The Psychology of Money and the Art of Spending Money with Morgan Housel (Ep. 13)

Thanks so much for having me, Brady.

I think so much of it for me was, you know, I've always been a fairly passive investor. I don't recommend that to everybody. I'm not a passive zealot, but that's always been my strategy for investing, at least for the last 10 or 15 years or so. And I think the idea of saying, 'Look, just dollar cost average into a diverse portfolio, and hold it for 30 years, and that's it.' Easier said than done, obviously, because even though it's technically true, those are the directions. That is the owner's manual. The idea that you could just say, 'Just hold through volatility, and accept it,' is so much easier said than done. And there's a great quote that I love from Jeff Immelt, who used to be the CEO of General Electric, and kind of had a downfall, kind of left when the company was a shell of its former self, and he was, I think, rightly criticized on the way out. And he said something in an interview just after he left the company when he was being criticized, and he said, 'Every job looks easy when you're not the one doing it.'

And look, let's leave GE aside, but I think that philosophy that it looks easy when you're not the one doing it is very relevant to investing because you can read a book, you can read my book, and it says, 'Oh, just hold for 30 years and accept volatility.' And it's just so much harder when you're actually doing it. And I've experienced this myself so often where, you know, I write about this stuff and I've been a very disciplined investor. I've never sold anything in any meaningful amount. But of course in March of 2020 or what was it, April of 2025, when the market is really going through a tough period and we literally just don't really have any reasonable idea of what the economy and the stock market's going to look like a month from now. Those periods are not fun. That is not enjoyable to deal with. And so for me, one of the things is that I just wanted to put 100% of the focus for me individually on my own investing behavior and on my own psychology because in my view, for how I invest, the owner's manual is written and it's kind of flawless. Buy diversified, hold, easy, easy. Now let's focus all of our investments or all of our time on what's going on inside of our head.

I think one of the big ways that it matters and why it's so important is because we all want to think that we are viewing the world as it is. And we are just making a purely objective view about how the world works. And it gets uncomfortable when you get closer to the truth, as you just mentioned, which is that we're all just shaped by the dumb luck of our backgrounds, things we had no control over, primarily where, when, and to whom we were born. And nobody should pretend that if you and I were born in Somalia 100 years ago that we would have the same views about capital allocation that we have today. Things that are completely outside of our control that shape our view. And that's important because it's common when you see somebody making different financial decisions than you, investing differently than you, saving differently than you, have very different goals, and what not. The knee-jerk reaction is usually to say, 'Well, you're doing it wrong.' And the reason you feel that way is because you have to assume that the way you're doing it is right. And so it's much easier to judge other people when you wrongly assume that you're just making a purely objective view of the world about what's worth it and the kind of risk that you should take. And I think it's much more comfortable and much more healthy financial behavior to say like, 'Look, we're all just trying to figure out what we want to do in life and what we're good at and what our skills are and what's worth pursuing based off of the unique history that we've all had. Mine is very different from yours. Yours is different from anybody else's.' And so there is no right answer to what we're doing. And a lot of people, particularly if they're going to a financial advisor or they're trying to seek out information, what they want to know is, 'Tell me the formula. Tell me what to do.' And the truth is always there is no set formula. Everybody's completely different. And there are things that I do with my money that I bet if I just opened up my brokerage account right now, you could pick out four or five flaws. 'Oh, you're not doing this right. You have too much of this. You don't have enough of that.' And all of those might be textbook true, but I always get back to it like, well, this works for me. You know, this helps me sleep at night and I feel good about this based off of my experiences. And if I were in your shoes, I might think differently and vice versa. I think that's one of the most overlooked aspects of finance.

I think as we talked about earlier, the idea of putting up with volatility, which is easier said than done. But some people who are very intelligent and very educated, they may have gone to Harvard Business School and they're a partner at Goldman Sachs, cannot do that at all. They don't have the disposition to be like, 'Oh, my portfolio fell 30% because the economy is volatile, but I'm confident in American capitalism, it's going to come back.' Some people just cannot do that. And there are other people who didn't graduate high school, have never come within a thousand miles of Wall Street, have no financial education whatsoever, and they are absolute PhDs in their own psychology, the ability to just ride it out. My parents fall into that category. They have no financial education, no financial training, and even from a lay perspective, I'd say their financial acumen is average. But they've dollar cost averaged for 35, 36 years and never sold anything. And if you looked at their returns, they would be literally in the top two, maybe even the top 1% of investors just because they've mastered their behavior. And I think they didn't even know what they were doing. It just kind of came naturally to them. Of like, 'Oh, this makes sense. We should just hold it. And if it falls, it'll probably come back.' Made sense to them. And so there's very few other fields that are like that where somebody who really has no idea what they're doing can massively outperform the person who ostensibly is the most educated and the best at their field. It would be impossible to think of that same dynamic happening in like open heart surgery where somebody who has no education, has never been to med school, is massively more talented at heart transplants than a Harvard-trained cardiologist. It would never happen. And so it's easy to overlook because it's such a rare thing, but you see it all over the place in finance.

It's almost unavoidable with humans, particularly for something like money where it is very much a marker of social status and where you sit on the social hierarchy. And this has been documented many times that the right amount of money that you want is just a little bit more than you have right now. And there's almost no limit to that. There's a great story from John D. Rockefeller when he was the richest man in the world, and somebody who was criticizing his wealth said, 'Mr. Rockefeller, how much money is enough?' And he said, 'Just a little bit more.' And so we always have that. And what most of the studies will show is that no matter what your net worth is, whether it's $50,000 or $50 million, if you ask people how much is enough, they usually say double what they have right now. And there's almost no limit to getting there. And so it's not hard to see that if you put that together, where there is no satiation in how much money you have, and you're always chasing more, you're always chasing this elusive level where you think if only I have X, then all my problems will go away. And then you get to X and you think it's 2X. And it's kind of a miserable treadmill to be on.

Yeah. And most people can achieve that at much lower levels than they think. To say like, 'Look, I have adequate shelter and health care, and my kids will be able to go to school.' Checking those boxes and saying after that, this is more or less like a financial accounting hobby that I have of growing my net worth over time. Because I'm content with what I have. And so it's a balance between saying, 'Yes, I think I'm never going to get to a point in my life where I say I don't want more money,' because almost nobody will get to that level. But at the same time, constantly reminding yourself that the purpose of money is to give yourself a better life. And most people listening to this podcast already have a pretty darn good life. And having some sort of acknowledgement of that is really important.

Yeah. They risk their health, their time with their family for a little bit more money that those incremental dollars don't actually make them any happier.

Very much as we were saying earlier, everybody's different. And so, what you value spending money on and what you don't value spending money on is going to be very different from my own. I think a lot of this came from some conversations I had five or six years ago with a very close group of friends of mine. Five or six people, many of whom have high net worth and a lot of disposable money. And that was during a period in my life when my wife and I were very frugal by choice. It was kind of like a game, like see how frugal we could be. And I had this group of friends that just thought that that was the dumbest, craziest thing in the world and had so much criticism of what I was doing. 'And Morgan, you'd be so much happier if you spent more money on this and spent more money on that.' And it was interesting to me because I was almost certain at the time, and I think this was accurate, that my answer was, 'No, I wouldn't be.' If I went out and bought a car that was twice as expensive and a house that was twice as big, I would not have been happier. I just wouldn't. And it was interesting to me that it was so obvious to them that what they were saying was, 'Morgan, if your life looked more like mine, you would be happier.' And I think that kind of embedded from well-meaning people who do care about me, but that almost knee-jerk level of egotism that the correct life to live is the one that I'm living, and that was kind of their view. But these are people whose opinion I really value, and so that to me just kind of opened up that idea of look, there's no one right way to do this, and you're going to change throughout the course of your own life. So, during that period five or six years ago, we were very frugal. We're much less frugal now. We still have a high savings rate, but we've shifted significantly. And I'll be a different person 20 years from now.

Not only is it different person to person, it's different throughout the course of your life. And a lot of financial advice, whether it's in investing or saving, makes a big error when it gives a one-size-fits-all piece of advice. And you don't even know which person you're talking to. You don't know which phase of life that they're in. And so there's a reason that there's no CNBC for medicine, a 24-hour news show that says, 'Hey, everybody should go out and take this pill.' You're like, 'Well, everyone's different. Maybe they don't have the disease. Maybe it's different.' And I think that really is the case with spending money. And we see this in investing where if you're watching CNBC and they have a guest on who says, 'You should short Microsoft before earnings,' whatever it might be. You're like, 'Well, who are you talking to? Are you talking to a 17-year-old day trader? Are you talking to a 97-year-old widow?' Then let's not pretend that the advice is going to be the same for either of those people. And so that's why the book is not called The Science of Spending Money because that does not exist. There is no science of spending money. It's purely an art, and art is subjective. It changes over time. What you value is not what I value, etc.