Who We Are With Money and How to Handle it Sanely

Tuesday, January 17, 2023

“There’s an old saw that goes something like this: It used to be that a happy man just had to make a hundred bucks more than his brother-in-law. Now because of social media, we have to compare ourselves to literally everyone. So that’s fun.”

That’s Dan Harris, my beloved 10% Happier podcast guy, in conversation with Morgan Housel, the author of The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness. What follows are some gems from their “rich” and engaging conversation, bulleted for easy skimming:

The Bottom-Line (This one is the wake-up call)
  • Every dollar of savings you have is a piece of your future you own. Every dollar of debt you have is a piece of your future somebody else owns.
The Key to Investing: Patience & Consistency
  • There are plenty of financial advisors who personally do very poorly because they fiddle around too much. If you invest consistently every month in a low-cost index fund in the stock market for over 30 years (and leave it alone) you will be in the top 5% of investors. You’ll beat 95% of the pros fiddling with the knobs.
  • “Patience is bitter, but its fruit is sweet.” Jean-Jacques Rousseau
  • Most people view it as a fine when their investments go down. A fine means you’re in trouble, that you made a mistake and now here is your punishment, shame on you. A much better way to think about it, though, is viewing your investment volatility as a fee. A fee doesn’t mean you’re in trouble, it doesn’t mean you made a bad mistake; a fee is just the cost of admission to get something better on the other side. It’s not fun but it’s just paying your dues in order to get good long-term returns over the next ten or twenty years. This way of thinking makes volatility more palatable. 
Money & Happiness
  • Being generous with what you have makes you happy.
  • “People who say money doesn’t buy happiness don’t have any.” A line from the movie, Boiler Room.
  • In reality, happiness is fleeting and a moment in time like a joke. A joke is funny once. If it were repeated every day, it would not be so funny. Same with money. At a certain point it loses its ability to confer happiness and becomes as ordinary as Kraft macaroni and cheese.
  • What money can buy you is contentment, and a certain amount of freedom and autonomy. (And stuff obviously, some of which you need and lots of which you don’t. See next section on Enough.)
  • Money doesn’t make you happier, but it can make you less miserable.
  • A happiness risk: Pre-adjusting to future cash you think is coming – a raise, an inheritance, the sale of some property is a bad idea. Save yourself from potentially having to “lose” money by not getting ahead of the actual money.
  • John D. Rockefeller is the richest person of all time once you adjust for inflation. When asked how much money is enough, he replied, “Just a little bit more.” (that’s like the mouse setting the trap for itself.)
  • Buddha, on the other hand, observed that the main cause of suffering is grasping, which makes Rockefeller very, very rich in suffering.
  • Having enough is not a number; it’s a mindset.
  • Danger words: “we’ll just get this _______________ and then we’ll be good.”
  • Getting to enough is a happiness saver. Enough can’t be said about enough-ness.
  • Get your expectations to grow slower than your income. The gap between your expectations and your income accrues to your wellbeing.
  • Keep your expectations low enough so you can be astonished by however much your income grows.
  • Save beyond the risks/goals you can envision – new car, new house, college. Save for the big risk you don’t see coming. The divorce, the health crisis, the lay-off. (“Risk is what is left over after you think you’ve thought of everything.” Carl Richards, financial advisor.)
  • Strive for being reasonable, not rational. We’re not machines. We can’t always pretend to make rational financial decisions but if we can be reasonable about it all, that’s probably the best we can do.
  • Have reasonable, realistic expectations for your investments. If you can actually earn 8 – 10% each year, that’s amazing.
  • Rich means you have enough money to pay your monthly bills for the lifestyle you want to live. Wealth is almost the opposite. Wealth is the money you have not spent -- the money saved up, invested, unspent. We can see your richness. We cannot see your wealth.
  • The solution to almost every financial problem is save more money and be more patient. Solutions require some form of sacrifice.
  • The solution for people who are living paycheck to paycheck because their aspirations exceed their income is not how can I earn more money; the solution is how can I suppress my ambitions and ego.
  • Feeling guilt over your riches/advantages is very self-oriented. Feeling gratitude, on the other hand, for what you have is very other-oriented.
Listen to the whole conversation right here.
And so begins a brave new day,