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I once heard this great story from a comedian who said his career started falling apart when he realized that he was spending so much time managing and producing his act that he had less time doing what made his act great to begin with, which was analyzing everyday life and making jokes about it. I see this so often in business. The more successful you become, the more your time is pulled away from the thing that made you successful to begin with. One of those things that can suck up valuable time is expense management. And that is why I and 25,000 other businesses use Ramp. Ramp is a corporate card that includes the best expense tracking and reporting software that I've ever seen, automatically capturing every transaction the moment your card is swiped. It saves you time. For listeners of the show, Ramp is offering metal cards for the next 30 days. Just go to ramp.com morgan cards issued by Sutton bank member FDIC terms and conditions Play One of my long held beliefs about money is that there is a sweet spot of intelligence. You want to be smart enough to understand the basic stuff that's important, but you don't want to be so smart that you're bored by the basics. And there are so many stories throughout history of very smart, intelligent, Harvard educated Ph.D. goldman Sachs workers, et cetera, et cetera, who blow themselves up or do very poorly financially. And most of the reason often is because they were so smart that they were bored with the basics. They had to have this intellectual stimulation of complicating their finances way beyond what it needed to be. One of those topics that I think very smart, educated, experienced people in finance overlook is saving money. If that sounds crazy to you, I think you could actually get pretty deep into the philosophy of saving money. It's more than just the absolute basics of your yes, you should have some money on the side and save it and build wealth. That to me is like the surface level thinking of saving and it's important. But the whole idea of saving I think is so boring for a lot of people that they overlook it without getting into the philosophy of why you're saving, what you can use it for, how much you need those kind of topics. So I want to dig a little bit deeper today. The first idea that's important here is that the value of wealth, the value of your savings is relative to what you need. So let's say you and I have the same net worth. We're worth the exact same amount of money. And let's say that you are a better investor than I am. Let's say just making these numbers up, I can earn an 8% annual return, and you can earn a 12% annual return. You're a better investor than I am. But let's say in this example that I'm more efficient with my money than you are. Let's say that I need half as much money to be happy. While your lifestyle compounds just as fast as your assets grow. In that situation, you're earning higher investment returns than I am. But I need half as much money to be happy in my life. I'm better off than you are in that situation. I'm getting more benefit from my investments despite lower returns because I don't need as much to be happy. That idea is also true for people's incomes. Learning to be happy with less money creates a gap between what you have and what you want that you get from growing your paycheck. It's the same idea, but it is easier and more in your control. A high savings rate means having lower expenses than you otherwise could if you're spending more money. And having lower expenses means that your savings, the savings that you do have, goes farther than it would if you needed to spend more money. The next idea is that past a certain level of income, what you need is just what sits below your ego. That's what I mean by that. Everybody, of course, needs the basics. Food, shelter. Of course, once those are covered, there's another level of comfortable basics. And past that, there's basics that are both comfortable and entertaining and enlightening, etc. Etc. You can go on down the list. But spending beyond a pretty low level of materialism is mostly just a reflection of trying to get people's attention, signaling social status. And it's like this ego approach to spending. And when you think of it like this, one of the most powerful ways to increase your savings isn't to raise your income. It's to raise your humility to lower your ego. Right? When you define savings as a gap between your ego and your income, you realize why many people with high income save so little. It's a daily struggle against their instincts to extend your peacock feathers as far as it can go and keep up with other people who are doing the same. It's like this arms race of social signaling. And so people with enduring personal financial success, which is not the same as those who have the highest incomes, people who tend to do very well for a long period of time, tend to have this feeling of not giving a damn what other people think about them. They have a low level of ego, a high level of humility that lets them be more Efficient with their money. And so the point I'm trying to make here is that people's ability to save money is more in their control than they might think. Because there's so many people, even not, not even lower income people, but middle income, higher income people who say, look, I have such high expenses, even whether they're basic or not basic, that I feel like I can't save. And if you always have that mindset that just like, well, I'm spending so much money that I can't save, then of course it's always going to be impossible. That is true no matter how much money you're making. Of course it's true for lower income people. So many higher income people fall for that trap as well. So savings can be created by spending less. And you can spend less if you desire less, and you will desire less if you care less about what other people think of you. That is so basic. The next point that's easy to overlook is that you do not need a specific reason to save money. Some people save money for a down payment on a house or a new car or for retirement. And that is great. Of course, everybody should do that. But savings does not require a goal of purchasing something specific. You can just save for saving sake. And I think actually everybody should. Only saving for a specific goal makes sense if we lived in a predictable world. If you knew exactly what was going to happen in the next year, in the next five years, in your personal life, in your career, in the economy. But we don't. And so savings is a hedge against life's inevitability to surprise the hell out of you at the worst possible moment. Really what this gets to is, I think, the highest purpose of savings, which is gaining control over your time. Everybody knows the tangible stuff that money can buy, homes, cars, clothes, vacations. The intangible stuff that money can buy is much harder to wrap your head around, and so it tends to go unnoticed. But the intangible benefits of money can be far more valuable and capable of increasing your happiness than the tangible things that are obvious targets of our savings.
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Savings without a spending goal gives you options and flexibility and the ability to wait and the opportunity to pounce. It gives you time to think. It lets you change course, change your mind on your own terms. Every bit of savings that you have is like ticking a point in the future that would have been owned by someone else and giving it back to yourself. When you think of it in those terms, I think savings become so much more interesting and fascinating. And here's what's important that flexibility and control over your time is an unseen return on your savings. If people ask, what is return on cash in the bank? You know that you could spit that out. What is it? You know, 3%, 4%? But what is the return on cash that gives you the option of changing your career when you want to, or retiring early, or freedom from worry or the ability to live where you want? That return is incalculable, but that's what cash is. Cash is like the oxygen of independence. And I think it's incalculable in two ways. One, that hidden return can be so large and so important that you can't put a price on it. Like what? What price do you put on the ability to not have to worry about a job loss or about when you're going to retire? That is, it's hard to even put a price on that because it's so huge. But it's also literally incalculable because we can't measure it like you can interest rates. And what we can't measure in finance, we tend to overlook. When you don't have control over your time because you don't have enough savings, you don't have independence. You are forced to accept what you whatever bad luck is thrown your way. But if you have flexibility, you have the time to wait for opportunities to fall into your lap. And that is a hidden return on your savings. Savings in the bank that earn you know, 0% or 2%, 3%, whatever, those savings might actually be generating an extraordinary return. If they give you the flexibility to take a job that you enjoy more, or to live where you want, or to retire when you want, that is a hidden return that can be enormous. And I would say that hidden return is becoming more important. The world used to be very local. Now it's hyperconnected. And a hyperconnected world means that the talent pool that you are competing with in your job can be all over the world, not just people in your neighborhood or your town. You're competing with everybody now, working from home. Virtual work. That is what made the world hyper competitive in the job market. I think that is especially true for jobs that rely on working with your head, making decisions versus jobs that require you to be in person, working with your muscles. So many fields today fall into this category of knowledge work. And so a question that you should ask you deal with this hyper competitive workforce is how do I stand out? How do I set myself apart? And if your answer to that question is I'm smart, that's not a good answer because there are a lot of very smart people in the world. I looked this up. Almost 600 people get a perfect score on the SAT test every year. Another 7,000 come within just a handful of points of acing the test. And so in a winner take all, hyper connected economy, those kind of people are your competitors. That's who you're competing with. And so if your ability to set yourself apart, what you think your ability is, is just saying I'm smart, that's a very difficult thing. A lot of smart people in the world. So intelligence is not a reliable advantage in a world that is as connected as ours is. But being flexible, having flexibility is, that is an advantage in a world where intelligence is hyper competitive and many previous technical skills have become automated and AI is increasing that as fast as you can possibly think. Competitive advantage, tilt towards like very nuanced and soft skills like communication and empathy. And I would say most important of all, flexibility. If you have flexibility, you can wait for good opportunities both in your career and for your investments. And you'll have a better chance of being able to learn a new skill when it's necessary. You'll feel less urgency to chase competitors who can do things that you can't. You have more leeway to find your passion, find your niche of what you're actually good at. You can find a new routine. You can take a slower pace. You can think about life with a different set of assumptions. The ability to do those things when most other people can't is one of the few things that will set you apart in a world where intelligence is not really a competitive advantage anymore because there's so many smart people. Having more control over your time and having options is one of the most valuable currencies in the world. And that's why I think more people can and more people should save money. That's it for this episode. Thanks again for listening, and we'll see you next time.