EVERY SPOKEN WORD
150 min read · 30,446 words- 0:00 – 7:16
Meet the Guest
- MRMel Robbins
What's the number one thing that keeps people broke?
- MHMorgan Housel
It's ignorance. It's not a lack of intelligence, it's ignorance.
- MRMel Robbins
Today, you are getting the best financial advice you'll ever hear from the man that changed the way that I think about money, the way that I make money. You're gonna love this. 10 million copies sold. Unpacking the five biggest takeaways. Let's go. Morgan Housel. Morgan Housel. Morgan Housel. Morgan Housel.
- MHMorgan Housel
He's the author of-
- MRMel Robbins
The Psychology of Money. Psychology of Money.
- NANarrator
Psychology of Money.
- MHMorgan Housel
The Psychology of Money. And that we live in a society that it's very easy to overspend. A lot of people are willing to give you credit cards, give you debt. It is very easy to have bad financial habits.
- MRMel Robbins
Instagram has basically become the new, you know, QVC.
- MHMorgan Housel
If you're buying these things, particularly on credit, you have bad habits, you're getting yourself into debt. You know, every dollar of debt that you have is a piece of your future that somebody else owns. You can be one of the richest men in the world and have no independence.
- MRMel Robbins
Morgan, what do you recommend we do every time we get a paycheck or get paid?
- MHMorgan Housel
I- I view savings as an expense, just as I would view rent or food and whatnot. Any time in finance that you can automate it, so automating your bank and say every paycheck you're gonna move $50 to savings, whatever it might be, and making it automatic, what are the odds that at least one of these happens to you over the course of your life? Job loss, divorce, medical illness, wayward children, living through a giant recession? Whatever it might be, what are the odds that at least one of those will happen to you? And the answer is 100%. And we- I think a lot of people don't want to admit that and when that happens, the savings that you have is gonna be more valuable than anything that you've- that you've ever had.
- MRMel Robbins
And for the person who's still thinking, "I mean, what's the point? I can barely pay my bills," what do you want them to know?
- MHMorgan Housel
The first thing I want you to know is I feel you, I empathize with you, I don't judge you. But the second thing you should know is that it is easy.
- MRMel Robbins
Hey, it's your friend Mel, and welcome to the Mel Robbins podcast. Hey, it's Mel. My team was showing me that 57% of you who watch here on YouTube are not subscribed yet. Could you do me a quick favor? Hit subscribe. It's free. And that way you don't miss any of the episodes that I post here on YouTube. It also lets me know that you're enjoying the guests and you love the content that I'm bringing you, because I wanna make sure you don't miss anything. So thank you, thank you, thank you for hitting subscribe. All right, you ready? I bet you are. So let's dive in. Morgan Housel, welcome to the Mel Robbins podcast.
- MHMorgan Housel
Thanks for having me, Mel. Happy to be here.
- MRMel Robbins
I am so glad you're here. Thank you for jumping on a plane. I am a huge fan. I gotta give a shout out to my husband, Christopher Robbins, because he was the one who first introduced me to your work. The Psychology of Money changed my life. I am so excited for your new blockbuster, The Art of Spending Money. And we're gonna get into all the takeaways from your mega bestsellers, but I wanted to start by asking you, Morgan, if you could speak directly to the person who is here spending time together with us right now and share with them, what could be different about their life or the life of somebody that they care about that they share this episode with if they take everything to heart that you're about to share with us and teach us today and apply it to their life?
- MHMorgan Housel
I think it would be that your ability to feel wealthy, to feel rich, to be financially independent is absolutely in your control. It doesn't matter who you are, where you're from, how much money you make, what your job is. You can do it. And we- I think we've told ourselves for generations that in order to become rich, you have to have the right educational background, you have to have the right career, you have to come from the right family, and I don't think it's- it's true. It's not about how smart you are. It's about how you think about money, it's about how you behave, and behavior is in everybody's control.
- MRMel Robbins
I don't know why I believe you, but I do. Like-
- MHMorgan Housel
That's good.
- MRMel Robbins
(laughs) Like, I literally... Eh, no matter how in debt you are, no matter how old you are, you can learn, and that's kinda one of the big lessons I'm gonna talk about that I've distilled from your work that has changed my life and my relationship with money and the way I think about money, the way I save it, the way I spend it. It doesn't matter the starting point at all. Lesson number one that I've learned from you is you can get good with money. You believe that?
- MHMorgan Housel
I've seen it time and time again and there are so many examples of it. Let me give you this example here. An ordinary person who doesn't have a good education, maybe they didn't even graduate high school, let's say, but they have good financial behavior, they can think long-term, they can keep their expectations in check, they're patient, they have those behavioral qualities, that person can do very well. But the person who went to Harvard and got an MBA and went to work on Wall Street, has the best education, the best connections, the best experience, that person can easily go broke, and they do. Not uncommon for that to happen. And that is not true in other fields. It is impossible to think of an ordinary person who didn't go to high school, didn't go to college performing open heart surgery better than a Harvard-trained doctor. That's impossible. That will never happen. But it does happen with money. Because it's not about what you know. You don't need to know the secret formulas, you don't need to have secret connections. If you just get your behavior right and your thinking right, you can do well. Patience, keeping your expectations in check, not comparing yourself to other people, using money as a tool to live a better life instead of a yardstick to measure yourself against others by, it's very simple stuff and it's all in your head. And it's- I think it's- it's 99% of what people need to know to do well with money is in your control.
- MRMel Robbins
Well, I think one of the mistakes that I made for a very long time, particularly before I bumped into your work, is I believed that there was some secret formula, that there was some private club for rich people, that it was about who you know, where you went to school. And what I love about your work is that you basically say, "No, no, no, no. You're focusing on the wrong stuff." There are actual behaviors that we can learn...... that will help you get good with money.
- MHMorgan Housel
Exactly. And they're not that difficult either. They're in your control. It's not to say that they're easy, but they're simple. And so just, just a couple of the behaviors. If you have an ability to focus internally on your own goals rather than constantly comparing yourself against others, if you can save a little bit of your money, live sl- even slightly below your means, invest that money and be patient. Just those things, just those very... That's a kindergarten list of topics that I just gave you. That's not a bunch of Greek formulas, it's not a bunch of Wall Street gibberish, it's not a bunch of acronyms. These are very simple things, and that's it. Part of this too is redefining what, what I mean by financially successful. I'm not talking private islands and private jets, but for most people what they actually want, if you said, "What is your ultimate financial goal?" they would say, "I wanna have a stable housing for myself and my family. I wanna have a little bit of cushion to fall back onto if I were to get laid off or have a medical emergency. I wanna be able to have a dignified retirement someday. I wanna be able to spend time with my kids." Those are very good financial goals, and that level of wealth and success I think is in, within everybody's control.
- MRMel Robbins
Well, you said you wanted to teach us how to use money as a tool.
- MHMorgan Housel
Yes.
- MRMel Robbins
... to live a better life versus using it as a yardstick-
- MHMorgan Housel
To measure yourself against others by.
- MRMel Robbins
Correct. And that's one of the core things you're gonna
- 7:16 – 28:58
You Can Get Good with Money
- MRMel Robbins
teach us how to do and why this is so important today.
- MHMorgan Housel
Of course. And it's easier said than done. It is so natural for everybody to compare yourself against others. For me to measure my level of success by not saying, "What do I have?" but, but, but by saying, "What do I have relative to that guy?" Not how, not how g- not how comfortable is my house, but by saying, "How big is my house relative to that person over there, to my neighbor, to my coworker, to my siblings?" And one of the problems that makes it more difficult today than it's ever been is that it used to be, for my parents' generation, my grandparents' generation, when they compared themselves to other people, it was relative to their neighbors or their coworkers. It was a pretty small group of people. Maybe a couple people who you saw on TV or heard about on the radio, but now today just everybody, including myself, their comparison group is the most sophisticated algorithm on Instagram or TikTok. And so no matter how well you're doing, no matter how great your house is, no matter how, how much money you're making, you turn on Instagram a hundred times a day like everybody else, you open it up, and there is somebody out there who looks better, happier, more successful, more beautiful than you are. And so this topic, I think, has always been true. It's always been important. It is more important today than it's ever been.
- MRMel Robbins
Mm.
- MHMorgan Housel
The idea of keeping your expectations in check, because it's easier today than it's ever been to let your expectations just spiral out of control. I see this with my own kids, my nine-year-old son. His... When, when I was growing up, normal people drove old pickup trucks and rich people drove new pickup trucks. That was, that was like the definition in my head.
- MRMel Robbins
(laughs)
- MHMorgan Housel
Like if you had a new pickup truck, like, "Oh, there's, there's a rich person." My son, who's nine, his definition of rich is like a private jet and a private island, 'cause he watches MrBeast and it's like, "Oh, sit in the circle and you'll win a million bucks," kind of thing. It's a completely different level of expectations than even I had 20 or 30 years ago. And so it's-
- MRMel Robbins
And the hardest thing you're gonna have is that even though you're one of the most compelling financial experts on the planet, your kids won't listen to you, Morgan. (laughs)
- MHMorgan Housel
No, of course not.
- MRMel Robbins
I'm just kidding. (laughs)
- MHMorgan Housel
Of course not. No.
- MRMel Robbins
I think that's really important place to start, because you have already dropped so many takeaways, and one of them was developing a skill set of looking inside yourself-
- MHMorgan Housel
Yeah.
- MRMel Robbins
... for what matters rather than looking outside yourself at MrBeast or what's on the social algorithm or what your neighbor is driving for that yardstick. But you did mention this sense that you're falling behind.
- MHMorgan Housel
Yeah.
- MRMel Robbins
And so many people today in particular are feeling like they're falling behind. I mean, I have, we have a 26-year-old and a 24-year-old, and they are already feeling as though, "Okay, I'm not making enough money," and, "How am I ever gonna buy a house?" and, "How am I gonna pay for a life?" If the person listening has that sense that they're falling behind, particularly if you're older and you say, "It's too late. Like, I've already blown it, Morgan," what do you want them to hear right now?
- MHMorgan Housel
I think there's a couple things. One is empathy, because there are areas in life where particularly a lot of people in their 20s, 30s, and 40s are falling behind relative to previous generations, particularly something like home ownership-
- MRMel Robbins
Mm-hmm.
- MHMorgan Housel
... where it was more attainable in previous generations than it is, has been particularly in the last couple of years. So empathy. This is not me saying, "Oh, you should just feel better. You should just be more grateful for what you have. You, you actually are doing fine." There is some empathy that has to be involved here.
- MRMel Robbins
And also for people that thought they were gonna be able to retire at a certain age and then the cost of living has gone up so much or medical bills are at a certain state that you're realizing, "Oh my God, I don't have enough money-"
- MHMorgan Housel
Right.
- MRMel Robbins
"... to be able to retire." And so it is important to basically go, these are very real feelings that people have right now, and so if we start with empathy, where do we go next, Morgan?
- MHMorgan Housel
Well, I think you start with empathy because if somebody feels like they're falling behind, that's their truth. But I think it's, it's important to realize too that all happiness is just the gap between expectations and reality.
- MRMel Robbins
All right, say that again. All happiness is-
- MHMorgan Housel
All happiness-
- MRMel Robbins
Yeah.
- MHMorgan Housel
... is the gap between expectations and reality. You have the life you're living.
- MRMel Robbins
Yeah.
- MHMorgan Housel
You have the life you expect to live. In between there is, is, is where you can find some level of happiness. And the wider that gap is, the more miserable you're gonna feel.
- MRMel Robbins
Okay, so let's talk about somebody who is in a situation where they thought they would be further along with their savings and they're starting to panic.... because they're worried that their money's gonna run out before they die, or they're not gonna be able to retire? How do you use that happiness definition right now, if that's the reality?
- MHMorgan Housel
This is not true for everybody.
- 28:58 – 37:54
The #1 Thing that Will Keep You Broke
- MHMorgan Housel
maybe it's a million." It grows exponentially.
- MRMel Robbins
And so I also think that there is this thing that happens, at least it happened for me, that as I started to feel like I wasn't under such crushing debt, or I got some reward at work, a small bonus, whatever, I immediately upticked the amount of money or the expense of the thing that I was already buying.
- MHMorgan Housel
Right. And, and part of that, I think is, is fine. I think people can spend money in a way that's gonna make them happier. There are some people who would give you the advice of, like, "It's never gonna make you happier. Just save everything that you can, live like a monk..." And I, that, that's not my message. I think you can spend money as in wha- I, I found ways of spending money in my own household that I'm like, "Oh, that was, that was well worth it." But I also, back to the expectations thing, I grew up around Lake Tahoe, California.
- MRMel Robbins
Okay.
- MHMorgan Housel
And this was before tech money, where Tahoe and Truckee, the town that I lived in, was not very wealthy. It is now 'cause tech money came in. But back then it was very much a middle class town. And then I, I went to college in Los Angeles, and I couldn't believe making that shift from middle class mountain town to Beverly Hills, kinda, area, what it did to my e- to my definition of rich. 'Cause as I said earlier, it used to be that my definition of rich was a new pickup truck-
- MRMel Robbins
Yep.
- MHMorgan Housel
... a new, a, a new F-150 was, that's a rich person. And I moved to LA and it would just, it just exploded. No matter how successful you are, you pull up to a stoplight, and even if you're driving a Lamborghini, there's 17 others right there, and you never feel like you're, you're getting enough. And the conditions for happiness, I think, were much greater.... in that middle class town. Now, I was- I did a pretty good job in LA, in my own mind, of still keeping my expectations in check. I think a lot of that was fear. I always had a fear that I was never gonna make it, and so I was saving as much as I could just out of a sense of, of a fear. Um, but if I look at everybody else, like who- who- who was happier? It was the people who were living a modest life, enjoyed their family, had a good time with their friends, focused on their health, and lived what was, by comparison to others, a very modest life. And so I think about that now, like what should your aspiration be? It's interesting with parents. If you ask parents, "What do you want for your kids?" Particularly if their kids are young, most parents will say, "I- I- I just want them to be happy when they're older." And then if you say, "Well, do you want them to be rich and successful?" The parents will probably say, "Well yeah, that would probably be great, but I just want them to be happy." And I think parents say that because you know there's a difference between the two. You know there's a difference between being rich and being happy.
- MRMel Robbins
Hmm.
- MHMorgan Housel
You've experienced it as an adult.
- MRMel Robbins
Mm-hmm.
- MHMorgan Housel
And so even if your kids are middle class, doing modest by expectations, you know that they can be happy if they're keeping their expectations in check and they're focusing on the things that matter.
- MRMel Robbins
Well, what I love that you keep coming back to is that your definition truly for the word happiness and the way we casually use it is contentment, which means you are in the present moment of your life.
- MHMorgan Housel
Yes.
- MRMel Robbins
And you are not seeking something more.
- MHMorgan Housel
I have this-
- MRMel Robbins
You are able to be okay with where things are and where things aren't. How can somebody figure out why they're buying something? 'Cause I think most of us mindlessly spend money because in the moment we want that thing or we're bored or stressed or whatever. Like most people don't actually know why they're spending money, so how can you, Morgan, start to become conscious of exactly why you're spending your money on things?
- MHMorgan Housel
I think with every dollar that you spend, it's always one of two buckets.
- MRMel Robbins
Okay.
- MHMorgan Housel
And you should ask yourself which bucket this falls into. Is buying this thing going to make me and my family happier, or am I buying it to impress other people, most of whom are strangers? It's- it's always one of those two things. If I'm buying food, that's for me and my family, clear as day. If I'm buying new clothes, a lot of that might be... Or a new car, a lot of that might be my attempt to impress strangers, most of whom are not paying any attention to you whatsoever. It's always one of those two things. Do you want to use money as a tool to live a better life, or do you want to use money as a, as a, as a yardstick of status to measure yourself against others by? It's completely normal and natural to have that. But when you realize that that's the game that you're playing, that a lot of these aspirations that I have are to impress people who are not even paying attention to me, and they're not paying attention to me because they're busy worrying about themselves. They're busy in their own heads saying, "Are people impressed with me? Are- Is- Are people looking at me?" And that is a, that's- that's a huge part of what's going on inside these people's heads, is that their biggest aspiration in life is trying to impress strangers who are not even looking to begin with.
- MRMel Robbins
Well, that was a huge, that was one of the big lessons from your work for me, which is every dollar you spend falls in two buckets.
- MHMorgan Housel
One of those two things.
- MRMel Robbins
You're either spending money to make other people think something about you or you're spending money in a way that makes you feel good about you. How do you know the difference between the pair of jeans that you're about to buy that you don't need, but they look really cool and, you know, you think you're gonna look good in them and you're also feeling bad about your body so you hit spend? How do you dissect that? Because I think a lot of us don't understand exactly why we're buying things.
- MHMorgan Housel
I had this experience in- in college. I wrote about it in my first book, The Psychology of Money. I was a valet at a five star hotel in Los Angeles.
- MRMel Robbins
I love this story.
- MHMorgan Housel
It was- it was so much f- It was such a cool job. There's never been a better job. I would- I would go back and do that job again. It was so much fun.
- MRMel Robbins
Why did you love that job so much?
- MHMorgan Housel
It's two things. I got to drive very fancy cars, and in the mind of a 19-year-old boy, parking a Ferrari, there's- there's nothing better in the world. And two, I didn't really realize this, uh, explicitly at the time, but it was my first window into the psychology of very wealthy people. And that to me was absolutely... I learned so much during those years, age, you know, 18 to 22. And one of the things I realized, and it- I- I- I remember when this hit me during a shift, that if somebody came into the hotel driving a Ferrari or a Lamborghini, I would stop and look at the car and be impressed, but I would never look at the driver and say, "That guy's so cool." What I would do is I would imagine myself as the driver, and I imagined that if I was driving, people would look at me and say, "Look at Morgan. He's so cool." And one day I was like, "Do- Do you see the irony? I don't care about the driver, but I want to be the driver because I think people will care about me." And it was this stark realization of like nobody is thinking about you as much as you are. They're busy thinking about themselves. And even when people are impressed with your house or your car, what they're actually doing is saying, "If I had Mel's house, if I had Morgan's car, then I would be hap- Then people would look at me." And so the idea that everyone is pretty selfish and self-centered in that sense, where they're not impressed with you. They might be impressed with your stuff because they're imagining having your stuff. Once I came to terms with that, my desire for impressing other people plunged. Didn't plunge to zero. I don't want to walk around in a burlap sack. I want to impress my coworkers and my... I- I wanna look professional, I wanted... You know, back then when I was trying to find a girlfriend who became my wife, then it- then it was very important. But the idea that no one's thinking about you as much as you are will collapse your aspirations in a wonderful way, and it will get you towards contentment much quicker than anything else.
- MRMel Robbins
That is such a mind-blowing realization, because if we're all chasing all this stuff on the outside so that people look at the stuff that we have and then think we're amazing-
- MHMorgan Housel
Yeah.
- MRMel Robbins
You're proving, in that simple example, that's not how the human brain works at all. They think the stuff is cool, they don't think you are.
- 37:54 – 47:18
Every Dollar Comes Down to 2 Decisions
- MHMorgan Housel
books, it's not something that I've been able to fully overcome.
- MRMel Robbins
And another way to prove this point is that I guarantee you in your social circle, there is somebody that you know that has a huge house or an amazing car and you would not want-
- MHMorgan Housel
And miserable.
- MRMel Robbins
... to be near them. And they're miserable.
- MHMorgan Housel
Right.
- MRMel Robbins
And so just having all that stuff that you want doesn't make you like them. And so I think intellectually we know this, but if you have bad spending habits, how do you change them, Morgan?
- MHMorgan Housel
I think you first have to ask the question, why do you have bad spending habits? What hole are you trying to fill? What has buying these things done to your happiness in the past? And if the answer is nothing, which is probably the answer, trying to fill that hole first. Trying to answer that question first. So I think you have to kinda start on the therapist's couch, literally or figuratively, and take a look in the mirror and being like, "What am I trying to achieve? Who do I wanna become? Why do I wanna be that? And why am I striving for these things?" And for a lot of people, it's kind of like a binge spending that has got them into trouble-
- MRMel Robbins
Mm-hmm.
- MHMorgan Housel
... where it's a stress relief. It's a relief valve.
- MRMel Robbins
Mm-hmm.
- MHMorgan Housel
And I think what the valve... I think in your head, what you probably think it is, is, "If I bought these things, then my problems would go away." And the truth is, that, that might be true in the moment. For spending, it's almost never true. It's very rarely true that your binge spending is gonna fill any kind of emotional hole that you have. And the other thing is that if you're buying these things, particularly on credit, you have bad habits, you're getting yourself into debt, the new sweater that you bought might give you a day or two of happiness before it's either worn out or you don't care about it much anymore. But the s- but the paying it off is gonna stick with you for years or months or even decades. And so that kinda thing of controlling your future and independence. You know, every dollar of debt that you have from these poor spending habits is a piece of your future that somebody else owns. It's a piece of your time that you owe to the bank, you owe to the lender. And the opposite of that is every dollar of savings that you have, the reverse of bad spending habits, is a piece of your future that you own, that you have control over.
- MRMel Robbins
Mm-hmm.
- MHMorgan Housel
Every single dollar. I viewed this since I was 17, that every dollar that I save, even if it was literally $1, was $1 of my future that I gain back. That's always how it felt to me, and that's always been my, uh, my goal for saving and my motivation for saving, was I just wanna be independent. I just wanna wake up and do whatever I want, and I feel like my savings has bought that. It's not... When I save money, it's not because I say, "Oh, I'm saving up to buy a new car," even though there, there can be that and that can be great. If I save $100, I view that as purchasing $100 of independence.
- MRMel Robbins
Mm-hmm.
- MHMorgan Housel
I'm spending that money. It's giving me independence today. And I think that can be an antidote to bad spending habits. A lot of people will say, "Why save mu-" Like, they, they don't really understand the purpose of saving money.
- MRMel Robbins
Right, 'cause if you don't have a lot of money-
- MHMorgan Housel
It feels worse. It feels useless.
- MRMel Robbins
... it doesn't, it seems weird. Why would I put $20 away from my paycheck? Because that's all I can afford to do right now?
- MHMorgan Housel
It's all that you can do-
- MRMel Robbins
Yes.
- MHMorgan Housel
... and so it feels like why even bother?
- MRMel Robbins
Yes.
- MHMorgan Housel
I might as well just YOLO to spend ev- spend all of it.
- MRMel Robbins
Yes.
- MHMorgan Housel
I think once you shift the mentality from why save $100 to spend in the future if I could just spend $100 right now? Why am I putting, why am I delaying this gratification if I could have it immediately? If you view it like that, then I understand the mentality of YOLO, spend everything. Why even save? It doesn't matter. Let's just go into debt. Who cares? Once you view it as that $100 you are purchasing today $100 of independence, $100 of peace, $100 of sleeping better at night-
- MRMel Robbins
Mm-hmm.
- MHMorgan Housel
... then it, it completely shifts the game. And so if I save $100, that's not delayed gratification. That, today, in this moment, today and tonight, gives me $100 of happiness and more contentment just a- because I feel like I'm more independent than I was before I saved that money.
- MRMel Robbins
Mm-hmm.
- MHMorgan Housel
And when you get back to, I think what most people want out of money-
- MRMel Robbins
Oh my God, most people think that buying a nice car is the flex. You're saying-
- 47:18 – 59:30
Morgan’s Top Investing Tips
- MRMel Robbins
do anything that feels slightly risky.
- MHMorgan Housel
Yeah.
- MRMel Robbins
And I know there's a lot of people that are worried about losing their money. And so if you have a mindset where you're worried about losing the money that you have, do you still recommend that people invest in the stock market?
- MHMorgan Housel
Yeah. Uh, but it's always, the question is how much. And so-
- MRMel Robbins
Right.
- MHMorgan Housel
... I have that fear. I was... I've never been buried in debt. I've always been a diligent saver. But I probably have, and if you put me on the psychologist's couch, you could maybe pull a string of why this might be, but I've always had kind of a worst case scenario, prepare for the worst mentality-
- MRMel Robbins
Okay.
- MHMorgan Housel
... of everything that I've done in life. So I think that's why I've been a big saver. And so I have, if you looked at my entire net worth, I'm trying to... It's probably half, maybe a little bit more than half in the stock market. Most financial advisors, so if you looked at somebody my age and my income, would say, "You can have way more than that." And I say, "No, no, no. Like this is... That's, that's fine. That's plenty," because I have this kind of worst case scenario-
- MRMel Robbins
Yeah.
- MHMorgan Housel
... thinking. And that's fine. That works, that works for my personality. My, my financial goal in that aspect is maximizing for how well I sleep at night. I have no desire for my tombstone to say, "He was in the top 5% of investors. He outperformed the S&P 500." I, I couldn't care less. I wanna use money as a tool to help me sleep at night. That's the metric that I'm going for.
- MRMel Robbins
Mm.
- MHMorgan Housel
And so during periods when the market has done very poorly, 2008...... 2020 during COVID. Uh, it didn't really have that much impact on me because it was... I was never 100% in it. I always had plenty to fall back onto if things... Um, so I have quite a bit of cash and bonds and, like, boring basic savings.
- MRMel Robbins
Same. (laughs) Same.
- MHMorgan Housel
And look, you, like... Y- you can overdose on that, you can overdo that, but I think the idea that most financial advisors would just say, "Well, look, you know, if you wanna maximize your investing returns, this is, this is how much you should have in the stock market," that can be true for some people, but you really have to look in the mirror with you and your, maybe your spouse and your partner and say, "Well, like, what are we trying to maximize for?" And th- I think there's no amount of investing return that can compensate for waking up at 2:00 in the morning and saying, "Oh, shit, am I doing this right? H- have I gone too far?" There's no amount of return, at least for me, that would be worth it for that. I w- I would much rather just use money as a tool to be happy, and look at my savings and think... You know, I have, I have young kids right now.
- MRMel Robbins
Mm.
- MHMorgan Housel
When I think about my savings, I think about if something terrible happened to our family, my career, our health, whatever it might be, this savings is a cushion to prevent hardship on my children.
- MRMel Robbins
Mm.
- MHMorgan Housel
Now, everyone's in a different situation, but for me at this phase of my life, that's, that's what it is to me. And so it's not about like, "Oh, am I maximizing investing return?" It's, "Am I using this as a tool to give myself and my kids and my wife a, a better life?" That's what it is for me personally.
- MRMel Robbins
Well, and that's what you said at the very beginning. You either use your money as a tool in order to live a good life and to be content, and you've now introduced this question, "What am I maximizing for?"
- MHMorgan Housel
Right.
- MRMel Robbins
And... Or you're using it as this yardstick so that you can measure up with people externally.
- MHMorgan Housel
Right. And there's-
- MRMel Robbins
Those are the two things.
- MHMorgan Housel
And there's a graveyard of stories of people, most of them were very wealthy people, who the goal of their investments was beat other people.
- MRMel Robbins
Yeah.
- MHMorgan Housel
Their goal was outperform the next guy, and it completely backfired on their... They were chasing a goal that had no impact on their quality of life, and that has, that's never made much sense to me. It's always just been like, "How can I use this as a tool to be happier?" And there are a lot of people... I explained in Psychology of Money how I invest my money, and I was maybe not surprised, but I think it's so interesting to me that it seems like their goal is making the spreadsheet happy.
- MRMel Robbins
Yes.
- MHMorgan Housel
Their goal is so that you could come up with a formula that says you're maximizing return, and my goal has always been use it as a tool to live a better life.
- MRMel Robbins
What is the shorthand version, I do... I know you do write about it in your book, for how you do invest your money?
- MHMorgan Housel
So I invest in what are called index funds, which are very boring, very basic. You o- basically own every stock in the universe. Pick a public company, I own it in this fund, very low cost, and I invest consistently every month, every quarter, and I've never sold anything in any significant amounts, and I hope to do that forever. I hope... This is money that I pass along to my kids or charity or whatever it might be, and, and that's it. It's as boring and basic as that. And if you look at my entire net worth, it's a house, cash, index funds, and shares of a company called Markel where I'm on the board of directors, and that, that's it. It's, it's as simple and boring and basic as you can get. The more complicated your investments are, the lower the odds that you can actually stick with them-
- 59:30 – 1:07:49
The Difference Between Being Rich and Wealthy
- MHMorgan Housel
your bank account balance every single day. It takes 10-
- MRMel Robbins
Every single day?
- MHMorgan Housel
Every day, every day. It takes 10 seconds. It's not that hard. And just to give yourself some sense of how much money is coming in and how much is going out. Just be cognizant of it. I've never... Now, people don't do this anymore, but back in, in a different generation, balancing your checkbook was always a big thing. Most people don't do it anymore. But I remember for my entire life since I've been a teenager, I've never had any desire to, never need to do that, because I know my bank account balance down to the dollar every day (laughs) since I've been 16 or 17.
- MRMel Robbins
Hm.
- MHMorgan Housel
And I think just having that awareness of what's going in and what's going out is the most basic advice. But for people who are new and starting out, nothing goes further than that. It's not a lack of intelligence, it's ignorance. You just have to become aware of what you're spending and how much is coming in and how much is going out. That's the very first thing.
- MRMel Robbins
And what's the next thing?
- MHMorgan Housel
The other thing is, financial independence exists on a spectrum. It's not black and white. So most people would say, we talked about this earlier, "Why save $20 that doesn't seem like it's gonna make any difference whatsoever? So I'm not even gonna save." Every dollar that you save is a piece of your future that you own. Every dollar that you save is a little bit marginally more comfort that you're gonna have if you get laid off, if you have a medical emergency, if your car breaks down. Every single dollar is getting you to that place. So if you view independence as black and white, "Either I'm filthy rich or there's no reason to do it," then I understand why you would say, "Why even save?"
- MRMel Robbins
Hm.
- MHMorgan Housel
When you view it as, "Every dollar that I save is a piece of my future that I control-"It's a night of sleep in the future that's gonna be a little bit better. I think the desire to save becomes even more, and you don't feel like it's idle money, like you're saving money and it's just sitting there not being used. It can give you pleasure today, right now, and I think some of the best financial decisions I've ever made was what I didn't do. I almost bought a house in my early 20s that I wouldn't have been able to afford, that would have locked me down to a region of the country that I didn't wanna stay in, that would have done all kinds of things that in hindsight would have been terrible. And the freedom, the independence that I had by renting earlier in my life, of getting up and going, moving to where the jobs were, I look back at that in hindsight as being an absolutely wonderful thing.
- MRMel Robbins
Well, you know, as I listen to you, what I'm realizing, it's also a matter of expectations.
- MHMorgan Housel
Yeah.
- MRMel Robbins
If you expected to be able to afford a house in your late 20s or early 30s, then of course you're going to think you failed.
- MHMorgan Housel
Right.
- MRMel Robbins
But if you shift your expectations and say to yourself, "If I'm patient, markets go up and down, inflation goes up and down-"
- MHMorgan Housel
Yeah.
- MRMel Robbins
"...mortgage rates go up and down. If I am patient, I will be able to figure this out, and when the timing is right and when I can afford it, I will find the right house for me."
- MHMorgan Housel
Yes.
- MRMel Robbins
And that's the way that you manage the stress that you feel right now, because it's your expectation based on what society is telling you or your-
- MHMorgan Housel
Right.
- MRMel Robbins
... parents are telling you that is making you miserable around the topic. You know, one of the other big lessons of your work is the importance of mastering saving money, and I had always made the mistake of thinking about making more money. I gotta make more money in order to have more money. And you really switched my thinking to focus on saving. Can you talk about why saving is so important versus the obsession with making more?
- MHMorgan Housel
Well, so much is, is just what you need to be happy and content, and, um, you know, for someone, it's, uh, I've always felt like my level of savings, since I don't need that much to be happy. We live a... My wife and I live a good life, but not a, not a very materially flashy life. So we don't need that much to kinda check the boxes in our life, and so I feel like that can be a, a super power for your savings. If, if you need $10,000 to be happy but I only need $1,000 to be happy, like, I'm getting way more out of that savings than you might, and so once you realize that that gap between expectations and reality is like the fe- the sup- like supercharging your savings, then it has a totally different feel. And so this was especially true when I was younger, where saving $100 or $1,000, that was, that made an extraordinary difference in my life. I think the wealthiest I've ever felt was when I had $5,000 in the bank, and I, I remember just feeling like that's... It was such an unfathomable a- a- amount of money at that phase in my life, and I look back at it now, where that would, that's a less meaningful amount of money to me now than it was back then, but I look back at it now, I'm like, "Yeah, but I was..." Like, "I- I- I thought it was more extraordinary back then." And isn't that kind of sad that, like, that made me feel so rich? I remember waking... when I had $5,000 and just being like, "I can't even fathom how much this is," and now I don't get that feeling with that kind of money, and isn't that kind of sad? That's what happens when your expectations kinda, kinda spiral up. So the idea that the power of your savings is completely dependent on the expectations of what you have and the lifestyle that you wanna live I think is, is, is, is a pretty powerful idea.
- MRMel Robbins
How do you switch the focus, though, from this obsession of making more to understanding the importance of saving?
- MHMorgan Housel
I've, I've always viewed it as, again, back to independence, and if you are earning a high salary but you need that money-
- MRMel Robbins
Mm.
- MHMorgan Housel
... to, to pay your bills this year, you have no independence whatsoever. But if you have lower expectations and a, a lower level of life, still a good life, not a, not a completely frugal life, a good life, and your savings can cover some portion of that, that's gonna give you a better sense of contentment in there. And so look, I wanna earn more money. I wanna earn more money this year than I did last year, I wanna earn more money next year. I have that as well. I think ambition is a, is a wonderful thing, but I also have a level of savings that would tell me that if I did not earn more money next year, even if my income collapsed next year, I'd be okay. And particularly at this phase of my life with kids, nothing matters more than me to that. If my career collapsed next year, we'd still have our house. We'd still have this level of savings that I've been saving for, for, oh, you know, 25 years, having these savings built up to which we're gonna be okay, because income can be much more fickle than savings. Is... You know, most people over the course of their life, what are the odds that you will get laid off at some point in your life? Very high.
- MRMel Robbins
Guaranteed, I think (laughs) -
- MHMorgan Housel
Very... Almo- almost 100%-
- MRMel Robbins
Yes.
- MHMorgan Housel
... that at some point in your life your income's gonna fall to zero. It might be for a week, it might be for a year, it might be for... You know, who, who knows how long it's gonna last, but it will happen to you. So income is much more fickle than savings.
- MRMel Robbins
Mm.
- 1:07:49 – 1:15:54
The Importance of Saving
- MRMel Robbins
50 bucks in tips, save $5. That's the 10% rule. If you watch somebody's dogs this weekend and somebody's paying you a hundred bucks to watch the dogs over the weekend, save $10. That's the 10% rule. And that's how you can make savings a habit, no matter how little or how much you make.
- MHMorgan Housel
Anything is exponentially better than nothing. And I, I meet people... I, I, I remember when I was younger, when I was a teenager, saving $5, saving 10... I remember transferring $15 from my checking account to my savings account. And that might seem completely worthless to people, but it made sense to me back then of, like, that's, that's, that's a meal in my future that I have now that I didn't have before. It's like anything is better than nothing is, is, is the most important rule of thumb.
- MRMel Robbins
Is there a simple and effective way to make saving money a habit?
- MHMorgan Housel
Anytime in finance that you can automate it as well.
- MRMel Robbins
Okay.
- MHMorgan Housel
So automating your bank, and say every paycheck, you're gonna move $50 to savings, whatever it might be, and making it automatic, the more that you can take behavior out of the system.
- MRMel Robbins
Hmm.
- MHMorgan Housel
Uh, because we're all flawed. We're all emotional, we're all biased, we've all got social pressures. I do, you do, everybody does. The more that you can take emotion out and put automation in, the better you're gonna do over time.
- MRMel Robbins
And for the person who's still thinking, "I mean, what's the point? I can barely pay my bills," what do you want them to know?
- MHMorgan Housel
The first thing I want you to know is I feel you. I empathize with you. I don't judge you. I'm sure you're a good person and you should not be embarrassed about it because there are tens or hundreds of millions of other people in your shoes. So knowing that you're not alone I think is an empowering thing for most people, because a lot of people look at their lack of savings, look at their poor financial s- uh, skills and they feel guilt, shame and embarrassment.
- MRMel Robbins
Hmm.
- MHMorgan Housel
And you shouldn't. This is a very, very common thing. It doesn't mean you're a bad person. But the second thing you should know is that it is in your control. I use this in The Psychology of Money. It's an astounding story. There's a guy named Ronald Read. Ronald Read came-
- MRMel Robbins
(laughs)
- MHMorgan Housel
... from the most humble, if not impoverished background that you can imagine. And even as an adult, he spent his entire career as a janitor and a gas station attendant. And when he died, he left millions of dollars to charity. And everyone was like, "Where... Th- this janitor has millions of d..." Like, "What in the world happened here?" And the answer was he saved what little he could, $10 here, $20 there, maybe $100 here. He invested in the stock market. He left it alone for, like, 70 years, and that's it. That's the whole story. And that's, that's all you need. If you have the right behavior, if you have the right mindset, you don't need much else to even achieve extraordinary returns over time.
- MRMel Robbins
You know, one of the big lessons from your work for me is also this idea that enough is better than more. And I'm reading from your blockbuster bestseller, The Art of Spending Money. This is page 36. "Desiring less can have the same impact on your well-being as gaining more money. And desiring less does not mean giving up. It doesn't mean you don't know how to spend money and have a good time. I think it's quite the opposite. To be content with what you have is the deepest way to enjoy the house you've purchased, the clothes you wear, and the vacations you take." Talk to us about that.
- MHMorgan Housel
Having enough does not mean you have no aspirations for more. I wanna work very hard this year and earn as much money as I can, and I wanna do that next year and the year after that. But with as much emphasis, with as much strategy and will, I wanna think about my expectations and keep my expectations in check. And when you realize that wealth is what you have versus what you want-
- MRMel Robbins
Hmm.
- MHMorgan Housel
... and the, the wider that gap is, the worse you're gonna feel. The narrower that gap is, the better you're gonna feel. You can mix aspirations for wanting more with contentment with what you have and appreciation for what you have as well. And it's-
- MRMel Robbins
How do you do that?
- MHMorgan Housel
You have to go out of your way to think about it all the time, because it's not normal and natural. What is normal and natural and everyone's knee-jerk reaction is, "I want more, and once I have more, I'm gonna be happier about it." The idea of being gracious and having gratitude for the world that we live in, for what we have rather than what we don't have, for me, it takes effort to do that. But every therapist, every psychologist would tell you how powerful gratitude is. And it sounds kind of mushy and wishy-washy. Like, how can that possibly be, be a thing? Nothing in psychology, I think, is more powerful than keeping your expectations in check and being gra- gracious for what you already have. There's a great quote from Stephen Hawking, the great scientist who, of course, had ALS and, uh, was... Had absolutely no control over his body. He could not even speak. He was in a wheelchair for his... almost his entire adult life. And he gave this interview with The New York Times several years before he died. And in the interview, he was talking about how unbelievably happy he was and how grateful he was to be able to do this research and how great his life is. And if there's any of us who have the right to complain about life, it's somebody like Stephen Hawking. If there's anyone who has the right to wake up and say, "I was dealt an unfair hand in life, and I'm so jealous of you and me," it's him, and he wasn't. He was so happy.And so the New York Times asked him, they said, "What's your secret to happiness," and he said, "My expectations were reduced to zero when I was 21." That's when he got his disease. And he said, "Everything else since then has been a bonus."
Episode duration: 1:19:15
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