Learning from Morgan Housel: Personal Finance and Human Psychology

Money is important and most people have complicated feelings in regards to money. As an Asian immigrant kid, who had to start over several times, I personally struggle here. The intense insecurity and fear of losing money, the even more intense materialism and the constant need for more. Been fighting this my entire life. Which is why I found Morgan Housel’s books: The Psychology of Money to be incredibly useful in managing these feelings. I really appreciated an interview he did with Shane Parrish: https://www.youtube.com/watch?v=NWZZEa9BURw

“It’s not necessarily how much you have. It’s just a contrast to what you have before. Would you rather have a net worth of a million dollars when you used to have 2 million or would you rather have a net worth of 500,000 when you used to have 200,000? And psychologically, most people would rather have 500,000. The speed at which a luxury becomes a necessity is 2 seconds.

But I bring that up. I think that’s an important thing to bring up because what has driven me are people like you and and others James Clear, Michael Lewis, people who I’ve really looked up to and not been so crazy to say I want to be that person one day.

Both because everyone should just do it in their own way. But I’ve always seen there is a difference between envy and aspiration. You can be really inspired by somebody’s success without envying them. And you know, if I can name half a dozen people that I’ve really looked up to and say like, man, they’re a good role model. But the important thing is I don’t envy them. I can also name half a dozen people, I won’t who, I’ve envied. And when I try to get introspective about that, why do I envy that person? It’s usually because they achieved a level of success, but I didn’t like how they did it. And that’s a subjective thing. Maybe they’re all good people in their own right. I won’t be too judgmental, which I won’t name them. But I think it’s an important distinction. People in your life who inspire you versus you envy them. And I think everyone, if they’re honest, probably has, you know, some of both.

And so, you ask what inspires me. I think it’s that having people in your life that you look up to and you can use as a north star is important. The other that I think is really important, I think this was a Buffett line. He said: “It is really good to have people in your life who you don’t want to disappoint. Nothing is a bigger motivator in life than having a couple people, rarely more than that, that you really don’t want to disappoint. I really desperately do not want to disappoint my wife and kids. I really don’t want to disappoint my parents.”

That’s fundamental. I think most people will have their own version of that, but something like that. And nothing is more of a motivator than that to want to live a good life.”

I think the world is player versus player. But ultimately the best competition is with yourself. And more importantly how to manage your own psychology and demons.

“But if you look back 30 years ago and you could see what you’ve accomplished today, the financial success, the status success that you’ve had, you’ve blown away any goal that you would have had. Why keep going? I think in a healthy way, I can have a very split personality of on one hand, I can say, man, I’m really good at what I do and I’m achieving a lot and this is amazing. And then I can very quickly flip a switch and say, “I’m a nobody and I’ve done some really bad work lately.”

And I think on balance, that’s a pretty healthy personality because if you only have the ego side, you’re going to run yourself off a cliff. And if you only have the humble/ depressed side, you’re never going to get anywhere. And so I’ve been pretty good at being able to toggle back and forth sometimes, you know, within the same hour, certainly within the same day.

Shane: And so what keeps you going?

Morgan: I really enjoy what I do. Writing has never felt like work to me. And I think that it’s the same for you. It’s just an extension of kind of who you are. It’s never felt like work. And so I enjoy doing it. But also what keeps me going is like the healthy side of me.

Part of me says like I can keep doing this and do good work. And then a minute later the other bird on the shoulder, being like you suck. You suck at this. And again on net I think it’s a very healthy personality even if it’s just the two extreme sides.

Shane: What can money do for us and what can it do for us?

Morgan: It can do a list of positive things for everybody. What I think is true is that

on average, people who have more money tend to have fewer bad days, but I don’t

know if they have more better days. I think it is more likely that when you have more money, you are less likely to wake up and be like, man, things are not going well. But that doesn’t necessarily mean that you’re going to wake up grinning ear to ear. Now, that’s a lifestyle improvement. If you have fewer bad days, that’s like great. Your life, your life is better.

That’s obviously better than the alternative, but it’s not happiness. It’s a very different thing. And I think it can throw some people off when they are when they aspire to happiness or they think that what they’re achieving in the money they’re making should make them happy. Sometimes it does. Very often it doesn’t. And they wake up and they’re like, “What happened?” Like I thought this was going to make me happy, but I’m not.

So, I think there’s a level of expectation setting where it’s like I think money can be more like a vaccine where it can prevent a lot of misery, which is great. Vaccines are wonderful. Like we don’t have polio. It’s a great thing, but maybe that’s a good analogy because you and I don’t wake up in the morning being like, “Oh, I’m so glad I don’t have polio. So grateful for the fact we don’t do that. We don’t think about it.” And I think that’s a lot of what money can do. It is a lifestyle improvement, but don’t think it’s going to make you waking up ear to ear, grinning ear to ear. It’s kind of like oxygen in a way, I guess, right? When you have it, you never think about it, but the minute you’re lacking it, it’s all you can think about.

…..Happiness is always a fleeting emotion. Like most people are rarely happy for more than a couple minutes at a time. And I think it’s very similar to humor where if I tell you a very funny joke, you don’t laugh for 10 years. You laugh for a couple minutes. Humor is a fleeting emotion. And happiness is the same. Most people, you have moments of it. And you can situate your life. So maybe you have more moments of it than others and more than you used to, but it’s momentary. And so I think what people actually want to get to, what they aspire to whether they know it or not, is contentment, which is not happiness. It’s a different emotion. You’d want to get to a point where you’re just like, I’m good. Like I’m very grateful for everything that I have and I have everything that I need and most of what I want and I’m totally cool with that. And if there’s more to come above this, that’s the cherry on top. But I’m really cool here. I’m great right here. And I think most people can realize that with a lot of work and constant upkeep, you can get to that level at a lower income than you think. I remember talking to Daniel Kahneman about this and he had a distinction between happiness and satisfaction.

And the distinction was happiness is an emotion. Most people think they want to be happy, but it turns out that most people want to be satisfied. And satisfaction was more based on the story that you can tell about your life. So it actually had to do with how much money you had, how much status you had, how many promotions you had. You were able to tell yourself the story that I did. I sacrificed all these things. Maybe my relationship with my partner in order to achieve them. And I think it’s when you daydream about having more success or more money or more stuff. When you daydream, when you do that daydream and it feels good and you’re like, “Oh, if only I had that house. If only I had that car. If only I had this income.” By and large, what you are doing is imagining yourself having those things and being totally content with them. And that’s what feels good. That’s why the daydream is fun to do.

But you can see in the individual life where if you feel like there’s a hole in your soul and you’re not feeling like you haven’t done enough, you just want more. That the idea of like, oh well, if I just keep shoveling money in that hole, then I’ll get to a place where I’m good. It’s actually very difficult to do that. That makes sense sort of evolutionarily because you think about it, evolution cares about survival of the species, not the happiness of the individual. Give a damn how happy you are. Yeah. And the other thing with evolution is like it doesn’t matter how much money I have. What matters is that I have more than you. It doesn’t matter how fast I can run. It’s got to run faster than you. And so in a world where we are lucky enough to live in relative prosperity and abundance relative to previous eras, I’m going to measure my success relative to you and the size of my house relative to yours.

Shane: How do you think about money and independence?

Morgan: I think what you described is a level of independence but its independence is always a spectrum. So there is a high level of independence in which you don’t need to work anymore and I would call that you know making this up that’s like level 13 independence and below that are several different levels. Even if you have a $100 in the bank that is a higher level of independence than if you had zero and certainly if you had negative if you were in debt. And so you realize that literally every dollar that you save is a little claim check on your future that you control that somebody else doesn’t.

I think it’s an important mindset like redefining independence like that that it’s on a spectrum and every single dollar is an independence claim check. For me, I’ve always viewed it like I’ve always been a big saver my whole career and I’ve always viewed it as not saving money for delayed gratification. I viewed it as purchasing independence for which I get value out of right now today. There’s nothing delayed about saving this money because I like waking up tomorrow morning and being like there’s a big cushion here so if something bad happens in my life whatever it is, whether it’s in my personal life or the macro economy or you know your pandemics, whatever it might be a gap, there is a channel of outcomes that I can endure.

And the less Independent, the less savings, the more debt you have the narrower that channel of endurance becomes and so within that channel is like all the ups and downs of life, individual and macro. And the wider the channel is, the more that you can endure. And so much about compound interest, not just with money, but with relationships and careers and friendships, comes down to what can you endure? How much how many unknowns and the depths of those unknowns can you endure and survive? And so much I wrote this in psychology money. If you have to sum up doing well financially in one word, I think it’s survival.

That’s true in your career. That’s true for savings. That’s true for investing. Absolutely. It’s just survive. It’s just what can you endure? What can you put up with? And when you view it like that, you realize that like every dollar that you save is a claim check of

independence that will serve you not just in the future but today. Izzy Sharp, the founder of Four Seasons, has this excellent quote which is excellence is the capacity to take pain. And when we think of that, our minds just instinctively go to physical pain, but we don’t think of psychological pain.

We don’t think of financial ups and downs and being able to just survive because you can’t compound if you don’t survive. And then the other thing about compounding I think people misunderstand is that all the advantages come at the end. And not at the beginning. They’re very slow at the beginning. But it’s that last double that makes a huge difference. I mean in terms of the dollars accumulated that’s true. So I wrote about this in psychology money. 99% of Warren Buffett’s net worth was accumulated after his 65th birthday. That’s just how compounding works. Like the numbers get nuts at the end.”

He gives the importance of your social circle, something fully under your control. Your ambitions and lifestyle creep happens because of this. This is where the point: Comparison is the thief of Joy really comes true.

Shane: How does our social group impact our desires and how should we think about our social group in relation to spending money?

Morgan: I always say like be very careful who you socialize with because it will full stop will set your expectations of what you want. I use the example that I grew up out in the out in the mountain sticks outside of Lake Tahoe and it was very much a mountain town, not poor but not rich by any standards.

And then I went to college in Los Angeles. Los Angeles during the housing bubble in the mid-200s when it was just overflowing with literally trillions of dollars of fake money and it was such a material culture then and now that, like when that fake money flew around it was just everyone spending it on lifestyle just inflating everything. And I realized, who was happier? It’s not even close, that it was the people in the middle mountain town were happier because it was so much easier to keep your expectations in check. You’re like, it was so easy to be like, look, I drive a three-year-old Ford pickup and the rich guy drives a two-year-old Ford pickup. And that’s the stratification. The stratification was this big. And then in LA, the stratification was 10 miles long. And so, even if you are a dentist doing well in LA, you’re a dentist making 300 grand a year driving a Mercedes, you’re absolutely amazing, crushing it. But no dentist in LA making 300 grand a year feels like they’re crushing it because they are driving past 30,000 foot mansions and Rolls-Royces and Lamborghinis and what not. And so by comparison, even if you’re not socializing with those people, you’re aware of it.

But when you start socializing them with those people, then truly your expectations just blow off the charts. It’s very difficult. It’s possible, but it’s very difficult to be a dentist making 300 grand and be friends with someone who’s living in a 30,000 foot mansion with a private jet and have it not impact your expectations. Very difficult to do.

Shane: We keep coming back to happiness. Is that something we should be optimizing for?

Morgan: I think we said earlier what you want to optimize for is contentment. And when you socialize with people who are dramatically wealthy, are living a better, a bigger life than you, it is much harder to remain content. Possible but harder to remain content, so being careful who you socialize with I think is very important. That’s true for a lot of things not just outside money but values…..what I’m willing to do might be very influenced by who I’m hanging out with. I think that’s true for nearly all of us.

Morgan also talks about how to live an authentic life. One that is specific for you. He shares his perspective.

Shane: One of the things I admire about you as your friend is that you’ve built this life that is just totally authentic to you. What advice do you have for other people about going about building this life that’s authentic to them, discovering who they are as a person and how they can use finances as a tool to accomplish that.

Morgan: One is, I would say thank you for saying that and noticing that.

But it takes work. It is not just you get there and you’re like, “Oh, everything’s great. Now I can just cruise on this authentic life.” It takes, I think daily work. And so even as someone who writes about expectations and keeping up with the Joneses and whatnot, I think I feel I have to remind myself daily of it. Now there are a lot of things like that in life. If you master meditation, you don’t get to stop. You got to do it every day. And if you do stop, you just revert back to where you were.

See, with exercise, you don’t get to physical fitness and then you get to stop. You got to work on it daily. So I think this is one of those things as well that takes a lot of effort. But I think the realization, easier said than done, but the realization and the observation that people are not paying attention to you as much as you think they are. And therefore, you should stop trying to impress strangers and use money to give yourself a tool of things that are giving you a lot of fulfillment, your relationships, your health, and whatnot. That’s to me was the biggest breakthrough. And it’s so simple.

Like there’s nothing that profound about what I just said, but if you can actually

come to terms with it, it can totally change your life of just being like, “Nobody’s watching. Nobody’s watching. They’re not paying attention to me. They don’t care what I’m wearing. They don’t care what car I’m driving. But if I can instead use that money to be independent and be able to make my own decisions about what’s authentic to me, that’s amazing.”

Shane: What is success for you?

Morgan: I think about two things. It’s the idea of it’s very important to have people in your life that you don’t want to disappoint.. And so those few people in my life, success is not disappointing them. And I know I’m not perfect and there will be times when they look at me and say, “Morgan, I wish you had done this differently. You didn’t consider my feelings enough when you did this.” But there’s a couple people in my life who I really really don’t want to disappoint.

And it would be hard. There was no amount of financial material success in life in which I could look back at my life and say I had a great life if I really disappointed my kids or my wife or my parents. Hard to imagine that. And so even when relationships don’t work out, I think really disappointing the people that you don’t want to. I think that’s fundamental to my definition of success. I also think, related to that, loyalty to people who deserve your loyalty is a very rewarding thing. The important thing is people who deserve your loyalty, which is a small list. A lot of people do not deserve your loyalty. But loyalty to someone who deserves your loyalty is unbelievably rewarding.

And so I think when you experience that in life, when somebody deserves your loyalty and you give it back, it’s not just rewarding to the other person, it’s rewarding for you personally.”

I’ve watched this a few times. For anyone trying to design and build your life, this is a great conversation. First is understanding yourself and Morgan’s frameworks are helpful. Additionally, his lessons are very practical. His life is one to model oneself on.