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At The Money: The Art of Spending Money with Morgan Housel · Masters in Business

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio News, Money.
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  Speaker 2: Again by is there an art to spending your own money?
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  Speaker 2: We spend a lot of time around these parts discussing
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  Speaker 2: earning and of course investing money, but how often do
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  Speaker 2: we really think deeply about spending it. I'm Barry Ridholtz,
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  Speaker 2: and on today's edition of At the Money, we're going
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  Speaker 2: to discuss how you should think about spending your cash.
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  Speaker 2: To help us unpack all of this and what it
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  Speaker 2: means for you, let's bring in Morgan Housel. He's the
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  Speaker 2: author of the Psychology of Money. The book has received
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  Speaker 2: widespread acclaim and has sold over seven million copies worldwide.
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  Speaker 2: His new book, The Art of Spending Money, Simple Choices
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  Speaker 2: for a Richer Life, arrives in October. So, Morgan, you've
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  Speaker 2: covered human behavior and nature. What led you to say
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  Speaker 2: I want to write about a new book about the
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  Speaker 2: art of spending money?
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  Speaker 3: Well, thanks, Barry.
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  Speaker 4: The first reason was I didn't call this book the
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  Speaker 4: science of spending money because I don't think that exists.
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  Speaker 4: Science implies that there is like a one size fits
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  Speaker 4: all rule for you and I, and that's not the case.
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  Speaker 3: I call it the art of spending money.
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  Speaker 4: Because art is subjective, It is often contradictory. It is
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  Speaker 4: different from person to person, and that's really what spending is.
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  Speaker 4: The reason why I wanted to tackle this is because
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  Speaker 4: you just alluded to this. There is so much commentary,
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  Speaker 4: so much ink has been spilled, so much good ink
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  Speaker 4: has been spilled on how to invest, how to grow
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  Speaker 4: your career, how to earn more money, very little on
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  Speaker 4: spending money. And I think the reason why is because
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  Speaker 4: it is assumed that everybody knows how to do it,
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  Speaker 4: which is just spend more and you'll be happier, you'll
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  Speaker 4: be better off, and doesn't really matter what you spend
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  Speaker 4: it on. Sometimes you hear a little bit new lots
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  Speaker 4: of spend on experience versus things. But to me, there
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  Speaker 4: is so much more in the psychology of spending. When
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  Speaker 4: you dug into the deep mechanics of envy and jealousy
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  Speaker 4: and getting attention and copying other people, there are so
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  Speaker 4: many good stories to dig in there that might seem,
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  Speaker 4: you know, not exactly, not really deep.
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  Speaker 3: This is not.
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  Speaker 4: Astrophysics, it's just basic psychology, but it tends to be ignored,
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  Speaker 4: particularly in finance, where all the attention is how do
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  Speaker 4: you just get more money? And you kind of leave
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  Speaker 4: it to assumption of what you're going to do with
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  Speaker 4: the money after you get it.
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  Speaker 2: So let's talk a little bit about the science behind
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  Speaker 2: some of the things you're discussing there. There's been a
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  Speaker 2: lot of academic research does money make you happy or happier?
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  Speaker 2: At what point does the rule of diminishing returns kick in?
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  Speaker 2: What does the science of spending look like before we
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  Speaker 2: get to the art of spending.
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  Speaker 4: One of the things I think is really interesting is
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  Speaker 4: that what a lot of the research shows is that
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  Speaker 4: if you are already a happy person, money can make
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  Speaker 4: you happier, but if you are a depressed person or
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  Speaker 4: a miserable person, whatever it might be, that it will not.
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  Speaker 4: And it's easy to just kind of contextualize this into
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  Speaker 4: a real person's life of if you are in a
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  Speaker 4: bad marriage and you hate your career, and you have
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  Speaker 4: a two hour commute, and just go on down the list,
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  Speaker 4: you're an alcoholic, you're obese. If you take that person
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  Speaker 4: and you give them more money, will they be happier?
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  Speaker 4: And the answer is no, of course not, because all
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  Speaker 4: of those other aspects of their life are going to
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  Speaker 4: override whatever money can do for them. But if you
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  Speaker 4: also take somebody who's in a great marriage, loves their career,
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  Speaker 4: they're happy, they're healthy, they sleep eight hours, they have
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  Speaker 4: a good set of friends, and you give that person
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  Speaker 4: more money, there's a good chance that they're going to
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  Speaker 4: use that money to just leverage what they're already doing,
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  Speaker 4: to spend more time with the friends who they already love,
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  Speaker 4: to spend more time getting healthier and eating good food.
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  Speaker 3: And so money can really.
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  Speaker 4: Just leverage the person who you already are and the
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  Speaker 4: lifestyle that you're already living. But I think a lot
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  Speaker 4: of people go stray with that when they are unhappy
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  Speaker 4: and they think, if only I had more money, all
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  Speaker 4: my problems would go away.
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  Speaker 2: And one of the interesting things in the academic literature
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  Speaker 2: that I recall seeing a few years ago was when
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  Speaker 2: they draw these charts of money potentially making people happier.
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  Speaker 2: Divorce is a giant red flag people in all of
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  Speaker 2: the divorce or people who have recently been divorced, that
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  Speaker 2: that's a really challenging road to hall, isn't it.
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  Speaker 4: I think what it comes down to is that having
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  Speaker 4: more money is so quantifiable that it we use it
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  Speaker 4: as a crutch for all of our problems. For example,
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  Speaker 4: if I said I would have a better life if
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  Speaker 4: I was a ten percent better dad, what does that
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  Speaker 4: even mean? What does a ten percent better dad mean?
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  Speaker 4: There's no way to quantify it. But if I said
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  Speaker 4: I would have a better life if my salary went
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  Speaker 4: up by ten percent, you can easily quantify that wrap
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  Speaker 4: your head around it. So we chase that and we
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  Speaker 4: assume that that's going to be the solution to all
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  Speaker 4: of our ills. Even if becoming a better dad might
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  Speaker 4: make me a happier, better person. But since it's impossible
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  Speaker 4: to quantify, I just ignore it and pretended that it
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  Speaker 4: doesn't exist.
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  Speaker 2: You alluded to impressing others. How should people avoid spending
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  Speaker 2: money for status and symbolism as opposed to bringing themselves
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  Speaker 2: satisfaction and happiness.
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  Speaker 3: I'm the first to say I love nice things.
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  Speaker 4: I like a nice house, I like a nice car,
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  Speaker 4: I like nice clothes, I like nice vacations, I travel well,
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  Speaker 4: et cetera, et cetera. I'm not saying live like a
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  Speaker 4: monk by any means. But what is true is that
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  Speaker 4: a lot of spending is for social signaling. You just
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  Speaker 4: want to show other people who you are and how
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  Speaker 4: successful you are to me. The next layer below that is, well,
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  Speaker 4: who are you trying to impress and are they even
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  Speaker 4: paying any attention to you? And this is different for
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  Speaker 4: every person, but for me, the people in my life
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  Speaker 4: who I want to love me are my wife, my kids,
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  Speaker 4: my parents, and maybe two or three friends. And I
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  Speaker 4: really want their love and affection and admiration, and I
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  Speaker 4: want to do things, including with my money, to help
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  Speaker 4: them and to give them a better life so that
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  Speaker 4: they will love me back.
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  Speaker 3: That's the truth.
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  Speaker 4: But after that small set of seven people or whatever,
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  Speaker 4: it falls very quickly from there, and then there's another
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  Speaker 4: layer below that of like work associates who I love
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  Speaker 4: having a good time with and having a nice dinner with.
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  Speaker 4: But then it really collapses from there, and I could
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  Speaker 4: not care less what ninety nine point nine percent of
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  Speaker 4: the world thinks of my house or my car or
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  Speaker 4: my clothes, because they're not paying any attention. It is
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  Speaker 4: so easy to overestimate how much other people are looking
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  Speaker 4: at your stuff, your house, your cars. They're not paying
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  Speaker 4: any attention. They're busy worrying about themselves and thinking about themselves.
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  Speaker 4: And so when you frame it like that, it's not
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  Speaker 4: to say, don't use your money to gain attention, it's
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  Speaker 4: use it to gain attention from the very small core
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  Speaker 4: group of people who you want to love you. There's
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  Speaker 4: a great quote from Warren Buffett where he says, the
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  Speaker 4: definition of success in life is when the people who
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  Speaker 4: you want to love you do love you. And I
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  Speaker 4: think you can twist that into thinking how you spend
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  Speaker 4: your money as well.
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  Speaker 2: So in the modern era of social media and TikTok
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  Speaker 2: and Instagram, what do a lot of influencer flexing and
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  Speaker 2: they're trying to show off their lifestyle. I recall being
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  Speaker 2: on vacation at a place in Puerto Rico, and two
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  Speaker 2: lounges over was this woman who, instead of just lying
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  Speaker 2: there and enjoying the beautiful son and surf, read a
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  Speaker 2: book whatever, she was just constantly taking selfies doing And
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  Speaker 2: so I finally had to say, hey, what are you doing? So? Oh,
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  Speaker 2: I'm an Instagram influencer, and so you're not just going
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  Speaker 2: to kick back and enjoy this, so, oh no, this
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  Speaker 2: is work. You and I had a conversation a couple
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  Speaker 2: of years ago that's so related to this. Let's see
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  Speaker 2: if you recall this, you know, the person driving down
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  Speaker 2: the street in the loud Lamborghini, or the person around
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  Speaker 2: the corner from you with the giant house. You're only
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  Speaker 2: seeing one half of the balance sheet. You're only seeing
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  Speaker 2: their assets. We talked about, well, did they pay cash
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  Speaker 2: for that or did they go deep into hawk in
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  Speaker 2: order to buy a house or a car to show
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  Speaker 2: off for the neighbors. Talk about that a little bit.
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  Speaker 4: Yeah, wealth is what you don't see. Wealth is the
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  Speaker 4: cars that you didn't purchase and the giant house that
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  Speaker 4: you didn't buy. That's what wealth is. It is money
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  Speaker 4: that you didn't spend that you can now say for
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  Speaker 4: either for future consumption or for independence today.
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  Speaker 3: That's what wealth is.
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  Speaker 4: And so I can see your car, I can see
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  Speaker 4: your house, I can see your watch in your clothes.
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  Speaker 4: I cannot see your bank account or your brokerage statement.
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  Speaker 4: So the most important part of wealth, literally, in my view,
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  Speaker 4: the definition of wealth is invisible to everybody. And that
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  Speaker 4: is so unique in life because if you take like
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  Speaker 4: physical fitness, you can see somebody's physique. It's right there,
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  Speaker 4: and so you know kind of who to admire and
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  Speaker 4: who to chase. Oh, that person's in great shape. I
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  Speaker 4: should ask them what they do. I should ask them
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  Speaker 4: their diet and try to mimic what they do. But
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  Speaker 4: if you see somebody with a mansion or a or
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  Speaker 4: a ferrari or whatever it is, you don't know that
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  Speaker 4: they got that by success. That may be the picture
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  Speaker 4: of a leverage. And it's possible that they haven't slept
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  Speaker 4: in two weeks because they're wondering how they're going to
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  Speaker 4: make their next ferrari LEAs pay. And so we have
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  Speaker 4: kind of like a fake view of who we're chasing
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  Speaker 4: and what we should do because wealth that we're chasing
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  Speaker 4: is invisible.
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  Speaker 2: So this comes back to the concept of spending as
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  Speaker 2: an art and in one of the sections of the book,
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  Speaker 2: you talk about self awareness over spreadsheets. How self aware
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  Speaker 2: do we need to be in order to be more
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  Speaker 2: artful spenders towards happiness and life satisfaction.
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  Speaker 4: I think every big, big financial decision, spending decision, is
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  Speaker 4: two parts head and heart. It is yes, like if
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  Speaker 4: you're buying a house, of course, it's not just a spreadsheet.
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  Speaker 4: I tell the story that when my wife and I
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  Speaker 4: bought our first house nine years ago, we found the
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  Speaker 4: listing on Zillo and we're like, Oh, that looks great,
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  Speaker 4: let's go check it out. But this is just information gathering.
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  Speaker 4: This is just we're just going to go look at it.
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  Speaker 4: But we're not making any decisions here. And we pulled
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  Speaker 4: into the driveway and as soon as we pulled in
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  Speaker 4: the driveway, my wife gasped and she said, I love it.
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  Speaker 4: And at that point, forget the spreadsheets, forget the like
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  Speaker 4: the valuation comps. That is all hard at that point.
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  Speaker 4: But here's the thing. We don't regret that in the
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  Speaker 4: slightest it was a great house. And we had Christmas
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  Speaker 4: mornings with our kids. Both of our kids were born
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  Speaker 4: not in that house, but we brought them home as
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  Speaker 4: newborns in that house. So many amazing memories that you
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  Speaker 4: could not track on a spreadsheet.
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  Speaker 2: I'm laughing because the very first house my wife and
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  Speaker 2: I bought, I don't know, twenty nine years ago, we
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  Speaker 2: pulled into the driveway. I looked at her face and
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  Speaker 2: I just said, uh oh, And that was the first
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  Speaker 2: house we bought, the house I'm in for the past
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  Speaker 2: almost fifteen years. We pulled up the driveway and same
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  Speaker 2: as your wife, She's like wow, and I'm like, uh oh,
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  Speaker 2: here we go again.
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  Speaker 4: Real estate's an interesting one too, because does buying a
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  Speaker 4: big fancy house make you happier If you phrase it
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  Speaker 4: like that, the answer is no. But just spending more
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  Speaker 4: time with your spouse, your kids, your friends, your neighbors.
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  Speaker 3: Does that make you happy? Absolutely?
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  Speaker 4: And can a big house make it easier to have
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  Speaker 4: your friends over like yes, So there's an indirect path
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  Speaker 4: to which, yes, spending money on a great house can
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  Speaker 4: make you happier, but it's not because of the house.
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  Speaker 4: It's because it makes it easier to spend time with
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  Speaker 4: people that you admire and love.
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  Speaker 2: So let's bring this back to a theme that I
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  Speaker 2: have seen in all of your writings, all of your books.
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  Speaker 2: I've known you for how many years? Of fifteen years
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  Speaker 2: just about sounds right? Going back to Vancouver peace of
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  Speaker 2: mind as the ultimate spending return tell us about that.
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  Speaker 4: I think it's different for every person there are. There
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  Speaker 4: are certainly people out there that would go crazy if
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  Speaker 4: they were not stressed out and if they were not
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  Speaker 4: pushing themselves to the max every day. But the vast
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  Speaker 4: majority of people, including myself, what I want out of
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  Speaker 4: money is a simple life. Now, simple doesn't mean cheap
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  Speaker 4: or frugal. Simple can be extravagant, but it's simple in
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  Speaker 4: the sense that you are using money as a tool.
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  Speaker 4: It's not using you. It's not conducting your behavior or
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  Speaker 4: your activities. I want to use money as a tool
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  Speaker 4: in my life to be to leverage who I want
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  Speaker 4: to be and for me then I think you and
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  Speaker 4: many other people. That is like doing the best work
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  Speaker 4: that I can, but having full control over my schedule,
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  Speaker 4: doing a lot of reading, working when I want, with
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  Speaker 4: whom I want for as long as I want, being
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  Speaker 4: in control over my time. That's what I want out
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  Speaker 4: of money, using it as a tool rather than it
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  Speaker 4: using me. To say, Morgan, this is how you should
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  Speaker 4: spend your money. You should get these people's attention. That
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  Speaker 4: guy's car is faster than your years, so you need
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  Speaker 4: to upgrade. That is when money is using you rather
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  Speaker 4: than you're using it.
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  Speaker 2: Morgan Housel's new book, The Art of Spending Money, Simple
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  Speaker 2: Choices for a Richer Life, arrives in October. Perfect way
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  Speaker 2: to sum this up and to end, Spending money can
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  Speaker 2: bring you happiness if you go about it the right way,
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  Speaker 2: if you're not just flexing and showing off, if you're
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  Speaker 2: spending time with friends and family and loved ones, if
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  Speaker 2: you're using money as a tool to achieve certain aims well,
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  Speaker 2: then have at it. Go out and spend money. Just
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  Speaker 2: don't post everything you do on Instagram. I'm Barry Ridolfs.
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  Speaker 2: You're listening to Boombergs at the Money