← The Psychology of Money with Morgan Housel
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This episode is brought to you by my friends@public.com and their podcast the Rundown. I have followed and tracked markets for 20 years, every day, all day. I love watching it. It doesn't necessarily influence my behavior and how I invest, but I love tracking markets and if you are one of those people as well. The Rundown is a daily podcast that helps you stay in tune with the markets and the economy and the story shaping business. And just like this podcast, it is short in under 10 minutes. 10 not about reacting to the headlines, it's about trying to make sense of them and the window into behavior that tracking markets can be. Search for the Rundown wherever you get your podcasts or tap the link in the description of this episode. All right, welcome back. And we are back. It's been a while since I've published anything. Sorry about that if you keep checking in and you're getting annoyed, but I've been working on a lot of other projects lately, most in particular my new book, the Art of Spending Money and Finishing Up Everything that's Involved in Publishing a Book. That book is out October 7th. We now have translations for about 50 different languages, so if you're listening in another part of the world, it'll probably be in your language. And I'm really excited about it. In some ways I view this as a sequel to my book, the Psychology of Money, my first book. But in other ways I think it's actually like the completion. It's not. It's not the sequel, it's the completion of it. And what I mean by that is so much of the Psychology of Money, my first book, which came out in 2020, was about investing and that was important to me. Investing was a big part of my career before that and is what I was so passionate about. But the truth is that investing can have a big impact on your life. But for the vast majority of people, or dare I say nearly everybody, how you spend money has a bigger impact. It's more consequential day to day. It comes up more often. And no matter where you are in your life cycle, it's going to apply to you directly and have a major impact on your happiness. And what was so interesting to me about spending money is that there's not a lot written about it. There is so much written about how to become a good investor. Some of the writing is good, some of the writing is bad. There's virtually nothing about how to spend your money in a way that's going to make you happier. At least anything that satisfied me and so, like virtually everything I write, this book started in my head many years ago with self reflection about my own spending. Do I do a good job spending money to my wife and I, do we have a good model for how we should spend and how we should not spend? And the answer was not really. And for most of my life, I think I and virtually everybody does this spends with the model that society tells you to spend, which is usually one of two things. One is make more money and spend it and you'll be happier, just the more the better. The other is it's not going to make you happy. Don't be materialistic, don't spend any money. It's usually like a black and white. That tends to be your philosophy. Either either more is better or more is going to do nothing. So don't spend, just become frugal and don't spend anything. And the truth is, obviously for the vast majority of people, somewhere in between. But there's not a lot written about that. And that's what I wanted to tackle with this book. When in my life had I been envious or jealous of other people? What kind of spending did make me happy? What kind of spending left me totally empty? It was just, it started as self reflection. And for the few of my friends who have read this book, what two of them said to me independently was of everything I've ever written. There is more of my personal experience in this book versus trying to look at how other people have dealt with it, although there's plenty of that in the book. But there's more of like here's what I've seen and experienced firsthand and felt and maybe some of them will apply to you. I called this book the Art of Spending Money. I did not call it the science of spending money because I don't think that exists. I don't think this is a science at all. Because how you spend money and the psychology of it, the sociology of it, is personal. It's different from person to person. It's different by culture, it's different by generation. And so I called it the Art of Spending money. Because art is messy, it's individualistic, it's contradictory. Some people like this, some people like that. So this is just, this is not a lecture on how to spend money. It is my attempt at a deep dive into the psychology of what happens when you're spending money. And a big what was, in my view, gray area, this black hole that has been ignored by financial content of looking at how to spend money. Long winded ramble that's what I've been up to lately. Coming out October 7th. I think you'll enjoy it. I hope you enjoy it. But now let me get into today's episode and this topic. Today's episode I think has been inspired by my personal experience again of how hard it is to give advice to people. And this was true when I was younger trying to seek advice and when I've been older and sometimes occasionally asked for advice, how hard it is to give people advice because what worked for you might not work for me. It may have been specific to your circumstances or your era. It may have been specific to your goals. Maybe what applied to you doesn't work for me. And so when, particularly when I was younger and I would go out and ask people for advice, I often felt like sometimes they would give me advice. Sometimes I knew it right away, sometimes it took me a while to figure this out. That was not good for me. It was not going to work. And I think what's true is that it's actually very difficult for people to know what they want out of life. It's very difficult for people to know what's going to work for them. And but what it's, what's equally true is that people are generally very good at knowing what's not going to work for them. It's hard to know what you want, it's very easy to know what you don't want. And in that same vein, like it's hard to know what's going to work. It's very easy to figure out what's not going to work. And so Charlie Munger made a reference to that point many years ago when he was at a Berkshire Hathaway meeting and a young boy walked up to the microphone and said, quote, what advice do you have for somebody like me to succeed in life? And Charlie Munger replied, don't do cocaine, don't race trains to the track and avoid all AIDS situations. Now when you are a 90 year old billionaire, you can say things like that, good luck to any of us trying to get away with something like that. But that was who Munger was. And so again, it's often very hard to know what will bring joy in your life. But it is very easy to spot what will bring misery. I think that's, that's true for a lot of areas in life. Like building a house is very complex, very complicated, but destroying a house, knocking one down is extremely simple. And that you'll find that analogy in most areas in life that when you're Trying to get ahead. It can be very helpful to flip things around and focus on how not to fall back. And so what I wanted to do here was put together a few pieces of very bad advice. Giving people good advice is hard. Flipping it around and saying, what is bad advice and what can we learn from that, I think is much easier. So, like a lot of things I do, I'm just going to run through all of these with a little bit of commentary, but I'll just let you stew on them yourself. All right, number one, allow your expectations to grow faster than your income. That's, that's been always been true for everybody. Right? Next one. Envy other people's success without having a full picture of their lives. Look at one part of their life, like their money or their beauty or their career, their job title, and envy that without having any idea what it actually took place to get there or what else is going on in their life. All right, next one. Pursue status at the expense of independence. That one, I think, is probably the core of a lot of misery and depression and anxiety these days. Next one. Have an association between net worth and self worth for you and others. View your net worth as the key to your success in life. Terrible, terrible advice. Mimic the strategy of people who want something different than you do. That's, that's one that not following that advice has been key to a lot of problems that I've had in my own life. Choose who you trust based off a follower count on social media. This, I have a hard time getting around this myself. Like, it's easy in this era to view follower count on social media as having some correlation between with wisdom or insight or truth. And of course, when you say that out loud, it sounds ridiculous, but don't we all do that? And the opposite is true too. If somebody mentions, if somebody has a very good comment on Twitter, on social media, and you look at the person and they have 20 followers, do you take them seriously? It's. It's a very dangerous thing to do, but it's a very common thing. Next one. Very related to the previous point. Associate engagement with insight. If you come across a social media post that has 50,000 retweets or reposts, you assume that it must be true because other people seem to like it, seem to be promoting it too. Also a very dangerous thing, particularly in politics, but also I think, in investing, which is another emotional topic where people just want to hear. They, they believe what they want to hear. Their definition of what is true is what they want to hear. That often happens. Next one. Let envy guide your goals, as it so often does. Automatically associate wealth with wisdom. Another one of those things. I thought it's very interesting that we take like, let's say, the political views of hedge fund managers as being particularly insightful. And it should not make any sense whatsoever that somebody who was very talented at say, foreign currency arbitrage, that person's advice on immigration and abortion and gun rights should be taken more seriously. But we do that, don't we? Very bad advice. Next one. Assume a new dopamine hit is a good indication of long term joy. So assume that the buzz you get the first time that you do something is going to keep happening over and over and over again, and that is a good indication of how long you're going to love it for. This is true for making money. Could be true for a lot of things in life where the first time you do it, you're like, that was the coolest thing I've ever done in my life. That was so amazing. And then you keep chasing it over and over again and you never recreate the initial buzz that you had the first time. Next one. View every conversation as a competition to win. We all know people in our lives who do this. It's annoying. We don't want anything to do with them after we have a couple conversations with them. I think this is more pronounced and common in the social media age where there is like some version of road rage online where everybody wants to win a debate. And if you bring that into the real world and every single time a topic comes up, you have to have the last word, you have to win it. Terrible kind of person. Nobody wants to be associated with them. Assume the solutions to all of your problems is more money. This is a big problem in society too, where I think because money is so tangible and so easy to count, so easy to measure, that it's a very easy thing to chase. And we assume that if we are sad or depressed or unfulfilled, if only we had more money, those problems would go away to a small extent in some search, in some context, that can be true. You can use money to make yourself happier. That's a big part of what my next book is about. But if you assume it is the solution to all of your problems, I think most people are going to be in for disappointment. Maximize efficiency in a way that leaves no room for error. This, I think is important. It is so counterintuitive and difficult to intentionally go through your life below your potential because you are leaving Room for error, for risks that you cannot envision that is so hard for people to do. They want to squeeze as much juice out of the orange as they possibly can in their personal life, in their business, in their careers. They think it is a noble and good thing to do. And then the moment you hit some kind of speed bump in life, you have no cushion to fall back on. Very common in finance, in careers, in relationships, all over the place. Next one, be transactional versus relationship driven. I don't think much more needs to be said about that. We all know those people prioritize defending what you already believe over learning something new. One other version of that that I think about a lot are the number of people who finish College when they're 22 years old and think they are done learning and basically spend the rest of their life defending what they Learned by age 22 without learning something new. Going out of your way to read and think and talk to different people and have fruitful, respectful debates with other people. So important. Assume that what people can communicate is 100% of what they know or believe. This is difficult, too. I wrote about this in my second book, same as ever, that the best story wins. That usually the person who gets the biggest prize, the biggest reward, the most attention, is not the person with the right answer necessarily. It's a person who tells the best story. And I think that is true for a lot of areas in life. And it's not uncommon, I think, to meet someone who might be very smart, very intelligent, have all the right answers of the problem that you're trying to solve, but they're not very good at communicating. And I think meeting people and recognizing and understanding that what they tell you, what they're saying, what they're writing and communicating, might be a tiny fraction of the insight that that person actually has is a very powerful insight, I think. All right, next one. Believe that the past was golden, the present is crazy, and the future is destined for decline. That model, I think, tends to be most people's default makeup of the world. The past was great, today is insane. The future, it's going to be worse. I think it's common to think that just because of the dynamics of nostalgia, that when we are thinking about how good the past used to be, actually what we're doing is we're thinking that we should have been happy in the past because we know that everything we worried about then more or less worked out. And so if you look back and you think about the 1990s, you say, that was an amazing Time. Everyone was so happy. Things were so great. And I think the truth is we were actually anxious and scared and depressed and sad back then. But when we look back today, we say we should have been happy because we know that every. Most of the things, at least that we were anxious and depressed about back then actually worked out and turned out just fine. All right, next one. Assume that all of your success is due to hard work and all of your failure is due to bad luck. We're very good at this. Nobody wants to look in the mirror and say, this thing that didn't work out in my life was because I didn't make the right decisions. Everything that goes wrong tends to be bad luck. And everything going right tends to be, I made the right decision. Sometimes, of course, there are cases when that can be true. Bad luck exists. Hard work can lead to success, of course. But the way in which we admit those things when we look in the mirror tends to be skewed. All right, next one. Value the appearance of looking busy at work. Look, I've worked from home my entire career. I've pretty much never worked in an office. There are a lot of downsides to that. One of the benefits, one of the upsides is nobody is watching me, so I don't need to look busy. And I found that for my career. I think this is true for many people. Sometimes the most productive day that I can have is sitting on the couch quietly thinking about something. That's when I do my best work. And if you're in an office, it's hard to do that. You need to look busy. You need to sit there and type and click your mouse. And of course, we've all heard of these companies that, like, track your screen, track how many times you're clicking the keyboard and moving the mouse. That performance of looking busy, I think can be terrible thing in society. All right, next one. Use uncertainty as an excuse for inaction. The truth is, the world is always uncertain. The only thing that changes is our perception of how uncertain the world is. And we kind of toggle between paranoid and oblivious to the uncertainty. But it's always uncertain. I have no idea what's going to happen in the next year. You don't. Nobody does. That's always been true. That was true in 2008. That was true in 2019. That was true in 2020. It's true in 2025. If you use uncertainty for an excuse for inaction, you're never going to make a move because the world is always uncertain. All right, next one. Judge Other people at their worst and yourself at your best. I'm paraphrasing some famous philosopher who said that maybe better than I did, but don't we all do that, that you judge people at their worst by yourself at your best? I think why this happens is if I make a bad decision, made just a decision that doesn't work out and you're watching me, you can say, morgan, you made a bad decision, you, you did this thing and it didn't work out. But in my head I can come up with 50 million different excuses for why I did that. I have all the context, I have all the emotions and whatnot for why I made that bad decision. And so we are much more aware of other people's faults than we are our own. It's easier to spot other people's bad mistakes than it is our own. Alright, next one. Use money as a scorecard instead of a tool for both yourself and others. Using money as a scorecard to measure how well they've done in life, their worth, their purpose, their insight, their wisdom versus as a tool for yourself to live a better life. Very common. Next 1. View loyalty to those who deserve it as servitude. This has always been a big belief of mine that being loyal to somebody who deserves your loyalty is amazing. It's a wonderful thing. That's true for companies that you work for. It's true of course, for your family. Now the, as the asterisk there is being loyal to people who deserve your loyalty, that's a more complicated topic. But if you find a company, a boss, a spouse, family, friends who deserve your loyalty, being loyal to them can be a wonderful thing. Next one. Be tribal and view everything as a battle for social hierarchy. This, I think has gotten much more pronounced and common in the social media age, that everything is tribal, everything is a my team versus yours battle. I think what's true, a lot of people, I think, will recognize this, that it's very easy to be tribal online. Again, kind of because of the road rage phenomenon. If, whereas if I can't see you, if I can't see your eyes and look at you, it's easier for me to assume that you are dumber and more evil than you actually are. But if you and I sat down and had a cup of coffee, had a glass of wine, we would, we would be respectful to each other. I think that happens online where if you're talking about politics or investing or money or whatever it might be online, everyone is ripping each other's throats out. But if you got those people together in a room, they would be much more respectful, much more civil. Realize that they're actually much more on the same page. All right, moving towards the end here. Only learn from your own experiences. Only learn from what you have experienced firsthand in life without trying to live vicariously through other people. When I worked at the Motley fool many years ago, everybody had to have a quote that they associated with themselves. Just kind of a fun little thing the company did. The quote that I wanted to associate next to my name and all the databases and whatnot was, learn vicariously through others because other people have dealt with every single imaginable amount of risk. Fear, uncertainty, regret, all of those things. They've all been experienced by other people. And if you can try to go out of your way to learn from their mistakes before you make that mistake yourself, that can be a massive advantage in life. All right, last one. Make friends with people whose morals you know are beneath your own. I think this was a quote from Naval where he said, the closer you get to me, the better your morals have to be. As I get older, I've tried to implement that in my own life of people who, look, might have something to offer in terms of career success or whatever it might be, but their morals are below mine. And of course, that's a subjective thing. Maybe they think my morals are below theirs. It's all subjective. But I found it very rewarding to just kind of cut some of those people out of my life and only surround myself with people who I know have a certain level of integrity. Easier said than done and again, very subjective, but something that I found very helpful. That's it for this episode. Sorry for the long delay, but thanks for listening and we'll see you again next time. Limu and I always tell you to customize your car insurance and save hundreds with Liberty Mutual. But now we want you to feel it. Cue the emu music. Save yourself money today. Increase your wealth. Customize and save. We save. That may have been too much feeling. Only pay for what you need@libertymutual.com Liberty. 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