← The Psychology of Money with Morgan Housel
The Psychology of Money with Morgan Housel
Out Now: The Art of Spending Money (First Full Chapter Here)
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Hey everyone, today is the day. My new book, the Art of Spending Money, is now for sale. Two really quick things here. Number one, the link to buy the book is in the show notes of this podcast. And number two, more exciting for you. Today I'm giving away the first chapter of the book in audio format, which is going to be the rest of this podcast. It's the introduction to the book. It is narrated by my good friend Chris Hill, who narrates the entire audiobook that's gonna be the rest of this podcast. I hope you enjoy it. I hope you enjoy reading this book as much as I enjoyed writing it. Chris, take it away.
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Introduction the Quest of The Simple Life Dr. Dan Goodman once performed Lasik eye surgery on a woman looking to ditch her glasses. The patient returned for a checkup a few weeks later. Despondent, she said the surgery ruined her life. There was nothing wrong with the procedure. She could see clearly without glasses for the first time in years. Goodman pressed, then what's the problem? The patient said she expected that after losing her glasses, her husband would find her more attractive and her co workers would find her more intelligent. When she realized they didn't and love and respect weren't driven by something superficial like her glasses, she was crushed. You have a problem I can't help you with, goodman told her. I'm sorry I didn't realize it earlier. It's astounding to witness someone gain what they thought they always wanted, only to realize that happiness is more complicated than they first assumed. And my gosh, that is so true with money. There's an old saying that nothing's worse than getting what you want, but not what you need. That sums up so many people's relationship with money and success. If you're lucky enough to get what you wantmoney, you might still realize it's not what you need. Family, friends, health, being part of something bigger than yourself. And then you're disappointed. What could be worse? This book is about how spending money has little to do with spreadsheets and numbers and a lot to do with psychology, envy, social aspirations, identity, insecurity, and other topics that are too often ignored in finance. Can money buy happiness? Yes. Can spending money make you happier? Yes. But it's more complicated than many people think. In between the numbers, charts, and data sits the messiness and absurdity of the human mind. Money is a remarkable tool that can provide a better life if you know how to use it. But knowing how to use it is quite different from knowing how to acquire it. Winston Churchill famously said that he got more out of alcohol than alcohol got out of him. By the same logic, I have seen rich people whose money got more out of them than they got from it because they spent their life desperately chasing money without any sense of how to use it to make them happier. I've also seen low income people get tremendous value out of what little money they had, using it as a source of leverage to acquire more of what made them happy. What matters is not necessarily how much money you have, it's whether you understand and can control the psychology and behaviors that can make the connection between money and happiness more complicated than we assume. There are so many ways that observation can affect your own life. Think about the broke young person who buys a car he can't afford because he thinks it will bring respect and admiration from his peers. Or someone who diligently saved their entire life but cannot bring themselves to spend a reasonable amount of money in retirement because savor has become ingrained as part of their identity. Or the young couple saving for a down payment on a two bedroom house whose expectations are suddenly inflated by a friend who just bought a three bedroom house. The rich entrepreneur who never feels like she has enough. The low wage worker who always feels like he has plenty. None of these topics have to do with spreadsheets or numbers. They're so much messier than that. It's all psychology, sociology and understanding how everyone's different. Understanding how everyone's just trying to make it through life the best they can. Making sense of the world given the experiences they've had, who they want to be and what they think others think of them. In school, finance is taught as a science with clean formulas and logical conclusions. But in the real world, money is an art. I worked as a valet at a five star hotel in Los Angeles during college. One day we hosted an invite only high end furniture show for the city's moneyed elite. A man came out to the valet stand chatting with a friend about how he just spent $21,000 on an armchair. Several of my colleagues and I overheard him and were stunned. Spending that much on a chair, a chair was inconceivable to us. The guy saw our bewildered expressions and said, boys, I know it's crazy, but when you have money, this is what you're supposed to do. I found it such an interesting choice of words. Supposed to do. Did he actually like the chair? Or was he blindly pursuing what society told him he's supposed to like and how he should spend his money? I remember then thinking as a 19 year old aspiring to be rich one day. Is that what I'm supposed to do one day? I'm supposed to study long hours in college and grind in a career for decades so I can tell my friends I bought an ugly chair that cost the equivalent of one half of an average household income? Would that actually make me happier? As I processed it all, I remember my reaction. Going from astonishment to. To amusement to almost feeling bad for the guy. I got to know a lot of these people. It felt like so many of them had this mindless chase for wealth without actually knowing why they wanted it, other than the primal urge for more. They were very good at making money, but their ability to turn that money into a meaningfully better life felt rocky at best. Of course, there's another path. Many people have figured out how to use money as a tool to provide things that actually make them happier in life. But the rich chair guy had it right. What society tells us we're supposed to do with money is not always what we should be doing to get the most out of it. It's not our fault. A combination of evolution and social forces tell us that often in a shout, what we should want. More money than other people. Bigger stuff than other people. Shinier toys than other people. Sometimes that is what we want and what you should chase more often. We will realize that spending money to show people how much money you have is a fast way to go broke and an expensive way to gain respect. Disappointment is often the outcome. Now I think you can use money to build a better life. I think buying nice stuff can bring you joy. I love ambition, hard work, and most of all, independence. But after writing about money for two decades, I am constantly amazed at how bad most of us are at knowing what we want out of money or how to use it as anything more than a benchmark of status and success. And let me be clear. Most of this book is reflections I've had trying to figure out money and happiness in my own life. If you ask parents what they wish for their kids, many will say, I just want them to be happy. Do you want them to be rich and successful? Well, sure, they'll say, but mostly I just want them to be happy. That's great thinking, but many of those same parents in their own lives chase money and status at the expense of happiness. Perhaps the reason parents wish happiness over success for their children is because they've seen the downsides of blindly pursuing one over the other. Carl Jung, one of the most influential psychologists to ever live, was once asked, what do you consider to be more or less basic factors making for happiness in the human mind. Young listed them 1. Good physical and mental health. 2. Good personal and intimate relationships such as those of marriage, the family and friendships. 3. The faculty for perceiving beauty in art and nature. 4. Reasonable standards of living and satisfactory work. 5. A philosophic or religious point of view capable of coping successfully with the vicissitudes of life. You can see how having money can affect some of those points. But money, especially lots of it, is not one of those points. This book will not teach you how to spend money. If I or anyone could do that, it would be called the Science of Spending Money. But I'm more interested in the art of spending money. Art can't be distilled into a one size fits all formula. Art is complicated, often contradictory, and can be a window into your personality. The Art of Spending Money covers things like individuality, greed, jealousy, status and regret. That's what this book is about. I try to tackle the art of spending money from several angles, but you'll find a few common denominators. 1. There are two ways to use money. One is as a tool to live a better life. The other is as a yardstick of status to measure yourself against others. Many people aspire for the former, but spend their life chasing the latter. 2. Money is a tool you can use, but if you're not careful, it will use you. It will use you without mercy, and often without you even knowing it. For many people, money is both a financial asset and a psychological liability. Blind lust for more can hijack your identity, control your personality, and wedge out parts of your life that bring greater happiness. 3. Spending money can buy happiness, but it's often an indirect path. Money itself doesn't buy happiness, but it can help you find independence and purpose, both key ingredients for a happier life. If you cultivate them. A big, nice house might make you happier, but mostly because it makes it easier to have friends and family over. And the friends and family are actually what are making you happy. 4. Enduring happiness is found in contentment, so those happiest with money tend to be those who have found a way to stop thinking about it. You can value it, appreciate it, even marvel at it, but if money never leaves your mind, it's likely you've found yourself with an obsession where it controls you. The best use of money is as a tool to leverage who you are, but never to define who you are. 5. If you're confused about what a better life would look like, one with more money is an easy assumption but that can sometimes mask deeper problems. Money is so tangible that it's an easy goal to strive for, and pursuing it can become the path of least resistance for those who haven't discovered what truly feeds their soul. 6 Everyone can spend money in a way that will make them happier, but there is no universal formula on how to do it. The nice stuff that makes me happy might seem crazy to you, and vice versa. Debates over what kind of lifestyle you should live are often just people with different personalities talking over each other. Author Luke Burgess puts it another way. After meeting our basic needs as creatures, we enter into the human universe of desire. And knowing what to want is much harder than knowing what to need. In his 1907 book the Quest of the Simple Life, William Dawson writes about how many of his London peers devoted their lives to money and success but still seemed miserable. Those who lived simple lives in the country were comparatively jubilant. His main observation was that those who were trying to get more money were actually held captive by it. They were so obsessed with wealth that it held control over their sanity, their relationships, their quality of life. What they intended to be a strategy to live a better life often became an ideology they were beholden to. Like an invisible dictator, they wanted to have more money so they could become happier. But money could buy them everything except the ability to not be obsessed with money, which led to constant anxiety, which led to unhappiness. It was a vicious cycle, and most of them were blind to it. Sometimes the stuff you spend money on has so much influence over your behavior that it's not clear whether you own things or the things own you. Benjamin Franklin put this so well when he many a man thinks he is buying pleasure when he is really selling himself a slave to it. Dawson wrote that the ideal life was a simple life. A simple life might still be extravagant, with fancy homes and luxuries and toys galore. But it's simple in the sense that money serves you, not the other way around. The kind of lifestyle you choose to live almost doesn't matter. What matters is that you actually choose it, rather than being addicted to the mere appeal of it. Dawson wrote that his goal was not to make a living, it was to make a life. And only a fool would sacrifice his actual life for the endless pursuit of an imaginarily better one. The quest of your own simple life, however you choose to live it, starts with a deep understanding and examination of yourself. We'll begin there in the next chapter, with a story about making sense of misfit children.