthy is to use debt to get wealthy. That's the cool thing. Now buy apartment buildings, buy rental properties, buy borrow, borrow, borrow, borrow. And they sort of poo poo. The millionaire next door, Dave Ramsey, and I really come down somewhere in the middle. I have friends who have leveraged and used debt to become very wealthy. But I have way more who tried to do that than went absolutely ass broke doing it at some point because they used to be wealthy, but it's just one economic cycle away from them wiping out everything they've made. I have far more friends who are wealthy who did it. The millionaire next doorway, they live below Their means. They say there's.
- [11:12]
Morgan Housel
There's a huge amount of survivorship bias in the get wealthy with debt idea. Yes. There are people who have done it, and you will, you will hear their stories on Instagram. For every one of those people, there are 10 people who went broke, correct.
- [11:24]
Ed Mylett
Maybe 50, in my opinion.
- [11:25]
Morgan Housel
Yes.
- [11:26]
Ed Mylett
And actually I know two thirds of them that teach it, and they are currently broke as they teach it. And so I'm not saying that debt is not a pathway to wealth. It can be, but there's a. Another pathway. And that's what I want to talk about today. And I think that the understanding of compounding is something that should have been taught probably third grade, third, fourth grade. And it's not even taught to most people who have an MBA compounding on their money. So let's talk about this so that people go, well, how else would I ever get wealthy? I mean, a hundred bucks a month, 300 bucks a month, that's never going to add up to anything unless you understand how money compounds. So let's talk about that a little bit because it's in the book and it's awesome.
- [12:11]
Morgan Housel
Yeah. The first thing that I would say, Ed, and this might be a little disappointing for people, but I think there's a lot of truth to it. Warren Buffett has talked about what he calls the money mind. And what he says is, like, some people have the money mind and some people don't. So when you talk about teaching compounding, I think for a lot of people, the people who do very well over it, who do very well with money, it's not necessarily because they were taught, it's because they are wired to naturally understand compounding. Because really what compounding is, is just using time as your lever to get rich. And, and the takeaway from that, for me, at least in terms of investing, has been it doesn't necessarily make that much of a difference what your annual returns are, how much your returns are going to be this year or next year. What matters is how long can you keep it going for. And the secret is if you can be merely good for a long period of time, you'll end up excellent. That's like, that's the disconnect that I think that most people miss. It's like, if they want to become wealthy, their solution is, how do I become excellent? Excellent at investing, excellent at business, excellent at their career. And there's some validity to that. But the way more important variable there is just how long can you keep it going for? If you can be average for an above average period of time, you will lead to excellence. And it is, it is a much higher odds of it coming true than trying to get rich with debt, let's say. And so that's, I think that's the biggest thing about compounding is like, you are like, what lever do you use in life? Are you trying to use intelligence, grit, grind? Yes, those can work. There's another lever here which is just time. And, and people don't want to do that because people are impatient and the social media world has made them even more impatient. But there is no stronger lever that exists and there is no lever that like, puts the odds of success in your favor more than time.
- [13:50]
Ed Mylett
Really, really good. I'm loving this. Okay. I've had a lot of money experts on the show and one thing none of them are ever willing to answer. It's okay if you're not. I can't because I'm licensed. Where should they put their money? Like, where should they put it? So this is a tough one. And I know everybody, there's no guarantees of anything. But if someone's listening, okay, I need to live below my means. I need to have time work for me. I need to not have the addiction of other people's approval. And I got to set a little bit of money aside. It sounds like here, starting right yesterday, where. Any thoughts on that?
- [14:20]
Morgan Housel
The reason that I will give you a wishy washy answer is not because I'm licensed. It's because I, I truly think that everyone is different. And what works for me might not work for you. Not because we disagree with each other, just because we're different people. But I think what's true for most people, not everybody, but it's true for most people, is a financial, an asset allocation that favors simplicity over complexity. The reason people want complexity with their investments is because they think that there should, should be an association between effort and results. That the harder you try, the better you're going to do. Everything we know about investing shows that it is the opposite, that the harder you try, the worse you're going to do for the vast majority of people. And so I'll tell you how I invest. Just putting my cards on the table. My entire net worth is this house, cash and index funds and shares of a company called Markel where I'm on the board of directors. And that's it. It is the simplest thing you could possibly imagine. And the reason I keep it that simple is because the variable that I'm trying to maximize for is endurance. I just Want to make sure that the stocks that I do own, I can hold them for the next 30 or 40 or 50 years. And if I can, the returns will be absolutely astronomical in terms of like the actual number of dollars that I accumulate over time. And I think that's true for most people that you can favor. If you favor simplicity over the allure or the appearance of complexity, that's where you're going to end up doing the best. That is not to say that you can't make money in real estate or trading or crypto or anything like that, but I think you have the highest odds of success of doing well over the course of your lifetime if you favor an investing strategy that is simple over complex.
- [15:51]
Ed Mylett
I also think there's an advantage to at least believing you have some measure of control over your destiny and your future. And you stipulate in the book. And that's why I just think having a strategy, doing something, you know, look, we can't predict a world event or an economic crash. We can't predict any of those things. But the idea of having some control over your life. And I watch friends of mine, rare occasion if I'm at a mall or something. And this is my thought when I see most people, and obviously anyone who listens to my show or watches knows I love human beings. And I'm shocked at the extent that it's become normalized to live out of control just day to day, to live out, out of control and not even realize that it's abnormal because almost everybody around you is doing it. So let's talk about that because the, the psychology of money is really what we're talking about. What's the impact on that of living an outof control life financially?
- [16:57]
Morgan Housel
Well, here's, here's one thing, one framework that I've thought about this. What are the odds that at least one of the following will apply to you and me and everybody during the course of your life? Major job loss, divorce, cancer, wayward children, you like go. Going down the list, what are the odds that at least, at least one of those will apply to you? The odds are virtually a hundred percent. And for a lot of people, all of those will apply to them. But most people, including me by the way, do not want to admit that because it would be too hard to get out of bed in the morning. So even if we know that life is filled with like all kinds of curveballs and challenges, et cetera, et cetera, not even at the individual level, but at the macro level, 9, 11 Covid, all these things, it's. It's too hard to admit that because we want to wake up every morning and say, I'm making good decisions and my future is clear in front of me. Like, that's. That's what makes it easiest to get out of bed in the morning. And because of that, I think people systematically underestimate the odds of financial hardship. So if you looked at my net worth, a lot of people, including financial advisors, would say, why do you have so much cash? What are you saving for?
- [18:03]
Ed Mylett
Are you.
- [18:03]
Morgan Housel
Are you saving for a new house? Are you? And I would say, I have no idea. I'm saving for a world that I know is completely unpredictable. I'm saving for a world in which bad things that I don't want to happen are going to happen to me and you and everybody. And so I think our tendency to just underestimate how challenging life can be leads people to live on the edge like this. And by the way, I think it's important to say I'm absolutely an optimist. Not just about my own. My own life, my own career, but the world in general. Like, I have very high confidence that my kids and grandkids will be living a much better life than you and I are. But you can. You can believe that. And at the same time say, look, in 50 years, the world's going to be way better than it is today, but it's going to be extremely difficult to get there. It's going to be a nonstop chain of landmines and bombs going off. And. And I. To. To get to that end point 50 years from now, I need to make sure that I have enough financial and psychological endurance to endure everything that's going to be thrown at me along the way. And so that's like, my. My ability to not live on the edge is not because I'm pessimistic. It's actually because I'm very optimistic, and I want to make sure that I have the endurance to get there in the future.
- [19:12]
Ed Mylett
I'm. I'm really loving this just because it is sort of. It's crazy to say this out loud because 20 years ago, before social media, it wasn't. But what we're discussing right now is actually counterculture. It's crazy to me, but it's counterculture. Not having a ton of debt and not spending everything you make is somehow counterculture today. And I will just say this to everybody listening. I want to go back to that debt thing. There's a pathway with that. But I have to be candid. With everybody. Most of you know that watch the show. I made an eight figure income now for 20 something straight years. I've got a nine figure net worth. Multiple, multiple, multiple, multiple, multiple nine figures. I don't say that to brag. I say that to acknowledge something he said. And our portfolio sound very similar. I carry a ton of cash and I have money in my homes and some index stuff and then a sprinkling of investments in businesses that I'm involved with. And anytime I varied outside of that, I've mainly lost money. Almost every single time I've broken that rule. I have lost money and I say that to everybody. Just because that started at McKinley Orphanage Home for Boys. $6.50 an hour. And I started putting $20 a month into a mutual fund at 21 years old. That's where it started. And I got excited when that thing got to 300 bucks and I got more excited when I got to 800 and I was showing my friends when it was at 3,000 and they were buying their car and I was driving my Honda CRX with 120,000 miles on it and I had 4800 bucks in that fund. I'm just telling you, I'm acknowledging many of the things this man is saying. So hey guys, I want to jump in here for a second and talk about change and growth. And you know, by the way, it's no secret how people get ahead in life or how they grow. And also taking a look at the future, if you want to change your future, you got to change the things you're doing. If you continue to do the same things, you're probably going to produce the same results. But if you get into a new environment where you're learning new things and you're around other people that are growth oriented, you're much more likely to do that yourself. And that's why I love Growth Day. Write this down for a second. Growthday.com forward/ed my friend Brenda Burchard has created the most incredible personal development and business app that I've ever seen in my life. Everything from goal setting software to personal accountability journaling courses. Thousands of dollars worth of courses in there as well. I create content in there on Mondays where I contribute as do a whole bunch of other influencers like the Avengers of influencers and business minds in there. It's the Netflix for high achievers or people that want to be high achievers. So go check it out. My friend Brennan's made it very affordable, very easy to get involved. 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So stop putting off doctor appointments and go to Zocdoc.com mylet to find and instantly book a top rated doctor today. That's z o c-o c.com mylet zocdoc.com mylet what is the, what's the downside of wealth? You talk about it in the book, but what gets worse when you make money, maybe not wealth, but what gets worse when you make money.
- [24:04]
Morgan Housel
Yeah, I. I heard this amazing anecdote from Will Smith. He wrote about this in his biography. He said when he was poor and depressed, he could tell himself, if only I had more money, my life would be better. And it gave him a sense of hope. So he woke up every morning and be like, I got to get the money, because once I get the money, my life will be great. And then he said, once he became rich and he was still depressed, he had no hope. He could not tell himself, if only I had more money, because he had all the money he could ever spend, and he was still depressed. And so, look, that's the ultimate first world problems. But I think a lot of very wealthy people hit this kind of zone where they tell themselves, if only my net worth was X, all my problems will go away. And then they hit X and they're like, oh, I'm actually sadder than ever. And then once you lose hope that that's when it starts to unravel. Rick Rubin had this. Had this saying. He's like, you. You only become depressed once you've. Once you've hit your dreams. Once you've achieved your dreams, that's when you come truly depressed because you realize it did not fix you. Now, I think there's a lot of truth to that. That's one point. The other is what I call social debt, which is this idea that the wealthier you become, it changes how people think about you in different ways. And you realize that people will pretend to be your friends and they look at you different and whatnot. I had this amazing experience a couple years ago where I was doing some consulting with a group of young NBA athletes. They were like NBA rookies. And the idea was, hey, go talk to them to try to prevent them from going bankrupt, which the majority of professional athletes do. And one of these athletes, he was an NBA rookie, I think he was 20 or 21. And he said something I thought was so profound. He was like, the reason professional athletes go broke is not because they bought themselves five mansions and a bouncing car. The reason they go broke is because they bought their fifth cousin, who they barely know, a modest house, and they had so much social pressure to take care of their family. A lot of these athletes come from inner city poverty, and once they start making $10 million a year, they cannot tell their cousin and their grandma and their barber back at home, screw you guys. I got my money. Best of luck to you. They have so much social Pressure to take care of their family. And that's wonderful. Of course, like taking care of your family is a wonderful thing, but that is what I define as social debt. It is, once you make money, the social pressures that you have to spend it a certain way and to spend it on others explode massively. And if you talk to any level of billionaires, it will tell you this. The number of letters that they get from very well meaning people. You know, a single mother who has a five year old daughter with, with cancer, and the mother says, please, I just need 100 grand to save my daughter's life. You get those letters all day long. And, and of course they're, they're good people who want to do well in the world. But that's like, that's, that's a, a downside. Now I, I think we should all be lucky enough to have that challenge in life, but let's not pretend that it's not a challenge.
- [26:45]
Ed Mylett
Well, by the way, I think you make a great point there. I want to. It's a correlated point. You describe the scenarios that are likely to happen to your life. A job interruption, a wayward child. But one of the other things that a lot of you don't realize is that your parents may need you at some point. Some of you are in a generation where you are going to get to an age where you're going to be taking care of your children and need to help your parents at the same time. And so for a lot of you, you won't save money for you, you won't. But you might, I might be able to get you today to start saving money because you love your family so much and there will be times in your life. I'm 54 this month. Where the people you love truly do need you. I'm not talking about the fifth cousin who you barely know. And by the way, I've had a lot of those come out of the woodwork in my life. I'm talking about your parents, your children, your grandchildren, your brothers or sisters. And if you want to be there in their life, ask yourself, is that purse really worth it right now? Are these pair of shoes really worth it? Is that watch really worth it? Or is your mom worth it? Is your daughter worth it? Do you want to be able to take advantage of opportunities when they come because you have a little bit of cash? So I want you to think about all of those things. And there's just incidences in our lives that teach us money lessons. In the book, Morgan, you talk about sort of A tragic incident that taught you one of your most valuable lessons about money. If you don't mind sharing that with everybody, I think it's something people will remember.
- [28:13]
Morgan Housel
Yeah, I, I grew up as a, a competitive ski racer in Lake Tahoe, California, and I had this, this, this event that happened to me when I was 17 years old. Myself and my two best friends at the time were skiing out of bounds, which is illegal. You're not, you know, you duck under the ropes that say do not cross, and that's where you get the amazing skiing. And it was awesome. And I, I'll, I'll tell the, the shorter version of the story. I, I, I, I skied this run out of bounds with my two friends, and it was awesome. And we get to the bottom, we would hitchhike back because it's out of bounds, there's no chairlift, and they wanted to do it again. And I said, hey, rather than, rather than hitchhiking back, why don't you two go do it and I'll pick you up so you don't have to hitchhike. I'll drive around the mountain and pick you up in my truck. They went and did it. And the short version of the story, to get to the point was they were killed in a massive avalanche during this period. And of course, you know, I always have to make the point that I'm, I'm not unique in the sense that I've, I've lost people close to me. Virtually everybody has that. But this was, this was my version of it. And one of the things that it taught me early on was, I mean, two, two points about risk that I think have much broader meanings. One is that my decision to not go with them on that run was the most important decision I've ever made in my life. Nothing matters more. 100% chance I would have died with them if I went with them. And so it's, it's this reminder and indication of how ridiculously fragile life can be, that your decision that, a decision that you make that is to have complete. No, like, you not thinking of it whatsoever. You're not making a list of pros and cons and, and whatnot. It's just a brainless decision that you make can be, can completely transform your life. Sometimes that's positive, sometimes that's negative, but it's this reminder to be a little bit humble about how ridiculously fragile life is. The other that it taught me was we knew that skiing out of bounds was dangerous. We knew it was wrong, but we thought the Consequences of that risk might meant that like we would get yelled at by our coaches or we would have our season passes revoked. Never in a million years do we think the consequences of the risks that we took meant that we die. Like, like we're 17 year old boys. We didn't think like that. But, but once you start thinking about the worst case scenario for a lot of these things, you can't see it in any other light. And maybe I think that did rub off on me financially that I have no desire to take massive risks, to get rich quickly overnight because I want to avoid catastrophes at all costs. It's, it's like playing Russian roulette like, like there is no amount of, of winnings in Russian roulette that would be worth it because everybody understands the downside. The downside is you die. And I think there are versions of that in finance. There is no gain that would be worth it for me if the downside is bankruptcy for my family and my kids, there's nothing that would be worth it like that. So once you see the world in a worst case scenario lens again, I'm an optimistic person. I'm optimistic about the world, et cetera, et cetera. But, but you avoid catastrophe at all costs and put endurance as like the highest goal that you have financially also.
- [31:14]
Ed Mylett
Wow, that's, that's a crazy story by the way. That is a crazy story. What a metaphor too. You know, I, I think about people who make good decisions in their life until they don't. My book, the Power of One More. I say you're one decision away from changing your life. And people always assume that means a good one. That you know, if you make one decision you can shift your life. It's also true to the negative. Oh yes, like that day, the decision you made not to go and not that they made the wrong decision, it just ended up being that decision. I just had someone who was driving me in an Uber and wonderful woman, we started talking about her children and she had a wonderful child, 23 years old. He made one decision one night to drink and drive. And that night he hit somebody and killed them. And he's now in prison for 25 years. And he took a life, but that one decision changed his life. And I make this point to lead to hear everybody, some of you will get on track today. This. Let me tell you what I've observed and I'll let Morgan talk to it. And you do start the right habits and psychology with money. You do start saving. You take advantage of compounding you live below your means, you allow risk mitigation to kick in until, until the one temptation. So you get a stack of money. Finally you get 50 grand or 100 grand. And then I find once people do that, then they can't risk the temptation of blowing that on something. So they go five, six, seven, eight years, do the right things, and then in a weak moment or immediate gratification moment, they blow their stack of paper on something and then they're broke. I have more friends, as you say in your book that used to be wealthy than currently are. So talk about the consistency and resisting the temptation as the temptation gets bigger. Because the temptation to blow 80 bucks now is far different than 80 grand later. It's a bigger temptation.
- [33:15]
Morgan Housel
Yeah. Two things come to mind here. One is the idea, this is true for all areas of life, that good news tends to be very slow and bad news happens very quick. So good news is like slow compounding over 10 or 20 years where you look back individually or at the economy or at the world, you're like, man, over the last 30 years, we made a lot of progress. Bad news is, is not like that. Bad news is very quick. It's 9, 11 Covid. Lehman Brothers goes bankrupt. Bad news happens in an instant. And there's no equivalent, there's no equivalent of 9, 11 for good news. There's no equivalent where the world gets way better in 30 minutes. That's a bit. It happens, it happens on the downside, but not the good side. And so one, one thing that, that goes from that too is that in investing, you do not need to make a lot of good decisions over time to, to do very well, you just have to avoid not screwing up. If you could just, if, if you could just make a series of okay, average decisions and never screw up, the odds that you're going to do well are extraordinary over time, particularly for investing in the, in the stock market. And most people are, have the opposite approach. Their view is like, how can I be a genius every day? And in doing so, they increase the odds that they're going to make a catastrophic mistake that they can never recover from. And, and it's so incredibly common. I think you see this kind of in the Robin Hood investing mentality, which is, is geared around trading. There's almost no investing mentality that goes on in the Robinhood app. It's all quick trading. And that is enticing to people because of the idea that to do well, you need to be a genius. You need to make a lot of brilliant decisions. When it's almost the exact opposite. You just have to be okay and never screw up. I mean that's, that's true for relationships as well. I remember reading this study in psychology that was like most good marriages that endure and have a lot of happiness, not because the partners are making like tons of like great loving, like constantly reminding their partner how much they love them. It's because there's a lack of screw ups, it's a lack of mistakes. It's not the good moments that they have. It's the avoidance of fights that leads to, it leads to a great marriage. I think there are so many analogies with that, with money. It's not the brilliant decisions, it's the lack of screw ups.
- [35:23]
Ed Mylett
Speaking of that, I'm just curious as your opinion is a timely thing. I had it, not had it in my notes, but when you said it, it made me think about it. Just because of the time of this recording, it's starting to have some impact on the world. But. So this is a broader financial question. Nothing in your book. Just want to know your thoughts on it. How do you feel about this whole tariff thing that's taking place because it is now having impacts on the market. And could that be one of those really bad decisions in your mind or really good decisions in your mind for the economy? Just curious as your thought on it.
- [35:59]
Morgan Housel
Yeah. What's interesting is that the economics profession does not agree on that much because it's a very political profession. It's hard to separate the, you know, you know, being, you know, talking about the economy from politics. So it's a very contentious profession. If there is one single topic that virtually every academic economist agrees on, it's that tariffs suck. There's, there's virtually, virtually no debate about that among professional economic circles. I think what's interesting is that almost every economic crisis and recession happens from an outside event that policymakers and Congress can't control. 9, 11, the housing bubble, it's like, it's like, it's like you got hit by an asteroid and there's nothing you can do about it. This is a situation, I think, where there's effectively a button on the President's desk that says, do you want to cause some turmoil? And the button got pushed. Now that does not have to be a partisan thing because there's a long history of tariffs in the 1920s, in the 1960s and 70s. This is not the first time we've done this by any means. So it's not to say that Trump is the first one going down this path and look at him doing silly thing. A lot of people have tried this. I think there's a broader point though that a lot of people from both parties have tried this and it always sucks. So I think that's, that there is a point that does not dissuade me from being optimistic about the future. Economic volatility and policy mistakes is the entire history of economic history, right?
- [37:21]
Ed Mylett
And by the way, everybody, I, I, I asked that question knowing that many of you believe, hey, but the tables aren't equal. And so I'm willing to go through some short term pain to get some equivalency in how we trade with the world. I'm not asking the question as a political one, I'm asking it as an economic one because I might even agree with some of you on that. I, I would like to see trade become a little bit more equalized. But having said that, it, you should at least know what people that are smart think it's going to do to your money. And speaking of that, I got, it's like a random question, but I get asked it a lot and I ask friends of mine this a lot and it's got to do with kids. Let's say you are a saver. You're listening to the show. Do you think you should be saving money for your kids? It's in the book. But I'm asking you on the show, do you think you should save money for your children?
- [38:05]
Morgan Housel
It depends on what you're going to do with it. With. When I look back at my childhood, I think my parents used their money that they had to give me and my siblings a safety net, but never a fuel. That was not explicit. It was just like looking back at how it worked where my parents, you know, by the time I was, you know, 17, it was like, best of luck to you. We're not going to give you money for rent or food or any of that. Like, you're, you're a big boy now. Go do it. And I struggled in the early years, as everyone would, but I always knew, even if they didn't say it, that if I fell flat on my face, they would be there to help me. And so they didn't actually spend that money on me. They didn't write me a check, but I knew it was there if I needed it. And that was everything that gave me confidence. It helped me sleep at night when things were rocky. So I think that is an amazing way to use money for your children without actually writing them a check. Just knowing that they can go out in the world and take risks and experience life and they're never going to fall too far. It's not that they're not going to fall at all, at all, but they're never going to be homeless. I always knew that my parents would give me a place to live and a peanut butter and jelly sandwich and health and health care if I needed it. But, and so then I could go out and do it. No, I, I think it is virtually impossible to give, to actually write your kids a check for money that they don't necessarily need, desperately need and have it not impact their motivation in life or not like seriously distort their sense of progress and well being and whatnot. It's, it's virtually impossible. There are some examples of it. You know, if, if Elon Musk had had inherited a billion dollars when he was 18, it would not have slowed him down. We, we would not have slowed down his ambitions whatsoever. But 99.9 of people, it will. If you just give them money, it's going to slow down their ambition. And so there's a great Warren Buffett quote where he says, give your kids enough money so that they can do anything, but not so much money that they can do nothing. And I think there is a related point here that that level of money of giving your kids money, that's going to slow down their ambition is not that much. It is not that much money. So a lot of wealthy families are like, oh, you know, I give my son, my daughter 2,000 bucks a month to help him out. Well, 2,000 bucks a month when you're 21 years old is a ton of money. That is a ton of money. So there's a lot of parents who mean very well and they desperately do not want to spoil their kids, but it's actually extremely easy and common to do it.
- [40:24]
Ed Mylett
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- [41:39]
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- [42:19]
Ed Mylett
When I say when I think of money, I gotta be honest with everybody. My mindset. I've always been more afraid of being broke than excited about being rich. And maybe that's a terrible thing to live in some sort of psychological fear. I'm sure it's unhealthy.
- [42:37]
Morgan Housel
Actually, I don't think it's unhealthy at all. I don't. I think that's the right mentality. And I think you can use an analogy with health here. Would you re if, if, if, if. If you had a genie and the genie says I can give you one of two things I can either give you I like the the first option is I'll give you the most incredible athletic body that is is is possible. You're going to be the best athlete, the fastest runner, the best weightlifter. That's one option. Or option B. I can just make sure that you never get terminal illness. Which. Which one of those you take? I think most people would say I would rather cap my downside than have a ridiculous upside. Maybe some people would not. Maybe that's not black and white as I just made it out to be. But that would be neat if I had those two options of you can either be the most ridiculous athlete or you can or I can ensure that you're never going to get terminal cancer. I would absolutely take that. And it's true for my finances as well, that if that same genie said, I can either make you a multi billionaire or I can just ensure that you're going to be really comfortable for the rest of your and your and your kid's life. Again, this is not black and white. Some people might take option A, I would probably take option B. And I don't think that's an unhealthy fear. I think most people, if you actually, you know, give them some true serum and put a gun to their head, they would. And you said, what do you want out of life? Well, like, if most people do not aspire, I think it's, it's interesting and curious to think about becoming super rich and famous. But what most people actually want is just like I just want a comfortable life for me and my kids and my spouse and a couple of my friends. That's, that's, that's actually way more appealing and realistic for most people.
- [44:07]
Ed Mylett
And by the way, I want. You're right where I wanted to go. So this is one of, one of my favorite moments on the show this year right here. I wanna. It's been on my mind what you just said. So I've thought a lot about our culture and even what I teach and what I do. And I shared earlier, my net worth's done, you know, pretty well. My daughter went because she's blessed. She got a chance to go study abroad for a month this summer in college. She was in Italy. And like many of my friends that have come back from there, she goes, daddy, I think they get it over there. And I said, honey, what do you mean? And she said, well, I would never want to not live in the United States. But she said, it just seems like their quality of life's a little higher, Daddy. And I. And she said again, I want to live in freedom and I want to be in the United States. But she said the more I was there, the more I realized how much everything here is. You get up and you hunt and chase all day and then it's all about cold plunging and resting and recovering so you can get up and hunt and chase again and climb and climb and climb and climb. And she said, I felt like over there, you know, daddy, it's okay to take a two or three hour lunch and not everybody works six days a week and they just laugh a little bit more and seem a little bit happier. And of course I went back at her with the normal per. Yeah, but Bella, Daddy's about the ultimate expression of himself and creating and expanding and, and I am about that. And I would be miserable sitting at three hour lunches every day, I have to be honest. But there's somewhere in between the two. And when I started the pursuit of becoming wealthy, I had equated wealth with freedom to choose to have that three hour lunch or that two week vacation or that round of golf where my phone doesn't ring. And then quite honestly, I've never really gotten around to doing the freedom part even though I've got a bunch of money and I'm 54 now and so talk about money and freedom, what it means to you and maybe what the mindset ought to be or could be for somebody as they look at their money as opposed to what you just said about having the jet and the island. Maybe it's more about having the. A great life.
- [46:17]
Morgan Housel
What's interesting about American culture, to contrast it with Europe as, as, as your daughter did, is I think in America we, we want to benefit the whole at the sacrifice of the individual. So we want to create amazing new technologies and become more productive. Even if that comes at the sacrifice of our own individual life and spending time with our kids and sleeping well. We are willing to commute and work 100 hours a week to create a new technology that's going to benefit the world and benefit the Europeans, even if it comes at the expense of our own life. And we've always been like that. That was true 200 years ago. I think it'll be true 200 years from now. Whereas I think a lot of other cultures would, would say we would rather the whole slow down a little bit. And we're not going to create a lot of amazing businesses or amazing technologies, but we're going to spend a lot of time with our family and live a great life. I can see the pros and cons to each. You get problems. Yes, you. I mean just true at the individual level. I am so glad that people like Bill Gates and Elon Musk and Jeff Bezos and Mark Zuckerberg. I'm glad they exist because I get to benefit from the technology that they've created. Never in a million years would I want their life because their life, because they don't. They don't. They effectively don't have personal lives. Their entire life is devoted to their business, their products. That's why they're so successful. And so I think the ultimate answer here is having a well calibrated sense of your future regret. When you and I are on our deathbeds and we will be someday, what are we going to look back and regret. And some people would say, I would regret not taking the chance to start a business and create something great that might be a good. Might be a regret. A lot of people will look back and say, I regret that I worked so hard and I didn't spend enough time with my kids. There's an amazing study from a guy named Carl Pillemer. He's a gerontologist, and he did a study on a thousand elderly Americans, most of whom were in their 90s. And he just said, you know, looking back at your long life, give me some advice. And there's a part of his book that's on finance. And he says in his book, of the thousand people that he interviewed, not a single person, not one person out of the thousand looked back and said, I wish I made more money. Not one single of them said that. Virtually every one of them, looking back at their life, said, I wish I'd spent more time with my kids. I wish I spent more time with my friends. I wish I accepted who I was rather than trying to become somebody that I wasn't. Virtually every one of them said that. So it's interesting for you and I, who are not 90 years old, trying to figure this out, look at what our aspirations are, knowing that there's a very good chance that when you and I are 90, we're going to look back and not regret earning more money, but we will regret not spending more time with the people who we loved.
- [48:51]
Ed Mylett
And we will regret not saving more. So you. I understand better than most both worlds. I probably land in the. At the end of my life, I want the tank to be empty. I want to have expressed and learned and grow and given everything I possibly give to have maxed out my life. Okay, so I have been teaching these things for years. But as I get older, I also have an appreciation that I never had before for people who choose the other life, which is the one about time with family. And this is what I've concluded. Everybody. And this is important for all of you that are freakazoids like me. They're like, I'm going to max my life out. You need to save money. Let me tell you why you need to save money. Because at some point, if you have, it will give you the option to change your mind later. And if you don't save anything while you're expanding and contributing and growing, you have no choice but to stay on this train until death. But if you save along the way, it gives you the freedom to choose at some point to get off that train if you choose to, or to get off it for a while or to just downshift. But if you don't save, you have made a life decision that you're going to run this thing till the wheels come off and maybe pass your capacity to innovate and create. You may pass your prime, your ability to expand and grow. And you're gonna have to stay on that train if you don't save money. And that's why Morgan's work matters so much, because you can be this crazy person like I am. But my savings has given me an off ramp if I choose to take it at some point, temporarily or permanently. So everybody makes sure they have that. This message is sponsored by Greenlight. Hey, listen, one of the things I did okay as a dad was I did teach my kids about money. And it was one of the most difficult things to teach them because it's not taught in school at all. They learned all of these things in school that quite frankly, they're not going to use in their real life and things they really need, like learning about money and budgeting and the value of a dollar. Let's be honest, most of us learned about saving and budgeting way later than we should have. But here's the good news. You can give it to your kids with a head start with Green Light, Green Light's debit card and a money app made for families that lets kids learn how to save, invest and spend money wisely. Parents can send their kids money on the app and keep track of their saving and spending. It's convenient way for parents to raise financially smart kids and families to navigate life together. It's really good. Maybe that's why millions of parents are already using it with their kids and learning about how money works on Greenlight. So start your risk free Greenlight trial today@greenlight.com ED that's greenlight.com ED to get started. Greenlight.com ED I want to ask you kind of a powerful question, by the way, one of my favorite conversations ever because I've been able to go back and forth you say in the book why you should never check up on your investments. I'm like, really? I did it today, by the way, was a disappointing day. When I looked Bitcoin's not doing so good today. Neither was the stock market while we're recording. So maybe I shouldn't have checked. But is that why you say that or what's the point of not checking up on your investments? Or were. What did you mean?
- [51:55]
Morgan Housel
Well, to the Extent that when people follow their investments all day that it might lead them to want to make a change, to want to fiddle with the knobs and the levers is going to do that. I check my investments every day, usually multiple times per day, because I think markets are so fascinating, they're a fascinating window into culture and incentives and psychology, but never when I check it, does it influence how I invest. Never. And, but I think for a lot of people that's not the case. If they check their portfolio and it's down, they're like, oh, I should sell, I should change this, I should buy this and sell that. And everything we know about investing is that the more actions that you take, the more levers that you're pulling, the worse you're going to do over time. That is, that is true for almost everybody. And so if you are the kind of person who every time you check your portfolio is tempted to make a change, those are the kind of people who should set it and forget it and, and leave it alone. And people understand this. If you are growing an oak tree in your backyard, you plant a seed and if you check it every hour and you oh, it's not growing, I need to add more fertilizer. No, no, just leave it alone, let it grow. They understand that with something like gardening, but with money, there is this idea that the harder I try and the more fertilizer I dump on it, so to speak, it's going to do better. Even if it's almost certainly. It's almost, it's almost never the case.
- [53:05]
Ed Mylett
Do you think most people have a dramatic underestimation of how much money they're going to need to have saved in order to choose to stop working and continue their lifestyle at some point?
- [53:16]
Morgan Housel
I do, I think, yeah, I think that's broadly true. I think we still have this 1970s idea that a million dollars is a fortune and if you're a millionaire, you'd live. You live. There's this great meme on Instagram, I'm sure it's been all over the place of like when you were a kid, when you dreamed what a million dollar house would look like. And it's like, it's like the Playboy Mansion kind of thing versus what, versus what $1 million will buy you today. And it's like nothing in most parts of the country. And, and so I think that that is true. That is just because we underestimate the power of compounding over time. And inflation compounds over time. So if inflation is 3 or 4% per year or Whatever it might be in any given year over the course of 20 years.
- [53:51]
Ed Mylett
That's.
- [53:51]
Morgan Housel
That's a lot. That is a ton. And then you mix that with an even more powerful idea, which is expectations inflation, which is that your idea of a good life when you're older might be very different from your idea of what a good life is today. So I remember when I was, when I was 19, my idea of a good life was like a Honda Civic and an apartment that, that was rich to me. And how that I'm. Now that I have two kids, it's. It's a little bit different than that. So you mix in actual price inflation with expectations inflation, and it's, it's a, it's a recipe for underestimating how much you're going to need.
- [54:22]
Ed Mylett
Expectations inflation. That's so good. Okay, last question for you, brother. This has been so good today, by the way. The book is the Psychology of Money. I think you can tell why you're going to want to get it because it's. There really is a psychology around this. If someone ran into you at Starbucks, you're in Seattle, so it's an appropriate question. Or in the suburbs there. So someone runs into you at Starbucks goes, I heard you on the Ed Mylett show about this money and the psychology of money. And is there something that you wanted to say on the show that you didn't get out about life mindset, the way you look at the world through the prism of money, that he didn't get a chance to ask you? That's in the book. What would you just share? You could grab one more random thing out of a book about money or mindset. What would it be?
- [55:08]
Morgan Housel
And I think the most important thing with money that's so easy to overlook is that there is not one right answer for everybody. That if it. If you are the person who listened to this podcast and said, I disagreed with Morgan about X, Y and Z, there's a good chance that we actually don't disagree with each other, that what's actually happening is that we're different people talking over each other. And that. And most people want to, want to find the answer for investing, like, tell me how to invest. You're like, it depends on who you are and your risk tolerance. And people understand this with, like, food, if I say, Mexican food is the best and you say, no, Italian food is the best, we're not actually disagreeing. We just have different tastes and different preferences. It's not right or wrong. And, and I think that is so true. With money that the way that people save and invest and spend is there is no one right way to do it. And so rather than going out and trying to look for the right answer, you need to look in the mirror and figure out who you are, what, what kind of life you want to live, what your social aspirations are, what your personality is, and build something around that. Even if there are friends and online commenters who say you're doing it wrong, if it's working for you and it's helping you sleep at night and it's making you happy, then it's probably the right thing for you to do.
- [56:13]
Ed Mylett
It's a great answer. This is a good conversation, brother, over a topic that so many people are afraid of. And the reason I brought you on the show today is I don't want everyone to think this whole getting financially free, independent, starting to change your life financially has to be scary or complicated. You will find you what really smart people do, like Morgan, you guys, they take really complicated things and they explain them in simple ways. And not so smart people take simple things and try to explain you to them in complicated ways so that you're confused. This whole life thing and money and the psychology around it doesn't need to be complicated. And I'm so glad finally someone's standing up saying, you got to know yourself and your personality. You can tolerate taking on a bunch of debt and living with that stress every day. Go ahead and do it. But if you can't, there's another way. And that's what we talked about today. Morgan Housel the Psychology of Money. Thank you for being here today, brother.
- [57:08]
Morgan Housel
Thanks so much for having me, Ed.
- [57:10]
Ed Mylett
Great conversation. Share this episode everybody. I know you will. God bless you. This is the Ed Milan Show.