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Episode: How to Make the Most of Your Money in the New Year — ft. Morgan Housel

Author: Vox Media Podcast Network
Duration: 00:45:40

Episode Shownotes

Morgan Housel, New York Times bestselling author of “The Psychology of Money,” joins the show to break down why the holidays are such a stressful time financially – and how we can all navigate it. He also discusses how to shift your mindset around money in the new year, make

the most of bonuses, and determine what “spending well” really means for you. Order "The Algebra of Wealth," out now Subscribe to No Mercy / No Malice Follow the podcast across socials @profgpod: Instagram Threads X Reddit Follow Scott on Instagram Follow Ed on Instagram and X Learn more about your ad choices. Visit podcastchoices.com/adchoices

Full Transcript

00:00:11 Speaker_00
Welcome to Prof G Markets. Scott is unfortunately out sick today, or that's what he's telling us, so we're going with it.

00:00:18 Speaker_00
And so today we're speaking with Morgan Housel, the New York Times bestselling author of The Psychology of Money and a partner at the Collaborative Fund.

00:00:26 Speaker_00
And we speak with Morgan about financial stress around the holidays and how to create impactful financial plans for the new year.

00:00:32 Speaker_00
This was, I think, an important conversation about the holidays and the stress that we often feel, or at least that I certainly feel. Morgan is an expert on the psychology of money and how money affects our brains.

00:00:46 Speaker_00
So I thought this was a really insightful conversation, and I hope you enjoy it. Morgan, really great to have you back on Prof G Markets. Thank you very much for joining us. Good to see you, Ed.

00:00:58 Speaker_00
So we wanted to talk with you today because it is the holidays, and for many that is a pretty fun and cheerful time, but it's also a very stressful time, largely due to money.

00:01:11 Speaker_00
So I just want to start off with this one stat, which is that 9 in 10 Americans say that the holidays are a cause of significant financial stress. So, pretty obvious question. Why is it such a stressful time financially?

00:01:24 Speaker_00
But more importantly, what can we do about it?

00:01:27 Speaker_03
So many people think about Thanksgiving and Christmas. And Thanksgiving, I think, tends to be a happier time for people because it's just good food and family and friends and that's it. There's no gifts, there's no expectations.

00:01:38 Speaker_03
It's like, let's eat some good food and tell some good stories and drink some good wine and all have a good time. Christmas becomes

00:01:43 Speaker_03
I have to get presents for everybody and everyone to get presents for me and I hope I get you the right thing I hope you get me the right thing and one of us is bound to be disappointed that's all that's always in the case my mom would always bring up when I was a kid that Christmas was my worst holiday cuz I was always disappointed.

00:01:58 Speaker_03
They got me they they got me nice presents I had a great childhood but whatever they got me I I wanted something more and I was always it was like that the day of the year. when I got everything. I got, like, you know, presents galore.

00:02:10 Speaker_03
It was my unhappiest day of the year because my expectations were so high. I think as an adult, it turns into, if I don't get you the right present, you're not going to like me. Like, I have to be really thoughtful about this.

00:02:21 Speaker_03
And then as your social circle grows and you have to get presents for 20 people, that's a huge stress. It's a massive stress. Like, not even the cost of it. Of course, that's a big thing. If you're putting on your credit cards, whatever it might be.

00:02:31 Speaker_03
But just the social stress of getting it right. That you don't have that with Halloween. You don't have it with New Year's. Christmas is this one that has like ridiculous amount of social pressure and I think there is a lot of

00:02:42 Speaker_03
evidence that like mental health tends to bottom around Christmas. It's a tough time for period. A lot of that is because their families, sometimes it can be a reminder of the family that you don't have or broken bonds, whatever it might be.

00:02:53 Speaker_03
But I'm sure like finance plays a big role in there. Compare how people feel about the 4th of July, which is like, oh, day off, day off of work and it's sunny and I'm going to go to the beach with my friends.

00:03:03 Speaker_03
And Christmas is like a month of financial and emotional trauma for people.

00:03:08 Speaker_00
So, I mean, there are two things in there that cause the stress you mentioned. It's the family aspect, but it's also mainly gifts. Do you think that America places too much emphasis culturally on giving gifts?

00:03:23 Speaker_00
Do you think our gifting culture might be a bad thing?

00:03:26 Speaker_03
I think it's generally true overall, like this has nothing to do with Christmas, but it's true that it is very easy to assume that if your life is not going well and you're unhappy with who you are, you're unhappy with your career, you're unhappy with your family, it's very easy to assume that if you had more money and if you were spending more money and if you had nicer things, your life would be better.

00:03:43 Speaker_03
It's a very easy assumption to make. And by and large, for most people, it is wrong, most of the time. It's not that money cannot buy happiness. It can. But it is too easy to assume that if you had more money, all your problems would go away.

00:03:54 Speaker_03
And particularly for a lot of people, their problems are their health and their relationships, their friendships, their marriages, their relationships with their kids. Those are the core to a lot of their problems.

00:04:04 Speaker_03
And those are the problems that I think money plays the lowest role in terms of fixing and happiness. And so I think that's the assumption that we make. If I had nicer stuff, then people would love me more.

00:04:15 Speaker_03
And if I bought you a big present, you might love me more. I think those are very easy financial assumptions to make. But then you realize that the core of what you're getting at is so much more complex than money. It's a social endeavor.

00:04:27 Speaker_03
And my wife and I, we've been together for almost two decades. And many, many years ago, we were like, we stopped buying each other gifts. We have everything we need. And it doesn't make any difference to me. I love you. You love me.

00:04:38 Speaker_03
And so what my wife started doing, she's done this for several years, for my birthday she does this, she writes me a poem. And she's so absurdly talented at this. It'll be a poem of something that happened in my life.

00:04:49 Speaker_03
She's so good at it, they're always funny, they always rhyme, and it's something that, like, a big thing that happened to me that year. That is a million times more meaningful to me than if my wife bought me a sweater or something.

00:05:01 Speaker_03
I don't mean nothing to me. This is not my expertise in the slightest, but the thoughtfulness of that makes me so happy. I think at the core of it, it's because she's buying me something that money cannot buy.

00:05:12 Speaker_03
She's showing me a level of thoughtfulness and love that you cannot get with a price tag and a credit card.

00:05:19 Speaker_00
Yeah, Scott and I recently had a conversation about gifts and our conclusion was that there isn't really like a social or cultural code on who's supposed to get gifts and also how much money you're supposed to be spending on those gifts.

00:05:34 Speaker_00
It sounds like you have established some of your own code around gifting with your wife. Are there any other rules or recommendations on how people can go about gifting during the holidays?

00:05:46 Speaker_03
I think it's it's different everyone i think how my wife do it to a lot of people would disagree with that and they would say that the gifts to get their spouse bring so much pleasure and joy so this is not black and white everybody is different i often notice to.

00:05:57 Speaker_03
For a lot of my friends, some of whom send Christmas presents, but what I absolutely love about them is once in a while they'll text me and be like, Hey, haven't caught up with you in a while. How you doing?

00:06:06 Speaker_03
Let's, let's jump on the phone and just catch up with you. If I compare, I have one friend, I will not name him every year. He sends me a case of wine for Christmas, which I love and appreciate.

00:06:15 Speaker_03
And about once in a quarter, he texts me and says, Hey, how you doing? Let's catch up and talk about life. I appreciate the wine he sends me, but I love our quarterly phone calls a hundred times more, a hundred times more.

00:06:28 Speaker_03
And I think a lot of people fall into that category of like, yes, I appreciate your gifts. I like your gifts. Your gifts was very thoughtful, but I want, what I actually want is your friendship. And that's, that's what means the most to me.

00:06:38 Speaker_03
I think this is especially true when you have a little bit more money and you're like, look, when, when you're a kid and you have nothing, I'm like, if I want that toy, like Christmas is my only shot. That's my only shot at getting it.

00:06:48 Speaker_03
As you become an adult and you have your own money, and by and large for a lot of people listening to this podcast, they roughly have everything that they need and most of what they want.

00:06:56 Speaker_03
That's true for probably the majority of people listening to this. And then so you turn to the things that money can't buy, like genuine friendship and whatnot.

00:07:03 Speaker_03
And I think if you are counting on Christmas to accentuate that, it's going to lead to some disappointment.

00:07:08 Speaker_00
What about with your kids? I'm sure they would not accept a token of friendship for a Christmas gift.

00:07:14 Speaker_03
I should try that this year. See how that goes over. I think it's normal when you're a kid, A, because you don't have your own money. Look, I, myself, as an adult, if I want something, I usually go and get it. I don't have to wait till Christmas.

00:07:27 Speaker_03
Kids usually have to wait till Christmas for their allowance or whatever. So there is so much more pent-up demand for physical things that kids have. But I think it's also true that kids are, it's easier for them to make friendships.

00:07:39 Speaker_03
My kids just started at a new school. Day two, 48 hours in, they had like five new best friends. Whereas for me, I'm like, I have to know you for seven years before I let you into my friendship circle. It's just easier for kids to make friendships.

00:07:51 Speaker_03
So for adults, I think those genuine friendships, because they're so rare, just so much more meaningful than it is for a kid that just wants a new toy. When I was a kid, This is not black and white.

00:08:01 Speaker_03
I'm gonna grossly exaggerate this, but I've roughly got... no presents throughout the year, and then Christmas was a bonanza. Like, not actually, but it was close to that.

00:08:10 Speaker_03
And I feel like my kids get more presents throughout the year, and then Christmas is like, cool, it's fun, but it's more mediocre than it was. I don't know which one of those is better.

00:08:18 Speaker_03
Because as I said earlier, Christmas for me as a kid, it was the only, it was the one day per year that I got presents. It was a bonanza, it was a huge day. And, according to my mom, I was always pissed off. I was always disappointed.

00:08:30 Speaker_03
I think it was so emotionally overwhelming that I just could not handle what was happening to it.

00:08:34 Speaker_03
Whereas I've noticed that my kids actually seem to do better and are happier during Christmas than I was when I was a kid, and maybe that's because it's more spaced out and it's not just this emotional dumpster at the end of the year just being dropped on you.

00:08:47 Speaker_00
Yeah, I think the other interesting thing about this time of year is it's sort of like a summary of what has happened in the previous year.

00:08:54 Speaker_00
And I think when you're giving gifts, especially with your family, I feel like for a lot of people, it's sort of a reflection of like, this is how we're doing right now. And I think if you've had a tough 2024,

00:09:08 Speaker_00
you know, the holidays seem to sort of exaggerate that. And on the flip side, if you had a really great year, it might exaggerate that too.

00:09:15 Speaker_00
But for people who have had kind of like a tough year and they're feeling that financial stress, what are some like tools and strategies that you can employ to deal with that and to come back stronger next year?

00:09:29 Speaker_03
I think you're absolutely right. And when I was a kid, I've written about this before I spoke about it, but the first 10 years of my childhood, my parents were extremely poor. They were students. We were poverty by any level.

00:09:41 Speaker_03
And then my dad became a doctor when I was 12. And then things like very abruptly shifted. It was not we were not rich by any standards. He was an ER doctor. But it was it was a very stark. It happened in one year. And I remember that year.

00:09:52 Speaker_03
I think it was 1993 or something like that, where it was like everything changed.

00:09:56 Speaker_03
But when i think it's true when i look back to my poverty years let's say that my parents love me just as much i was just as happy i had just as much fun with my friends my like like the things that actually were core to my identity and feeling love really did not change that much from my poverty years to my better years and so i i think if you view money as

00:10:19 Speaker_03
the panacea to all your problems, either your problems or your ability for other people to admire you. That's the problem. Money can be an incredible tool to live a better life. Spending money can make you happy.

00:10:30 Speaker_03
This is not to say money can't make you happy, but if you view it as the sole source of your comfort and your admiration from others, you are almost certainly going to be disappointed.

00:10:38 Speaker_00
how do you make that shift i mean i i agree with you rationally it's like yeah this isn't the source of you know this can't be the source of all of my happiness but i feel like it's very hard on a day-to-day basis to to really practice that and to really embrace that in your in your daily life like it's just money just sort of

00:10:59 Speaker_00
permeates around everything you do. So how do you kind of practice that and really employ that in your everyday life?

00:11:09 Speaker_03
You're absolutely right that it's easier said than done. And I think it is true that there are some people who are just much better naturally at it than others.

00:11:15 Speaker_03
If you're the kind of person who has had any kind of financial windfall or if you know somebody who has,

00:11:20 Speaker_03
I think a lot of those people would say like was were you or that person materially happier better off after the windfall the answer might be yes because money can make you happier but did it feed your soul to the extent that you thought it would i think that's the answer is is is probably no so i think once it's probably one of those things that you cannot actually.

00:11:41 Speaker_03
Work on until you've experienced yourself or watch somebody else experience it. And I've noticed this with myself having had a couple good years in my career that it has pushed me more towards my wife, my kids, my five good friends.

00:11:55 Speaker_03
It's pushed me more towards that because I have seen, yes, I've seen what money can do. More starkly, I've seen what it cannot do. And that has made me be like, oh, you know what's actually gonna make me happier? Spending time with my kids.

00:12:07 Speaker_03
And it's done that in a way that I did not understand five years ago when I was doing less well in my career. And I think I'm grateful for that. So I think that's a roundabout way to answer your question.

00:12:17 Speaker_03
But I think there's no way to actually put it into practice until you've experienced it firsthand. A lot of things with money are like that.

00:12:25 Speaker_00
We'll be right back. And if you're enjoying the show so far, hit follow and leave us a review on Prof G Markets. Stay with us.

00:12:42 Speaker_02
Why do so many of us get happiness wrong? And how can we start to get it right?

00:12:46 Speaker_01
I mean, I think we assume that happiness is about positive emotion all and all the time, right? Often very high arousal positive emotion, but that's not really what we're talking about.

00:12:55 Speaker_02
I'm Preet Bharara, and this week, Dr. Laurie Santos joins me on my podcast, Stay Tuned with Preet, to discuss the science behind happiness.

00:13:04 Speaker_02
We explore job crafting, the parenting paradox, the arrival fallacy, and why acts of kindness might be the simplest path to fulfillment. The episode is out now. Search and follow Stay Tuned with Preet wherever you get your podcasts.

00:13:28 Speaker_00
Speaking of windfalls, one thing that I wanted to touch on is that around this time of year, a lot of people, probably a lot of people listening to this podcast may be getting bonuses, end of year bonuses.

00:13:40 Speaker_00
Just from a psychological perspective, I've always found bonuses very interesting because it's like, On the one hand, it's sort of framed as a gift. I mean, it is bonus to the base.

00:13:52 Speaker_00
Many other people would say that, no, this is just like regular income that was sort of factored in from the beginning. As it is bonus season right now, I'd just love to get your perspective on how you think about bonuses.

00:14:06 Speaker_00
And what would be your advice to someone who's receiving a bonus and maybe doesn't know what to do with that money?

00:14:11 Speaker_03
You're right that most people do not think of it as a bonus by the definition of that word. They think of it as deferred compensation. They are owed that money. It is part of their compensation. They just happen to get all of it in December.

00:14:22 Speaker_03
I remember many years ago, I was speaking with a guy who was, at the time, I think he was the head of HR at Google. This was maybe 10 or 15 years ago. And he said the way that they think about it at Google is people

00:14:32 Speaker_03
live off their salary, play with their bonus, and retire on their stock. This is a rough framework for how to do it.

00:14:38 Speaker_03
I think that there's actually some wisdom in there that if you are counting on your bonus to live off of, by definition, it's not a bonus. That's just part of your deferred salary, but it's probably not.

00:14:47 Speaker_03
So many companies, bankers, people in finance realize this very starkly. When you have a year in 2008, your bonus falls 80% or whatever it might be, or maybe it was zero. If you are counting on that bonus to live off of, that's trouble.

00:15:00 Speaker_03
And so, I don't know if I have much advice other than everything in finance is about expectations. And if you expect your bonus, it's not a bonus, and you're almost certainly going to be disappointed someday.

00:15:11 Speaker_03
And so, any kind of non-standard windfall that I've had in my career, I've invested.

00:15:17 Speaker_03
And I think the reason that I invested is because I know that if I spend this, it's going to become part of my expectations that I also need to spend this next month, and the month after, and the month after, and it's not going to be there.

00:15:27 Speaker_03
And you can make a ton of money and be disappointed if you expect all of it. If the gap between your expectations and your circumstances breaks, it doesn't matter how much money you make, you're going to become disappointed.

00:15:38 Speaker_03
And I think it is the most fraught and the most troublesome when your bonus becomes your expectation.

00:15:42 Speaker_00
So how much of that money do you think, or just in terms of spending, I know you're writing a book about this, should be the money that we play with. And I love that term you said, bonuses of playing with.

00:15:56 Speaker_00
But you said, when you had a big windfall, you've invested it. How do you think about play money? What can we just spend on, to what extent should we be spending on frivolous things?

00:16:06 Speaker_03
I will paraphrase Scott Galloway, who I think has said this many times, where I'm paraphrasing him, I don't want to put words in his mouth, but he's like, once he hit his number, he spent money frivolously and gave a lot of money away.

00:16:18 Speaker_03
He said it much more eloquently than that. But I think what's important to that is that he waited until he hit his number.

00:16:23 Speaker_03
How I've always thought about it for my whole career is always having this calculation I have in my head of, if I get laid off, or if everything collapses from here, how long can I support this current lifestyle that I have if things get real nasty?

00:16:35 Speaker_03
That's always been really important to me. And for a lot of people, that answer is zero. That if they got laid off, next month they'd be in deep shit.

00:16:43 Speaker_03
And I think that's like bonuses and is a good time to reevaluate that because if you are in that situation then the answer is how much of your bonus should you play with the answer is probably none of it you should probably save it.

00:16:53 Speaker_03
That's always been really important to me because every single one of you me you everyone listening to this at some point in their career.

00:17:00 Speaker_03
will come across a big unexpected problem in their career, in their health, in their marriage, in the economy, whatever it might be, and your ability to endure that is going to be completely based off, your ability to endure it financially at least, is completely based off of your ability to defer your previous compensation.

00:17:15 Speaker_03
And so if you don't have any of that cushion and that calculation of if things get bad, how long can I last? If your answer to that question is not good, then the answer to what you should do with your bonus is probably save it.

00:17:28 Speaker_00
Absolutely. And also, it seems like building in that habit is a really important thing, like just the habit of knowing that every year when I get this amount of money, I'm just going to put it away and I'm going to put it in the stock market.

00:17:39 Speaker_03
It's also true that you can overdose on that mentality.

00:17:43 Speaker_03
And if you talk to a lot of financial advisors, they will tell you that one of the biggest problems that they face with clients is you have clients who have saved up a ton of money for retirement. They won. They won the game.

00:17:53 Speaker_03
They saved up millions of dollars for retirement, and now they're 70 years old and they cannot spend it.

00:17:57 Speaker_03
They can't even spend a very reasonable amount of it because saving money and watching their net worth go up became core to their identity, and they cannot break away from that. That's a problem too.

00:18:06 Speaker_03
And so if you can use money as a tool to give yourself independence and to live a great life and spend money on things that make you happy, on you and your family and friends, but never let it become part of your identity so much that it is controlling you more than you use it as a tool, that's the spot you want to get to.

00:18:21 Speaker_00
Yeah, we just did a big episode talking about spending money and we spent maybe an hour trying to figure out what it means to be a good spender. What is spending your money well mean to you?

00:18:32 Speaker_03
To me, it means that is always within my control, that I am not saying, God, I want to buy this, but I can't afford it. At that point, money is controlling me. Or if I say, this thing doesn't give me any joy, but I'm still going to buy it anyways.

00:18:45 Speaker_03
That is money controlling me too. The extent that I can be like money is a tool in my life toolbox that I use and I use it every day. And it's a powerful tool. It is a damn good tool, but it's nothing more than that. It's a tool. It does not control me.

00:19:00 Speaker_03
I am perfectly in control of it. If you are a car mechanic, the wrench in your toolbox does not control you. You use it. It's a very good tool. It helps you use it every day. But the wrench does not control the work that you do. You are controlling it.

00:19:13 Speaker_03
And I think if you can use money to that purpose, and I think it is actually extremely common that money controls the person, controls their identity, controls their desires. And I think there's actually a lot of very wealthy people

00:19:26 Speaker_03
who are like, why do I have this gigantic mansion? Why do I have four of them? They don't bring me any happiness. And in fact, they are, they are burdens. They are huge. Time sucks and costs sucks. And I don't even go to this fourth house that I have.

00:19:39 Speaker_03
It's because money was controlling you and you didn't know what to do with your money, but you're like, I guess I should go buy another house or another car or, or do this. It doesn't even bring me that much happiness.

00:19:48 Speaker_03
So the more that it can truly be like, you are in control of it. That's the only time you're getting actual independence from your money.

00:19:54 Speaker_00
Yeah, it was this very similar conversation we had with Ramit Sethi, where it feels like so much of the money conversation ultimately gets down to having a very strong understanding of what it is you actually want. And it's like,

00:20:09 Speaker_00
all of these different distractions.

00:20:10 Speaker_00
I think it's the same with the holidays, too, where you're getting all of these ads telling you, oh, you gotta buy this, you gotta buy this, like, just so many distractions trying to pull you in different directions, trying to, like, convince you, like, this is what you want.

00:20:24 Speaker_00
But I feel like what you're kind of describing there is, like, if you have a very solid, concrete understanding of what it is that you want in life, you're a lot more impenetrable in terms of, like, money controlling you.

00:20:37 Speaker_03
Yeah, I think one way to think about this is, it's a stupid thought exercise, but if you are on a deserted island, maybe with your friends and family, but nobody else, no one in society can see you.

00:20:49 Speaker_03
So there's no need to show off because nobody's watching you. What kind of life would you live? What kind of house would you live in? What kind of car would you drive? What kind of clothes would you wear?

00:20:58 Speaker_03
And I think most people in that situation would choose utility over status. If there's no upside to status because you know that nobody is watching you, you would be like, hey, like rather than a Ferrari, I'd probably want a pickup truck.

00:21:08 Speaker_03
That's like way more utility than status. And rather than just an absolute monster house, I would want a really nice house with a good view because that makes me happy. I don't care what you think about it, it makes me happy.

00:21:19 Speaker_03
And so viewing it as utility versus status through the lens of like, What if nobody was watching? Because the truth is almost nobody is watching. Nobody's paying attention to you as much as you are. Nobody is thinking about you as much as you are.

00:21:31 Speaker_03
They are busy thinking about themselves. So it's actually a great thought exercise because it's close to reality. Like, how would I live if nobody was watching is a great thought exercise because the truth is very few people are watching.

00:21:44 Speaker_00
We'll be right back. We're back with Prof G Markets. The other big ritual we all do over the holidays is New Year's resolutions. And I was just doing a little bit of research here.

00:22:14 Speaker_00
It turns out the number one most common New Year's resolution in America today is saving money. It's more popular than working out and eating healthier and losing weight. So I'd love to just pivot to New Year's resolutions. Do you think

00:22:29 Speaker_00
New Year's resolutions are effective, and do you think setting a goal of saving money is a good way to actually ultimately save money?

00:22:39 Speaker_03
It's hard to go against that. If someone has a resolution to become better financially, how do you say that's a bad thing? Of course, that's good.

00:22:46 Speaker_03
But there's the famous quote from Charlie Munger where he said, when teaching money to people, they either understand it instantly or never. I think there actually is like a grain of truth to that.

00:22:56 Speaker_03
It's kind of a harsh statement, but there's a grain of truth to it. And I say that because if you need January 1st to become better at finance, it's probably not going to last.

00:23:05 Speaker_03
And if you're like, look, it's December and I can spend frivolously, but come January 1st, I'm going to start saving. No, you're not. No, you're not. And so the people who have good financial habits don't need goals.

00:23:16 Speaker_03
They just practice those systems daily and it comes naturally to them and they're not forced. I think the more you have to force a good financial behavior, of course, the less durable it's going to be.

00:23:27 Speaker_03
And the people who do well are the people who are like, look, I've been a saver for years and years. And it just comes naturally to me. I enjoy doing it. I like the benefits that I get from saving.

00:23:36 Speaker_03
I like the independence and the cushion that I get from savings. And I don't need an artificial constraint like January 1st to get me to do it. So on one hand, like, great. If people are vowing to be better with their finances, of course, that's good.

00:23:50 Speaker_03
I also think that in virtually all of those circumstances, it's not going to be durable.

00:23:54 Speaker_00
Yeah, I mean, I feel like the research just shows that New Year's resolutions are just very ineffective. But what are some other more effective ways that we can establish some decent financial habits? I mean, say, you know,

00:24:10 Speaker_00
someone wants to make some sort of change or they want to improve in some aspect. Are there any strategies or tools that they could use to start establishing a better framework for 2025?

00:24:22 Speaker_03
This is not universal advice because some people really are in bad situations outside of their control.

00:24:27 Speaker_03
But for a lot of people, if you aspire to save more money in the new year, that's a symptom of a deeper cause, which is you're not saving enough money.

00:24:34 Speaker_03
And for a lot of people, that's because you're spending too much money and you're spending too much money because

00:24:39 Speaker_03
you have social aspirations that you can't afford, or you think that spending that money is going to make you happier, whatever it might be. So for a lot of people, they need to dig a couple layers down deeper and be like, why am I bad with money?

00:24:50 Speaker_03
I'm bad with money because I spend too much, and I spend too much because I think my friends will admire me more if I had nicer clothes, because I think that I would be happier if I had a bigger house, those kind of things.

00:24:59 Speaker_03
And it's not that a bigger house won't make you happy, but you need to dig a couple layers down to do it. I do think a big, nice house can make you happy,

00:25:08 Speaker_03
because it makes it easier to spend time with your friends and family, and that's what's actually making you happy. So for a lot of financial goals, you just need to dig a couple layers beneath the surface and be like, well, why do I want that?

00:25:19 Speaker_03
I want that because there's this hole. Well, why is there a hole? There's a hole because I feel like I don't have enough good friends. Okay, well, you need to focus on that and the money's not going to get you there. That's a different problem.

00:25:28 Speaker_00
Have you done this? I mean, just practically speaking, would you recommend someone kind of sits down? Instead of sitting down and writing down, okay, this year I'm going to do this, this, this.

00:25:39 Speaker_00
Is there a practical thing that we can do where you maybe take a look at the things in your life that are important to you or some sort of like concrete way to address what you just said.

00:25:51 Speaker_03
I think it sounds so trite, but I think it's so important. Take a good hard look about what is the days that you've actually been happier. And it's not for everybody, but I think for a lot of people, and this is true for me,

00:26:05 Speaker_03
that the happiest days you've had did not require a lot of money. I thought about this a couple of years ago when we took a really nice family vacation to Maui. And it was great. We didn't hold anything back. It was a wonderful vacation.

00:26:18 Speaker_03
And as I was sitting on the beach building sandcastles with my two little kids, I was like, this is a 10. This is a 10 out of 10. This is so great right now.

00:26:26 Speaker_03
But then a couple of weeks after we got home, I was like playing Legos with my kids on our living room floor. And I was like, look, if building sandcastles in Maui on a fancy resort in Maui is a 10 playing Legos at home with them.

00:26:40 Speaker_03
is like a nine or nine and a half. Like it was actually really close because what made me happy in Maui was not the fact that we spent a shitload of money and stayed at a nice resort. What made me happy was uninterrupted time with my kids.

00:26:51 Speaker_03
And I could actually do that at home without spending as much money. So actually, if you dig down to be like, what actually made me happy about that?

00:26:57 Speaker_03
Was it the fact that I spent a lot of money or just spending a lot of money allow me to do something different in my life that actually, if I'm honest about it, did not require spending a lot of money. It was uninterrupted time. So for a lot of people,

00:27:08 Speaker_03
Vacations do make them happier, but it's not because you need to fly across the world to be happier.

00:27:12 Speaker_03
It's because what vacations give you is uninterrupted time away from work, uninterrupted time with your friends and family, and that's what's making you happy. Understanding what the core of the motivation is is really important.

00:27:23 Speaker_00
What are some of the main things that you learned about spending? Because I know you're writing this spending book. What are some of the main learnings you've taken away from that research?

00:27:31 Speaker_03
I think what's so much in finance is true for investing too is that we teach it like it's math and it's analytical but it's core it's all social.

00:27:39 Speaker_03
And so the key to spending money is not understanding what purchases are going to make you happier or less happy. Because look, the book I'm writing is called The Art of Spending Money.

00:27:47 Speaker_03
It's not called The Science of Spending Money because everybody is different. You cannot make formulas here.

00:27:51 Speaker_00
By the way, now that you say that, I think we accidentally stole that title from one of our episode titles. So sorry. That's fine. Go for it. No worries.

00:28:00 Speaker_03
Yeah. But look, I think the core to understanding the spending that's going to make you happy is really digging deep and understanding things like envy and jealousy and social aspiration.

00:28:09 Speaker_03
And then those kind of topics it's not a science of there's a lot of times you get these really the statements like spend money on experiences not on things that's bad but i think it's very surface level where's the deeper into like envy and jealousy you really get at the core of why.

00:28:26 Speaker_03
some spending makes you much happier than than others. And so I think understanding the emotional side of it rather than the surface level, spending money on this is good and that is bad. It's almost never that black and white.

00:28:36 Speaker_03
But if you can get to the core of your own personal relationship with envy and jealousy and social admiration and social aspiration, you get much closer to a good spending habit.

00:28:46 Speaker_00
Did you learn things about yourself writing this book? Because it sounds like it's a very like personal and emotional experience.

00:28:53 Speaker_03
I feel like everything I've written in my entire career has been trying to understand my own relationship with money, whether that's investing, or I feel like all of it is just a diary entry that I phrased a little bit differently.

00:29:05 Speaker_03
So yeah, as I mentioned earlier, As I made a little bit more money in my career, more than I realized what money can do to make me happier, I realized very starkly what it cannot do.

00:29:18 Speaker_03
And that was actually a wonderful realization because it pushed me towards more meaningful pursuits.

00:29:24 Speaker_03
I'm happier with my life with a little bit more money than I had five years ago, but I think one of the main reasons I'm happier is because it made me realize that what's actually gonna make me happy is health, sleep, friendship, marriage kids.

00:29:37 Speaker_03
And so realizing that has been a big eye-opener for me personally.

00:29:41 Speaker_00
You mentioned jealousy and envy as like two big drivers of what's sort of like getting us to spend so much. And I would imagine that the conclusion I'm sure is like, you know, spending your life being jealous and envious is just not a very

00:29:57 Speaker_00
good life lived. But I would be curious to know if you have found that there is a way to deal with that at a personal level, because I'll just tell you from my experience, it's a little hard to not feel envious at times.

00:30:11 Speaker_00
And I wish I could just kind of be like, stop, it doesn't matter. That guy has a Ferrari, you don't. Well, who cares? He's probably not even happy or whatever it is. But it's like,

00:30:21 Speaker_00
trying to extinguish those emotions while I know at a rational level they're not adding anything to my life, I do find that it's kind of a hard thing to detach myself from. So I'd be curious to get your thoughts on how to deal with that.

00:30:36 Speaker_03
You're right, Ed, that it is difficult. And I'd be lying if I said that I'm susceptible to those, of course. Of course, everybody is. What I think they become easier to extinguish is when you really constantly remind yourself that I can see your car.

00:30:50 Speaker_03
I can see your house. I can see your clothes. I can see your jewelry. I cannot see your relationship with your spouse. I cannot see your relationship with your children. I cannot see your mental health. And that's what actually makes a difference.

00:31:01 Speaker_03
It was really interesting. I live in Seattle. So Bill and Melinda Gates were like our king and queen. And I mean, Bill Gates, people have their different views about him. But my view is always like, look,

00:31:11 Speaker_03
The guy worked ridiculously hard, became the richest man in the world, created the most important technology company of a generation, and then gave virtually all of it away towards curing malaria and stuff.

00:31:20 Speaker_03
I was like, look, he's not a perfect person. People have their individual views on him, but pretty damn good life, if you wanted to summarize it. And then three years ago or so, they get divorced.

00:31:28 Speaker_03
And you realize, you look behind the curtain, and you're like, look, there's a big one. But you look behind the curtain, and you're like, look, from the outside, this looked like literally a fairytale life.

00:31:38 Speaker_03
But then the curtain is pulled back and you're like, oh, no, actually, there's some shit going on there. There's some really bad things happening. But that was invisible to everybody during all that time.

00:31:48 Speaker_03
And the other thing I bring up a lot is the book The Snowball, which is Warren Buffett's biography, kind of the most elaborate biography on him, goes into extreme detail about things that people have known for a while, is that his personal, Warren Buffett's personal life has not been perfect by any means whatsoever.

00:32:03 Speaker_03
That's a polite way to put it. There have been times where it's been miserable. And that was really important for me as someone who has looked up to him and admired him for decades to realize like, look, I can see his investing returns.

00:32:16 Speaker_03
I can see his ranking on the Forbes 400 list. I cannot see his relationship with his children. But inside his head, things like that probably matter way more. than his ranking on the Forbes list.

00:32:28 Speaker_03
So what is visible tends to be the things that matter way less than things that are invisible. So the guy in the Ferrari, yes, he's got a cool car. Yes, I might be envious of that car.

00:32:39 Speaker_03
There are almost certainly things going on in his life that I cannot see, that if I had a full picture of his life, I'd be like, look, that car is pretty cool. But you're dealing with a lot of shit in your life that I am too.

00:32:51 Speaker_03
And therefore, would my life actually be materially better if I had a nicer car? Probably not, because other things that move the needle more would be the same.

00:32:58 Speaker_00
Do you have a ranking system of your own values in terms of which things are actually important to you? Because I feel like that's a big part of this, is defining what it is that you want,

00:33:11 Speaker_00
and what it is that is meaningful to you and how to spend well and use your money well, you need to understand, well, okay, at the top I've got, I don't know, my kids or my wife or my family. Do you prioritize it in any way?

00:33:28 Speaker_03
I don't know if I rank it or prioritize it, but you're right. The three things, I don't know what order this would be in, are my wife, my kids, and my personal health. Nothing else matters more than those three.

00:33:38 Speaker_03
And you can imagine a world where me or anybody is very wealthy, has an incredible career, But they're on their fifth divorce, their kids don't talk to them, and they weigh 300 pounds and sleep three hours a night. Is that success?

00:33:53 Speaker_03
Not in my book, in the slightest. And I would much rather make $100,000 a year and have a wife who loves me and kids who admire me and be in good health and have a good conscience than make a million dollars a year and have none of those things.

00:34:05 Speaker_03
And so you can say on one hand that money is very important and money can give you a better life and money is an incredible tool and it pales in comparison to other things in your life that are going to be more meaningful.

00:34:16 Speaker_00
Should we start to wrap up here do you have any advice for people. my age-ish, I'm 25, so I'm a young person, around money and around spending, around honestly anything going into 2025.

00:34:30 Speaker_00
If you had to advise young, hard-working professionals who want to make this a good year, do you have any advice for them?

00:34:39 Speaker_03
I don't know if this is advice, but it's a reflection on when I was 25. Since I've been 16 and earned my first dollar, I've been a very big saver. It came naturally to me. I was always saving well over half my paycheck no matter where I was.

00:34:50 Speaker_03
I think there are some times when I look back when I was 25 and didn't have kids and had a lot more freedom than I do now. that I'm grateful for the savings habits that I had, and I also wonder if I should have loosened up a little bit.

00:35:04 Speaker_03
A lot of that is because you, Ed, are almost certainly going to be making more money at age 40 than you are today, at age 25. Not you in particular, but other 25-year-olds might be working very hard to save $1,000.

00:35:18 Speaker_03
And when they're 40, a thousand dollars will come to them by snapping their fingers, you know?

00:35:22 Speaker_03
And so the life that you're giving up, both because you are young and you have fewer commitments at 25, you might be going way out of your way to save an amount of money that in 15 or 20 years will come very easy to you.

00:35:34 Speaker_03
And so I am grateful for the saving skills that I had at 25. And sometimes I do wonder if I should have loosened up a little bit because I didn't know what I know today, which is that

00:35:43 Speaker_03
Once you have kids and more responsibility and your career is more ingrained, you're not going to be able to have the kind of freedom to go out and do the kind of things that you could at 25.

00:35:50 Speaker_00
A final question for me. I'm wondering if you have any new year's resolutions for 2025, or at least maybe some goals of your own that you want to accomplish next year.

00:36:00 Speaker_03
I just finished my book. It'll come, it'll come out next year. So I.

00:36:04 Speaker_03
Writing a book is difficult and takes a lot of time, takes a lot of focus, and so now that that's behind me, I think I aim and aspire to sleep better, which is always a big problem of mine, to eat better, which is a problem of mine, and focus on some of those things that have absolutely nothing to do with money that are very easy to overlook when you are in the pursuit of finishing a big work project.

00:36:25 Speaker_00
Morgan Housel is a partner at the Collaborative Fund. He's the New York Times bestselling author of The Psychology of Money and Same as Ever. His books have sold more than 5 million copies and have been translated into more than 50 languages.

00:36:36 Speaker_00
Morgan, as we wrap up here, do you want to just give us like a summary of the art of spending money and what our listeners might learn from it?

00:36:43 Speaker_03
Yeah, I mean, I mentioned a little bit earlier that it is not called the science of spending money. It is called the art of spending money because it's a little bit different for everybody.

00:36:50 Speaker_03
So at no point in the book do I say this is how you should spend or this is how you should not spend. It's actually quite the opposite. It is a psychological look.

00:36:58 Speaker_03
at envy, jealousy, social aspiration, what actually makes people happy, contentment, those kind of topics in the typical storytelling fashion that I like to do.

00:37:07 Speaker_03
I like to find examples of how other people have done well or done wrong and try to tell their stories in a very quick, hopefully punchy way, moving on from chapter to chapter.

00:37:15 Speaker_00
Awesome. Thank you so much, Morgan. This was great. Thanks, Ed. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Silverio is our research lead.

00:37:28 Speaker_00
Jessica Lange is our research associate. Drew Burrows is our technical director. And Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from the Vox Media Podcast Network.

00:37:38 Speaker_00
If you like what you heard, give us a follow and join us on Monday for our Ask Me Anything episode on Prof G Markets.