The Best Financial Advice You’ll Ever Hear

Morgan Housel (00:00:02):

It's ignorance. It's not a lack of intelligence, it's ignorance.

 

Mel Robbins (00:00:08):

Today you are getting the best financial advice you'll ever hear from the man that changed the way that I think about money, the way that I make my, you're going to love this. 10 million copies sold. Unpacking the five biggest takeaways. Let's go.

 

Morgan Housel (00:00:20):

Morgan Housel. Morgan Housel. Morgan Housel. Morgan Housel. He's the author of The Psychology of Money, psychology of Money, psychology of Money, the Psychology of Money. We live in a society that it's very easy to overspend. A lot of people are willing to give you credit cards, give you debt it's very easy to have bad financial habits.

 

Mel Robbins (00:00:35):

Instagram has basically become the new QVC.

 

Morgan Housel (00:00:39):

If you're buying these things, particularly on credit, you have bad habits, you're getting yourself into debt. Every dollar of debt that you have is a piece of your future that somebody else owns. You can be one of the richest men in the world and have no independence.

 

Mel Robbins (00:00:53):

Morgan, what do you recommend we do every time we get a paycheck or get paid?

 

Morgan Housel (00:00:57):

I view savings as an expense, just as I would view rent or food or whatnot anytime in finance that you can automate it. So automating your bank and say every paycheck, you're going to move $50 to savings, whatever it might be, and making it automatic. What are the odds that at least one of these happens to you over the course of your life? Job loss, divorce, medical illness, wayward children living through a giant recession, whatever it might be, what are the odds that at least one of those will happen to you? And the answer is 100%. And I think a lot of people don't want to admit that. And when that happens, the savings that you have is going to be more valuable than anything that you've ever had.

 

Mel Robbins (00:01:30):

And for the person who's still thinking, I mean, what's the point? I can barely pay my bills. What do you want them to know?

 

Morgan Housel (00:01:37):

The first thing I want you to know is I feel you, I empathize with you. I don't judge you. But the second thing you should know is that it is you.

 

Mel Robbins (00:01:43):

Hey, it's friend Mel and welcome to the Mel Robbins Podcast. Hey, it's Mel. My team was showing me that 57% of you who watch here on YouTube are not subscribed yet. Could you do me a quick favor, hit subscribe. It's free. And that way you don't miss any of the episodes that I post here on YouTube. It also lets me know that you're enjoying the guests and you love the content that I'm bringing you because I want to make sure you don't miss anything. So thank you, thank you, thank you for hitting subscribe. Alright, you're ready? I bet you are. So let's dive in. Morgan Housel, welcome to the Mel Robbins Podcast.

 

Morgan Housel (00:02:26):

Thanks for having me, Mel. Happy to be here.

 

Mel Robbins (00:02:27):

I am so glad you're here. Thank you for jumping on a plane. I'm a huge fan. I got to give a shout out to my husband Christopher Robbins because he was the one who first introduced me to your work. The psychology of Money changed my life. I am so excited for your new blockbuster, the Art of Spending Money. And we're going to get into all the takeaways from your mega bestsellers. But I wanted to start by asking you, Morgan, if you could speak directly to the person who is here spending time together with us right now, and share with them what could be different about their life or the life of somebody that they care about, that they share this episode with. If they take everything to heart that you're about to share with us and teach us today and apply it to their life,

 

Morgan Housel (00:03:13):

I think it would be that your ability to feel wealthy, to feel rich, to be financially independent is absolutely in your control. It doesn't matter who you are, where you're from, how much money you make, what your job is, you can do it. And I think we've told ourselves for generations that in order to become rich, you have to have the right educational background, you have to have the right career, you have to come from the right family. And I don't think it's true. It's not about how smart you are, it's about how you think about money. It's about how you behave and behavior is in everybody's control.

 

Mel Robbins (00:03:44):

I don't know why I believe you, but I do.

 

Morgan Housel (00:03:46):

That's good.

 

Mel Robbins (00:03:47):

 Literally no matter how in debt you are, no matter how old art you can learn, and that's one of the big lessons I'm going to talk about that I've distilled from your work that has changed my life and my relationship with money and the way I think about money, the way I save it, the way I spend it, it doesn't matter the starting point at all. Lesson number one that I've learned from you is you can get good with money. You believe that.

 

Morgan Housel (00:04:12):

I've seen it time and time again, and there are so many examples of it. Lemme give you this example here. An ordinary person doesn't have a good education. Maybe they didn't even graduate high school, let's say, but they have good financial behavior. They can think long-term, they can keep their expectations in check their patient. They have those behavioral qualities that person can do very well. But the person who went to Harvard and got an MBA and went to work on Wall Street has the best education, the best connections, the best experience, that person can easily go broke. And they do not uncommon for that to happen. And that is not true in other fields. It is impossible to think of an ordinary person who didn't go to high school, didn't go to college performing open heart surgery better than a Harvard trained doctor. That's impossible.

 

(00:04:55):

That will never happen. But it does happen with money because it's not about what you know. You don't need to know the secret formulas. You don't need to have secret connections if you just get your behavior right and your thinking right, you can do well. Patients keeping your expectations in check, not comparing yourself to other people, using money as a tool to live a better life instead of a yardstick to measure yourself against others by, it's very simple stuff and it's all in your head. And I think it's 99% of what people need to know to do well with money is in your control.

 

Mel Robbins (00:05:26):

Well, I think one of the mistakes that I made for a very long time, particularly before I bumped into your work, is I believed that there was some secret formula, that there was some private club for rich people that it was about, you know, where you went to school. And what I love about your work is that you basically say, no, no, no, no. You're focusing on the wrong stuff. There are actual behaviors that we can learn that will help you get good with money.

 

Morgan Housel (00:05:54):

Exactly. And they're not that difficult either. They're in your control. It's not to say that they're easy, but they're simple. And so just a couple of the behaviors, if you have an ability to focus internally on your own goals rather than constantly comparing yourself against others, if you can save a little bit of your money, live even slightly below your means, invest that money and be patient. Just those things, that's a kindergarten list of topics that I just gave you. It's not a bunch of Greek formulas, it's not a bunch of Wall Street gibberish, it's not a bunch of acronyms. These are very simple things and that's it. Part of this too is redefining what I mean by financially successful. I'm not talking private islands and private jets, but for most people what they actually want, if you said what is your ultimate financial goal, they would say, I want to have a stable housing for myself and my family. I want to have a little bit of cushion to fall back onto if I were to get laid off or have a medical emergency, I want to be able to have a dignified retirement someday. I want to be able to spend time with my kids. Those are very good financial goals. And that level of wealth and success I think is within everybody's control.

 

Mel Robbins (00:07:01):

Well, you said you wanted to teach us how to use money as a tool to live a better life versus using it as a yardstick

 

Morgan Housel (00:07:10):

To measure yourself against others by

 

Mel Robbins (00:07:12):

Correct.

Morgan Housel (00:07:19):

Of course. And it's easier said than done. It is so natural for everybody to compare yourself against others. For me to measure my level of success by not saying what do I have, but by saying, what do I have relative to that guy? Not how comfortable is my house, but by saying, how big is my house relative to that person over there, to my neighbor, to my coworker, to my siblings? And one of the problems that makes it more difficult today than it's ever been is that it used to be for my parents' generation, my grandparents' generation, when they compared themselves to other people, it was relative to their neighbors or their coworkers. It was a pretty small group of people, maybe a couple people who you saw on TV or heard about on the radio. But now today, just everybody including myself, their comparison group is the most sophisticated algorithm on Instagram or TikTok.

 

(00:08:09):

And so no matter how well you're doing, no matter how great your house is, no matter how much money you're making, you turn on Instagram a hundred times a day like everybody else, you open it up and there is somebody out there who looks better, happier, more successful, more beautiful than you are. And so this topic I think has always been true. It's always been important. It is more important today than it's ever been, the idea of keeping your expectations in check because it's easier today than it's ever been to let your expectations just spiral out of control. I see this with my own kids. My 9-year-old son, when I was growing up, normal people drove old pickup trucks and rich people drove new pickup trucks. That was the definition in my head. If you had a new pickup truck like, oh, there's a rich person, my son who's nine, his definition of rich like a private jet and a private island because he watches Mr. Beast and it's like, oh, sit in the circle and you win a million bucks kind of thing. It's a completely different level of expectations than even I had 20 or 30 years ago. And so

 

Mel Robbins (00:09:07):

The hardest thing you're going to have is that even though you're one of the most compelling financial experts on the planet experts, your kids won't listen to you, Morgan. No, of course not. Of course not. No, I think that's really important place to start because you have already dropped so many takeaways and one of them was developing a skillset of looking inside yourself for what matters rather than looking outside yourself at Mr. Beast or what's on the social algorithm or what your neighbor is driving for that yardstick. But you did mention this sense that you're falling behind. And so many people today in particular are feeling like they're falling behind. I mean, we have a 26-year-old and a 24-year-old and they are already feeling as though, okay, I'm not making enough money and how am I ever going to buy a house and how am I going to pay for a life if the person listening has that sense that they're falling behind, particularly if you're older and you say, it's too late. I've already blown it. Morgan, what do you want them to hear right now?

 

Morgan Housel (00:10:14):

I think there's a couple of things. One is empathy. Because there are areas in life where particularly a lot of people in their twenties, thirties and forties are falling behind relative to previous generations, particularly something like home ownership where it was more attainable in previous generations than it has been particularly in the last couple of years. So empathy, this is not me saying, oh, you should just feel better. You should just be more grateful for what you have. You actually are doing fine. There is some empathy that has to be involved here.

 

Mel Robbins (00:10:39):

And also for people that thought they were going to be able to retire at a certain age and then the cost of living has gone up so much or medical bills are at a certain state that you're realizing, oh my God, I don't have enough money to be able to retire. And so it is important to basically go, these are very real feelings that people have right now. And so if we start with empathy, where do we go next, Morgan?

 

Morgan Housel (00:11:02):

Well, I think you start with empathy because if somebody feels like they're falling behind, that's their truth. But I think it's important to realize too that all happiness is just the gap between expectations and reality.

 

Mel Robbins (00:11:11):

Alright, say that again. All happiness is

 

Morgan Housel (00:11:13):

All Happiness is the gap between expectations and reality. You have the life you're living, you have the life you expect to live. In between there is where you can find some level of happiness and the wider that gap is the more miserable you're going to feel.

 

Mel Robbins (00:11:25):

Okay, so let's talk about somebody who is in a situation where they thought they would be further along with their savings and they're starting to panic because they're worried that their money's going to run out before they die or they're not going to be able to retire. How do you use that happiness definition right now if that's the reality?

 

Morgan Housel (00:11:44):

This is not true for everybody. This is not black and white. But there are a lot of these cases, I would say the majority of these cases where the reason that person has not been able to save as much as they thought is because their expectations for many years probably have been spiraling out of control and they were spending more money than they should have been because they were trying to chase who they wanted to be, even if it wasn't necessarily the level of lifestyle that they could afford. And so they were renting an apartment that was very nice because they had an expectation that that's where they should be. And they were comparing themselves to other people, even if it was out of their budget, they were traveling and dressing and eating out in a way because that's who they felt that they should be even if they couldn't necessarily afford it.

 

Mel Robbins (00:12:24):

Morgan, you're calling us out here, Morgan.

 

Morgan Housel (00:12:28):

I'm calling everybody out.

 

Mel Robbins (00:12:29):

Yes,

 

Morgan Housel (00:12:29):

I've been in this situation too. There's no shame in it. This is a very common thing that I think everyone will experience. And I think a lot of why I got interested in this topic. Every book that I've written started with looking in the mirror and being like, when have I been envious? When have my expectations spiraled out of control? No one is immune to this, so there's nothing to be ashamed of here.

 

Mel Robbins (00:12:51):

So there's a little bit of, because just in full disclosure, I entered my marriage with $10,000 of credit card debt that my husband did not know about and then proceeded to hide it from him. But the truth is, I just walked my credit card into stores and bought stuff I didn't need with money I didn't have. And then even if I look at what happened to my husband and I when I was 41 years old and his restaurants were going under and taking our house and our entire life savings with it, the truth is we did spend a lot of money we didn't have.

 

(00:13:23):

We did rack up that debt. And I remember several years later as we were starting to climb our way out, there was a level of relief when I could say to myself, both, I'm responsible for this mess. I can see how I made dumb decisions at the time because I had outsized expectations for how I thought things were going to go. And admitting it to myself in a weird way made me feel like, well, if I've got the power to make dumb decisions, then maybe if I wake up and recognize that I've got the power to make better decisions.

 

Morgan Housel (00:14:10):

Yes, that's absolutely true. What happens with expectations for a lot of people is, look, if I said I want to be a 10% better dad, that's a good goal. But what does that mean? What does that even mean? How do I track that? How do I measure? That's impossible. But if I said I'm living in a one bedroom apartment and I want a two bedroom apartment, that makes sense. If I said I want three new pairs of jeans, that's easy to wrap your head around. Money is so quantifiable, it's so easy to just say right now I'm making $20 an hour. I want to get to 25.

 

Mel Robbins (00:14:41):

Got it.

 

Morgan Housel (00:14:41):

I can measure it so quickly that it becomes this thing where we chase money because it's so easy to measure and we chase spending because it's so easy to contextualize. And so if you don't have a good idea of what a good life looks like. It's very easy to just say A good life is one in which I have more money because it's so much easier to understand than how can I become a better dad? How can I become a better parent, a better spouse, a better friend, a better worker? That's hard to wrap your head around. Will Smith had this great, I thought he was so astute and profound. He wrote this in his biography. He said when he was depressed and poor, he could tell himself, if only I had more money, all my problems would go away. And that gave him hope. I just need to go out and make more money and once I have more money, all of my depression, all of my doubts would go away. And then he became rich and he was still depressed. And then he said he lost hope because he couldn't say if only I had more money. And so we chase money because it's so easy to wrap our heads around and we chase it with the idea that it's the solution to all of our problems, even if it can solve some problems, but not the biggest ones. The hole that you're trying to fill, the psychological hole that you're trying to fill is probably not going to be filled with money.

 

Mel Robbins (00:15:50):

So the takeaway that I've got from what you just shared, which is much deeper, is that if you're sitting there listening and you're saying, I'm so behind, I'm so behind, I'm so behind. There's two things to do. First of all, you're in the right place because we're going to be learning from you exactly what to do, Morgan. And one of the first things you said is it's not too late because there are simple, you even said kindergarten level behavior changes that you can make that will help you be good with money. But the deeper thing to ask yourself is what is the hole that money is trying to fill for me?

 

Morgan Housel (00:16:25):

Yes.

 

Mel Robbins (00:16:25):

And are there things that I can do right now in terms of redefining what it means in my twenties or my sixties to be a good friend or to have a good life or to take better care of myself that don't involve hitting myself over the head about my financial life?

 

Morgan Housel (00:16:43):

Exactly. That's it.

 

Mel Robbins (00:16:44):

Got it. One of the things I want to talk about before we really start unpacking some of the tactics is that at this exact moment in time, it is a really challenging moment when it comes to money, finances, the job market. If you really identify with that sense that I'm actually scared, I'm scared I can't get a job, I'm scared about being able to make it. Where do you start, Morgan?

 

Morgan Housel (00:17:12):

I think if somebody says, I'm scared about my money, that's their truth. And you have to empathize with that. If someone were to say, it is worse now than it was for previous generations that I think you can push back on a little bit more and you can say

 

Mel Robbins (00:17:24):

How so?

 

Morgan Housel (00:17:25):

Because you could look back at how people lived in the 1950s and the 1960s and the 1970s and say, look, I empathize with how scared you are today. It is probably not true that we are worse off today than we were in previous generations. One thing that I've always thought is very interesting is if you ask most Americans, when was peak middle class prosperity? When were the glory days late, A of people will point to the 1950s is what they'll point at as peak middle class prosperity. But what's interesting is that if you looked at how the average middle class family lived in the 1950s and who we are aspiring to want to go back to, it is a quality of life that we would consider abject poverty today. I mean, the average middle class family house in the 1950s was about 800 square feet for two bedrooms for you and your four kids, no air conditioning, no washer and dryer, no, go on down the list of what it was like back then.

 

(00:18:15):

They were very happy, they were very content with it back then, but it's not a level of contentment that you would have today. And so a lot of what is with finance is that it's not necessarily that these things will make you happier if you were to have more money, it's not necessarily that you would be happier and that when most people think, oh, if only I had a bigger house, then I'd be happy. And when you imagine yourself taking a fancy vacation, you imagine how happy you would be. The emotion that you're actually thinking about is not happiness. It's contentment. If I imagine myself in Hawaii with my kids next year and I'm just envisioning that in my head, I can come up with this emotion inside and be like, oh, that would be great. I would be so happy with that. But actually the emotion that I'm envisioning is being content with that.

 

(00:18:59):

It's being in Hawaii and saying, this is enough. This is all I want. I don't want anything else. What actually happens to people if they do go to Hawaii with their kids is they're sitting on the beach and they say, if only I had stayed at the nicer hotel, if only we had stayed for a couple of days longer. If only we had eaten at the nicer restaurant last night, how come those people got a better room? How come they got better beach chairs? And so you're not actually content with the experience that you're having. And so when you realize that what you're actually chasing is contentment, you're not chasing more, you're chasing, I just want to be happy with what I have. The first step is realizing that a lot of your money woes and a lot of what you're feeling in terms of falling behind and a lot of your gap between what you have and what you want is solely a factor of your expectations.

 

Mel Robbins (00:19:44):

What if you don't think you're good with money though? Because for a long time I had a story in my head, I'm just not good with money. I'm bad with money. And let's say you're somebody who's gone through a divorce, you're financially wrecked, you gave all the power to your partner, now you're starting over. Can anyone get good with money for real?

 

Morgan Housel (00:20:03):

You can if you want to. And I think the people who say, I'm not good with money, don't want to be, they use that as their excuse to say,

 

Mel Robbins (00:20:11):

Come on now. Really?

 

Morgan Housel (00:20:12):

I think that they use that as their excuse. This is not a difficult thing to wrap your head around. This is very basic arithmetic. Spend less money than you make. Save the difference. Be patient. That's it. That's what we're talking about. You can explain this to a five-year-old. And so if you're saying I'm not good with money, you're making a choice to not get better. Nothing is easier than bad financial habits that you want to have. We live in a society that it's very easy to overspend. A lot of people are willing to give you credit cards, give you debt is very easy to have bad financial habits. And if you want those, that's an easy thing to do as soon as you actually want it. This is not a difficult thing for anybody.

 

Mel Robbins (00:20:51):

This conversation reminds me of something that I saw a musician say. I wish I could remember who it was, but I saw a musician saying, everybody loves it when I tell the story about how I had to live in my car for a year while I was just starting out. But nobody actually wants to live in their car for you.

 

Morgan Housel (00:21:07):

Nobody ever wants to do it

 

Mel Robbins (00:21:08):

While they're starting out.

 

Morgan Housel (00:21:09):

And so a lot of these things for people who are in debt, you or one of these people you can empathize with this I know is that yes, it's going to be a sacrifice to get out of this. This might require a downshift in lifestyle relative to what you are used to. And so for a lot of people who say, I'm not good with money, I think what they're actually saying is, I don't want to make the sacrifice. I'm unwilling to make the sacrifice to do it. And I think that is true. Now, what is true, the reason that you like the story about the guy living in the car is because I think people actually love stories or doing this themselves of suffering for a noble goal. I think this is true in so many aspects of humanity that it's not that people, humans are very willing to suffer and put in hard work and sweat if the goal is noble enough.

 

Mel Robbins (00:22:00):

I'm wondering if the noble goal for getting good with money is so that you'll be content with your life, not so that you'll make a lot of money.

 

Morgan Housel (00:22:08):

To me, the noble goal, what it's always been for myself, and I think this is true for the majority of people, is independence. I have no desire to be rich in the sense of a big giant house flashy cars. I have no desire to live that life. I want to be independent. I want to wake up every morning and say, I can do whatever I want today. And I'm using money as a tool to foster that. That's always been my goal. Now, that's very different from saying I want a bigger house or I want a house. It's, it's a goal of independence. And my grandmother-in-law who had no money was completely independent. She was beholden to no one else's influence but her own. And she lived an amazing life because of it. There are billionaires, there are deca billionaires out there who are completely beholden to the opinions and the influence of other people.

 

(00:22:56):

And so there are a lot of people for whom money is a financial asset, but it's a psychological liability. It completely controls their identity and who they are. And there's other people who actually don't have that much money. They have no psychological liability. They're in complete control over their personality and their goals. I've often used this. It's a very imperfect idea, but I think about if I was on a deserted island, maybe with just me and my family, nobody else could see how I was living. Nobody else could see my house, nobody else could see my car. It's completely invisible to everybody else. What kind of lifestyle would I live if nobody else was watching? What kind of lifestyle would I choose to live? And in that situation myself, and I think most people would instantly shift from status to utility. I have no interest in status if nobody can watch it. I have interest in utility.

 

(00:23:49):

And so the kind of house that I would want to live in, the kind of car that I would drive would instantly shift from what are other people impressed by towards what is actually going to foster a good life for myself and my family. And there are very different things. You can make a hundred million dollars a year and feel like you're falling behind if you're chasing other people. There's a great quote from the comedian Jimmy Carr, where he says, everybody is jealous of what you've got. Nobody is jealous of how you got it. And that's another one of these points. It's very easy for me or you to look at people who are more successful than we are and say, if we had that level of success, I would be happier. Because when we look at them, I can see your house, I can see your car, I can see your clothes.

 

(00:24:29):

I can see the material aspect of your success. I cannot see the hard work and the stress of how you got it and what it took and what it took to get there. So this is one of the problems with envy and financial envy that we have for other people is that you don't have a good sense of what their life was and what else is going on in their life outside of money. And this is why some of the studies that are so hard to wrap your head around, they're so hard to even believe that these are true. The studies that show that people who are wealthy are not necessarily as happy as you would think they would be.

 

Mel Robbins (00:24:59):

But here's the thing, when I hear that study, I am like, who cares? Because I just want to be wealthy. You know what I'm saying? Let 'em be unhappy. I'll be the one person who's wealthy, who's happy. I promise you Morgan.

 

Morgan Housel (00:25:08):

Or there's a lot of people who say, okay, that might be true, but let me experience it myself.

 

Mel Robbins (00:25:12):

Yes.

 

Morgan Housel (00:25:12):

They're like, let me get there. Because I think the pull is so profound in our heads that if only I had more money, these problems would go away. It seems like How could that not be true? And I think the people who have experienced it would say, no. It can be true just much less than you thought.

 

Mel Robbins (00:25:29):

As a financial expert with more than two decades of experience of research and writing and teaching this topic, what's the number one thing that keeps people broke?

 

Morgan Housel (00:25:41):

It's this overwhelming sense of keeping up with other people and this overwhelming sense of other people have more than I do and they're doing better than I am and they're happier than I am. And that treadmill has no end. There's no end to that treadmill where you're going to say, if only I had this much money, then I'd be content. If only I had a bigger house, then I'd be content. Once you're on the treadmill, it goes on forever. And if you're on it, it's almost impossible to feel like you're doing well with money. There's no amount of satiation of if you got a raise, then you'll be okay. If you bought these nicer clothes, then I would be happy. Then I would be content with it. You can be content with a pretty low level of material items. Of course, there's a basic need of food and shelter, whatnot above what you need. You move into the realm of what you want.

 

Mel Robbins (00:26:33):

Well, I think we're all there. Any one of us, if we're being honest with ourself, can walk into our closet and say, there are roughly 12 pieces of clothing that we wear all the time, and the rest of it were all things that I wanted in the moment or I thought I needed or I thought would impress somebody if I were going to a wedding. But you didn't actually need it.

 

Morgan Housel (00:26:50):

That is what keeps people broke. That's it. It's the simplest thing. I think people know it. They may not want to hear it, but they know it that it's your desire to keep up with other people.

 

Mel Robbins (00:27:00):

You're mega bestseller. The psychology of Money changed my life, changed the way I think about money, changed my mindset about money, and I want to read to you on page 41, this is the chapter, never Enough, and you write, the hardest financial skill is getting the goalpost to stop moving. If expectations rise with results, there is no logic in striving for more because you'll feel the same after putting in extra effort. It gets dangerous when the taste of having more money, more power, more prestige, increases ambition faster than satisfaction. In that case, one step forward pushes the goalpost, two steps ahead. You feel as if you're falling behind and the only way to catch up is to take greater and greater amounts of risk. Can you unpack that for us?

 

Morgan Housel (00:27:55):

What's funny when you read that, I remember writing those sentences. I remember where I was when I wrote those specific sentences where I was in my basement at a house in Virginia where I wrote this book, and I remember writing that and thinking I mentioned this earlier, but so much of what I write about is, and it's not that I've mastered these things and I'm just trying to show you how smart I am. It's like I wrote that because I've fallen for that trap all the time. It's true that the expectations game has no ending. There's always somebody who is getting richer faster than you. And if you are always just seeking validation, if your key to happiness is always, if only I had what that person has, you're never going to be satisfied with what you have. And the more dangerous thing I think is once you have that mindset that if only I had more, I would be happier, then it kind of grows exponentially. Because if you tell yourself, I'll be happy once I have $10,000 and then you get 10,000 and you're like, oh, maybe it's a hundred thousand. If I had a hundred thousand dollars, then I'd be happy. And then maybe you're fortunate enough to get that money

Mel Robbins (00:29:00):

And so I also think that there is this thing that happens, at least it happened for me, that as I started to feel like I wasn't under such crushing debt or I got some reward at work, a small bonus, whatever, I immediately uptick the amount of money or the expense of the thing that I was already buying,

 

Morgan Housel (00:29:20):

Right? And part of that I think is fine. I think people can spend money in a way that's going to make them happier. There are some people who would give you the advice of like, it's never going to make you happier. Just save everything that you can live like among. And that's not my message. I think you can spend money as well. I found ways of spending money in my own household that I'm like, oh, that was well worth it. But I also back the expectations thing. I grew up around Lake Tahoe, California,

 

(00:29:44):

And this was before tech Money where Tahoe and Truckee, the town that I lived in was not very wealthy. It is now because tech money came in, but back then it was very much a middle class town. And then I went to college in Los Angeles and I couldn't believe making that shift from middle class, mountain town to Beverly Hills kind of area, what it did to my definition of Rich. As I said earlier, it used to be that my definition of Rich was a new pickup truck. A new F-150 was that's a rich person. And I moved to LA and it would just exploded. No matter how successful you are, you pull up to a stoplight. And even if you're driving a Lamborghini, there's 17 others right there, and you never feel like you're getting enough and the conditions for happiness, I think were much greater in that middle class town.

 

(00:30:31):

Now, I did a pretty good job in LA in my own mind of still keeping my expectations in check. I think a lot of that was fear. I always had a fear that I was never going to make it, and so I was saving as much as I could just out of a sense of fear. But if I look at everybody else who was happier, it was the people who were living a modest life, enjoyed their family, had good time with their friends, focused on their health, and lived what was by comparison to others, a very modest life. And so I think about that now of what should your aspiration be? It's interesting with parents, if you ask parents, what do you want for your kids, particularly if their kids are young, most parents will say, I just want them to be happy when they're older. And then if you say, well, do you want them to be rich and successful? The parents will probably say, well, yeah, that would probably be great, but I just want them to be happy. And I think parents say that because there's a difference between the two. There's a difference between being rich and being happy. You've experienced it as an adult.

 

(00:31:32):

And so even if your kids are middle class doing modest by expectations, you know that they can be happy if they're keeping their expectations in check and they're focusing on the things that matter.

 

Mel Robbins (00:31:44):

Well, what I love that you keep coming back to is that your definition truly for the word happiness and the way we casually use it is contentment, which means you are in the present moment of your life and you are not seeking something more. You're able to be okay with where things are and where things aren't. How can somebody figure out why they're buying something? Because I think most of us mindlessly spend money because in the moment we want that thing or we're bored or stressed or whatever, most people don't actually know why they're spending money. So how can you Morgan start to become conscious of exactly why you're spending your money on things?

 

Morgan Housel (00:32:26):

I think with every dollar that you spend, it's always one of two buckets, and you should ask yourself, which bucket this falls into? Is buying this thing going to make me and my family happier, or am I buying it to impress other people, most of whom are strangers? It's always one of those two things. If I'm buying food, that's for me and my family clear as day. If I'm buying new clothes, a lot of that might be, or new car. A lot of that might be my attempt to impress strangers, most of whom are not paying any attention to you whatsoever. It's always one of those two things. Do you want to use money as a tool to live a better life or do you want to use money as a yardstick of status to measure yourself against others? By it's completely normal and natural to have that, but when you realize that that's the game that you're playing, that a lot of these aspirations that I have are to impress people who are not even paying attention to me and they're not paying attention to me because they're busy worrying about themselves. They're busy in their own heads saying, are people impressed with me? Are people looking at me? And that's a huge part of what's going on inside these people's heads is that their biggest aspiration in life is trying to impress strangers who are not even looking to begin with.

 

Mel Robbins (00:33:36):

Well that was a huge, that was one of the big lessons from your work for me, which is every dollar you spend falls in two buckets.

 

Morgan Housel (00:33:44):

One of those two things.

 

Mel Robbins (00:33:45):

You're either spending money to make other people think something about you or you're spending money in a way that makes you feel good about you. How do you know the difference between the pair of jeans that you're about to buy that you don't need, but they look really cool and you think you're going to look good in 'em, and you're also feeling bad about your body, so you hit spend? How do you dissect that? Because I think a lot of us don't understand exactly why we're buying things.

 

Morgan Housel (00:34:13):

I had this experience in college. I wrote about it in my first book, the Psychology of Money. I was a valet at a five star hotel in Los Angeles.

 

Mel Robbins (00:34:20):

I love this story.

 

Morgan Housel (00:34:21):

It was so much, it was such a cool job. There's never been a better job. I would go back and do that job again. It was so much fun.

 

Mel Robbins (00:34:26):

Why did you love that job so much?

 

Morgan Housel (00:34:27):

It was two things. I got to drive very fancy cars and in the mind of a 19-year-old boy parking a Ferrari, there's nothing better in the world. And two, I didn't really realize this explicitly at the time, but it was my first window into the psychology of very wealthy people. And that to me was absolutely, I learned so much during those years age 18 to 22. And one of the things I realized, and I remember when this hit me during a shift that if somebody came into the hotel driving a Ferrari or a Lamborghini, I would stop and look at the car and be impressed. But I would never look at the driver and say, that guy's so cool. What I would do is I would imagine myself as the driver, and I imagine that if I was driving, people would look at me and say, look at Morgan.

 

(00:35:12):

He's so cool. And one day I was like, do you see the irony? I don't care about the driver, but I want to be the driver because I think people will care about me. And it was this stark realization of like, nobody is thinking about you as much as you are. They're busy thinking about themselves. And even when people are impressed with your house or your car, what they're actually doing is saying, if I had Mel's house, if I had Morgan's car, then I would be happy. Then people would look at me. And so the idea that everyone is pretty selfish and self-centered in that sense, where they're not impressed with you, they might be impressed with your stuff because they're imagining having your stuff. Once I came to terms with that, my desire for I impressing other people, plunged didn't plunge to zero. I don't want to walk around in a burlap sack. I want to impress my coworkers and I want to look professional. I wanted back then when I was trying to find a girlfriend who became my wife, then it was very important. But the idea that no one's thinking about you as much as you are will collapse your aspirations in a wonderful way, and it will get you towards contentment much quicker than anything else.

 

Mel Robbins (00:36:21):

That is such a mind blowing realization because if we're all chasing all this stuff on the outside so that people look at the stuff that we have and then think we're amazing, you're proving in that simple example, that's not how the human brain works at all. They think the stuff is cool. They don't think you are.

 

Morgan Housel (00:36:41):

Everything. Being a competition for resources, it's rarely saying being impressed with another people, not never. And I think it's the same with your spouse, your partner. My wife does not care at all what kind of car I drive. She doesn't care about what new jeans I bought. What she cares about is am I a good dad? Am I a good spouse? Am I a good friend? Am I patient and understanding and helpful? That's it. And I think you can extend that analogy to anything else in your life, your friends, your coworkers, your relationship with your children. We spend so much time saying, if only I had nicer things, bigger things, better things, then that would be better. What matters, and people know intuitively that this matters, is that you are a good spouse, a good friend, a good parent. If you do want strangers to be impressed with you, they're not going to be impressed with your car. They will be impressed with how kind and caring and helpful you are to them. Now, that's easier said than done too because I think the overwhelming urge is, yeah, Morgan, I might believe what you're saying, but I still think this car would make me happy. It's such a powerful thing that we have that it's not something that you can just get over immediately.

Mel Robbins (00:37:56):

And another way to prove this point is that I guarantee you in your social circle, there is somebody that that has a huge house or an amazing car, and you would not want to be miserable near them, and they're miserable. And so just having all that stuff that you want doesn't make you like them. And so I think intellectually we know this, but if you have bad spending habits, how do you change them, Morgan?

 

Morgan Housel (00:38:22):

I think you first have to ask the question, why do you have bad spending habits? What hole are you trying to fill? What has buying these things done to your happiness in the past? And if the answer is nothing, which is probably the answer, trying to fill that hole first. Trying to answer that question first. So I think you have to start on the therapist's couch literally or figuratively, and take a look in the mirror and being like, what am I trying to achieve? Who do I want to become? Why do I want to be that? And why am I striving for these things? And for a lot of people, it's kind of like a binge spending that has got them into trouble where it's a stress relief, it's a relief valve.

 

(00:38:59):

And I think the valve, I think in your head, what you probably think it is, is if I bought these things, then my problems would go away. And the truth is that that might be true in the moment for spending. It's almost never true. It's very rarely true that your spending is going to fill any kind of emotional hole that you have. And the other thing is that if you're buying these things, particularly on credit, you have bad habits, you're getting yourself into debt. The new sweater that you bought might give you a day or two of happiness before it's either worn out or you don't care about it much anymore, but the paying it off is going to stick with you for years or months or even decades. And so that kind of thing of controlling your future and independence, every dollar of debt that you have from these poor spending habits is a piece of your future that somebody else owns.

 

(00:39:43):

It's a piece of your time that you owe to the bank, you owe to the lender. And the opposite of that is every dollar of savings that you have, the reverse of bad spending habits is a piece of your future that you own, that you have control over every single dollar. I viewed this since I was 17, that every dollar that I save, even if it was literally $1, was $1 of my future that I gained back. That's always how it felt to me. And that's always been my goal for saving. And my motivation for saving was I just want to be independent. I just want to wake up and do whatever I want. And I feel like my savings has bought that When I save money, it's not because I say, oh, I'm saving up to buy a new car, even though there can be that, and that could be great if I save a hundred dollars, I view that as purchasing a hundred dollars of independence. I'm spending that money, it's giving me independence today. And I think that can be an antidote to bad spending habits. A lot of people will say, why save? They don't really understand the purpose of saving money.

 

Mel Robbins (00:40:46):

Because if you don't have a lot of money,

 

Morgan Housel (00:40:48):

It feels useless.

 

Mel Robbins (00:40:48):

It seems weird. Why would I put $20 away from my paycheck? Because that's all I can afford to do right now.

 

Morgan Housel (00:40:55):

It's all that you can do. And so it feels like why even bother? I might as well just YOLO to spend all of it.

 

Mel Robbins (00:41:00):

Yes,

 

Morgan Housel (00:41:00):

I think once you shift the mentality from why save a hundred dollars to spend in the future, if I could just spend a hundred dollars right now, why am I delaying this gratification if I could have it immediately? If you view it like that, then I understand the mentality of Yolo spend, everything. Why even save? Doesn't matter. Let's just go into debt. Who cares? Once you view it as that a hundred dollars, you are purchasing today, a hundred dollars of independence, a hundred dollars of peace, a hundred dollars of sleeping better at night, then it completely shifts the game. And so if I save a hundred dollars, that's not delayed gratification that today in this moment today and tonight gives me a hundred dollars of happiness and more contentment today because I feel like I'm more independent than I was before I saved that money. And when you get back to, I think what most people want out of money,

 

Mel Robbins (00:41:46):

Oh my God, most people think that buying the nice car is the flex. You are saying

 

Morgan Housel (00:41:50):

Independence is the flex. There's a great quote from NAAB where he says, my only metric of success is how much time you have to kill. And now there's obviously a spectrum of that, but that's always been, I just want independence. And you can have independence at a pretty low level of financial income in assets. That was my grandmother-in-law. She had nothing and she had pure independence. You can be one of the richest men in the world and have no independence, completely beholden to the opinions and the desires of somebody else. And there are multi-billionaires who are way less independent than my grandmother-in-law. And that I think is an empowering message of your feeling of being independent is a feeling. It's a story that you've told yourself. There's no financial level at which, okay, once you have this much money, then you're set free. You can be a multi-billionaire and completely beholden to other people. You can have very little money and have pure financial independence in your head.

 

Mel Robbins (00:42:54):

Let's touch on investing because you have a really great take on this. You say that success in investing has more to do with long-term thinking and avoiding jealousy driven behavior. Why is that so powerful?

 

Morgan Housel (00:43:09):

All compound interest. So compound interest is an incredible thing of just you're growing your money over time and it grows at an increasingly higher level, and that's how you become.

 

Mel Robbins (00:43:17):

Can you explain that to the person listening who may not know what that is? I know a lot of people are going to share this episode to people in their lives who may have never ever listened to anybody when it comes to the psychology of money or how to change your behaviors around money. So what is compounding interest?

 

Morgan Housel (00:43:34):

So lemme explain it very simply. Great. We have a hundred dollars and we earn a 10% return on our money this year. So in one year we have $110 10% return. So you're earn $10 in profit this year. I'm also going to earn a 10% return next year. So now I earn 10% on $110. So my profit that year is 11. So my profit in year one is $10. My profit in year two is $11. My profit in year three might be 12 or $13. It's growing every year because you are earning gains on your gains. And if you extend that over a lifetime, over 30 or 40 or 50 years, the returns get absurd. And so the example of that I use in my book is Warren Buffett, grace investor of all time, it's worth over a hundred billion dollars. Nobody comes close to the level of investing success that he's achieved. 99% of his net worth was accumulated after his 60th birthday.

 

Mel Robbins (00:44:28):

Say that again.

 

Morgan Housel (00:44:29):

99% of his net was accumulated after his 60th birthday. Now, when he was 60, he was a billionaire, absurdly successful by any metric, but he became worth over a hundred billion dollars from age 60 to he's 94 today. And so the reason that's the case is that how compound interest works, it's not necessarily about what your returns are, it's about how long can you keep it going. And I think what is so empowering for ordinary people is that if you can be an average investor for an above average period of time, you can achieve absolutely incredible returns. And so a lot of people when investing, they look, well, I can't compete against Wall Street. I can't compete against all these smart hot shots and the hedge funds. They know more things. They can earn higher returns than I can. And so you become discouraged. The truth is that you don't need to do anything extraordinary with your returns.

 

(00:45:21):

You need to have extraordinary patience. So if you can be average for 30 years, you'll end up in the top 1% of investors. Hey, my parents really personified this. My parents are smart, educated people, but they have no financial experience, no financial education, no financial background, no connections, no information that anybody listening to this doesn't have. But they have had extraordinary patience and self-control and discipline. So they have been investing consistently every month for 40 years, never sold anything. Every month they invest a little bit of money, leave it alone for 40 years. If you look at their returns, they would literally be in the top of professional money managers without knowing anything, without having any extra information that you and I or anyone listen than can't have. Because they had the one skill that actually mattered, which was just patience and discipline. And that's all you need. That's the only thing that you need. And there's some very interesting stories of professional investors who I remember hearing this story about this professional investor who in any given year was never in the top half measured against his peers. In any given year, you look at this money manager and you're like, yeah, he did okay. Nothing extraordinary, but over 30 years, he was the best because that's all you need. It's not about what you earn this year, it's about how long can you keep it going for is all that matters.

 

Mel Robbins (00:46:48):

Having been $800,000 in debt and having liens on my house and clawing my way out of it, it's funny. And almost every interview I get asked, how did you get out of debt? I'm like 15 years of just clawing away at the bills and saving more than I spent. I mean, it was lowering expectations for my lifestyle. I mean, it was grueling.

Morgan Housel (00:47:36):

Yeah, but it's always the question is how much? And so I have that fear. I've never been buried in debt. I've always been a diligent saver, but I probably have, and if you put me on the psychologist's couch, you can maybe pull a string of why this might be. But I've always had kind of a worst case scenario, prepare for the worst mentality of everything that I've done in life. So I think that's why I've been a big saver. And so I have, if you looked at my entire net worth, I'm trying to, it's probably half, maybe a little bit more than half in the stock market. Most financial advisors, if you looked at somebody my age and my income would say, you can have way more than that. And I said, no, no, no, that's fine. That's plenty because I have this kind of worst case scenario thinking, and that's fine. That works for my personality. My financial goal in that aspect is maximizing for how well I sleep at night. I have no desire for my tombstone to say he was in the top 5% of investors, he outperformed the s and p five. I couldn't care less. I want to use money as a tool to help me sleep at night. That's the metric I'm going for.

 

(00:48:40):

And so during periods when the market has done very poorly, 2008, 2020 during COVID, it didn't really have that much impact on me because I was never a hundred percent in it. I always had plenty to fall back onto if things happen. So I have quite a bit of cash and bonds and boring basic savings. Same. And look, you can overdose on that you can overdo that. But I think the idea that most financial advisors would just say, well, look, if you want to maximize your investing returns, this is how much you should have in the stock market. That can be true for some people, but you really have to look in the mirror with you and maybe your spouse and your partner and say, well, what are we trying to maximize for? And I think there's no amount of investing return that can compensate for waking up at two in the morning and saying, oh shit, am I doing this right? Have I gone too far? There's no amount of return. At least for me, that would be worth it. For that I would much rather just use money as a tool to be happy and look at my savings and think, I have young kids right now

 

(00:49:43):

When I think about my savings, I think about if something terrible happened to our family, my career or health, whatever it might be, this savings is a cushion to prevent hardship on my children. Now everyone's in a different situation, but for me, at this phase of my life, that's what it is to me. And so it's not about like, oh, am I maximizing investing return? Am I using this as a tool to give myself and my kids and my wife a better life? That's what it's for me personally.

 

Mel Robbins (00:50:09):

Well, and that's what you said at the very beginning. You either use your money as a tool in order to live a good life and to be content. And you've now introduced this question, what am I maximizing for? Or you're using it as this yardstick so that you can measure up with people externally.

 

Morgan Housel (00:50:28):

Right.

 

Mel Robbins (00:50:29):

Those are the two things.

 

Morgan Housel (00:50:30):

And there's a graveyard of stories of people. Most of 'em were very wealthy people who the goal of their investments was beat other people.

 

Mel Robbins (00:50:38):

Yeah.

 

Morgan Housel (00:50:38):

Their goal was outperform the next guy and it completely backfired on their, they were chasing a goal that had no impact on their quality of life. And that's never made much sense to me. It's always just been like, how can I use this as a tool to be happier? And there are a lot of people I explained in psychology money how I invest my money, and I was maybe not surprised, but I think it's so interesting to me that it seems like their goal is making the spreadsheet happy. Their goal is so that you can come up with a formula that says you're maximizing return. And my goal has always been use it as a tool to live a better life.

 

Mel Robbins (00:51:12):

What is the shorthand version? I know you do write about it in your book for how you do invest your money.

 

Morgan Housel (00:51:17):

So I invest in what are called index funds, which are very boring, very basic. You basically own every stock in the universe. Pick a public company. I own it in this fund, very low cost. And I invest consistently every month, every quarter. And I've never sold anything in any significant amounts, and I hope to do that forever. I hope this is money that I pass along to my kids or charity or whatever it might be. And that's it. It's as boring and basic as that. And if you look at my entire net worth, it's a house cash index funds and chairs of a company called Markel where I'm on the board of directors and that's it. It's as simple and boring as basic as you can get. The more complicated your investments are, the lower the odds that you can actually stick with them for 10 or 20 or 30 years. And getting back to compound interest, all that matters is can you stick with this? Can you keep this going for years or decades? And I think the simpler it is, the fewer levers you have to pull in your portfolio, the higher the odds that you're going to be able to stick with it for a long period of time.

 

Mel Robbins (00:52:18):

You keep saying the word patience.

 

Morgan Housel (00:52:20):

Yeah,

 

Mel Robbins (00:52:21):

And I think it's both patience with the things that you're doing, patience with yourself as your life is not meeting your expectations. Patience with your emotions when you feel like maybe if you bought that new thing, those new set of golf clubs that make you feel a little less depressed. Patience, patience, patience for somebody who's never invested, they don't look at their money, they feel intimidated by this. What would you say to them, Morgan?

 

Morgan Housel (00:52:52):

One of the most important things about investing in the stock market is that we know historically you can do very well over time. You can make a lot of money in the stock market over time like anything else in life. There is a cost of that.

 

(00:53:03):

There is a fee for doing that. And when I say fees, I'm not talking about fees to your advisor, fees to your broker. The fee for doing well in investing is putting up with a constant never ending chain of volatility and uncertainty. That's what you're getting paid for. That's the cost of admission, is putting up with the fact that I am very confident that the stock market will do well over the next 20 years, but I have no idea when that return's going to come. We might get all of that return next year and then have 19 years of stagnation. We might get 19 years of stagnation and then it all comes in year 20. We have no idea when it's going to come and enduring that and putting up with that is the cost of admission. There are other investments out there that have no volatility, a savings account in the bank. You have no volatility. Very predictable what your returns are going to be, your returns are going to be low. Those are the returns that you deserve. And so if you're willing to put up with volatility and uncertainty and not knowing that's the cost of admission. And historically that has been a cost of admission, that is worth paying that if you can put up with that over time, 10, 20 years, you can do extraordinarily well.

 

Mel Robbins (00:54:08):

Morgan, you make a huge distinction between being rich and wealthy. Can you walk us through the difference and why it matters?

 

Morgan Housel (00:54:15):

I think if you are rich, that by my definition, that means that you have the money in the bank. You can buy the things that you want. You can make your mortgage payment, you can make your car payment, you can pay for your dinners out, whatever you want to do that's rich. Wealthy is independent. It's money in the bank that you're not spending. It's things that you have not purchased. It's savings, it's investments that's sitting there, not being spent, but it's giving you independence. It's giving you financial independence and psychological independence where you can live your life in your way without chasing what other people, what you think other people want out of you. And there are some pretty astounding examples of the two sides of the spectrum. I use this in the book, the artist spending money, the Vanderbilt family was the richest family that the world had ever seen back in the 1800's.

 

(00:55:06):

Cornelius, Vanderbilt, if you adjust it for inflation, he had something like half a trillion dollars was his net worth. And some of the other very wealthy families, the Carnegies, the Rockefellers, did a pretty good job at giving most of their money away to charity. The Vanderbilts basically said, we're going to give it all to our kids and our grandkids and our great-grandkids, and their job is to live the biggest, most ostentatious life that you can possibly imagine. And the biographies that came from there of those Vanderbilt heirs, which show I think without exception, that every single one of them was miserable.

 

(00:55:41):

Every single, if you were a Vanderbilt heir in the early 19 hundreds, the day that you were born, you got half a billion dollars trust fund. And the only thing that was ever expected out of you in life was that you spend as big as you possibly can. And every single one of them was miserable. There's a book called Fortune's Children written by one of the heirs. His name is Arthur Vanderbilt, and he talks about the history of his ancestors. And it is one of the saddest books I've ever read because these people are people who maybe you and I and people listening would look at and say, you're so lucky. I can't believe how lucky you got. You just got a billion dollars a day you were born and you read it and you say, I would never want that life because they were very rich, they were the richest people in the world, but they had no independence.

 

(00:56:32):

Everything was dictated about even including who they were allowed to marry was dictated by the social circle of their family. And to me, the most interesting part of the Vanderbilt family is that by this point today, virtually all the money is gone. There are a couple of Vanderbilt heirs that have some money, but the first Vanderbilt heir who got no inheritance, no trust fund was Anderson Cooper, the c Nnn Post, who I'm sure most people are familiar with. His mother, Gloria Vanderbilt was kind of the last person to get a big trust fund. And Anderson Cooper has talked about this, that being the first Vanderbilt heir who didn't get much money was probably a good thing. He was the first person in his family in 150 years who was told, you have to go figure it out for yourself. You have to build your own career, make your own money, figure out your own way. And he's talked about this. He's probably the happiest person in his career, not that he's had a perfect life, but he's probably one of the happiest. And I think that is, again, if you look at the richest people, because the Vanderbilts were the richest people in the world and they had no wealth by my definition, they had no independence, they had no ability to live their own life. I think that's the difference between rich and wealthy.

 

Mel Robbins (00:57:42):

It all comes back to what are you actually using money for? And the clearer you are about the drivers for why you're doing it, it changes what and how you're doing it.

 

Morgan Housel (00:57:53):

Yes. And it's so clear in my head, would you rather earn $70,000 a year and your kids admire you? You have a great marriage, you have barbecues with your friends and you sit and laugh and you're in good health, and would you rather have that life or make a million dollars a year and you're on your fifth divorce, your kids don't talk to you anymore. You're in terrible health. You're being sued by all of your business partners. When you frame it like that, it's the most obvious thing in the world. Would you rather have a good life and less money or more money in a worse life? If you frame it like that, it's obvious. But still, even if you agree with that framing, it is so normal and natural to say, okay, but I'd still rather make a million dollars a year. The pull is still always there.

 

Mel Robbins (00:58:38):

Well, because you think you're going to be the exception.

 

Morgan Housel (00:58:40):

Everybody does.

 

Mel Robbins (00:58:41):

Everybody does, right? So if you're in your twenties and you're just getting started, you haven't been a big saver, you're just got your first job out of college. Morgan, what is your advice in terms of getting good with money?

 

Morgan Housel (00:58:56):

A really simple tool that I came to this by realizing that most peoples who are making financial mistakes and have a problem with money, it's not because of the lack of intelligence. It's ignorance. And for most people, they actually have no idea how much money they're making or spending. And if you ask them, how much money do you make per month and how much money do you spend per month overall, most people in that situation either couldn't tell or they would give you an answer that's false. And I think the very basic such boring advice that goes the longest is

(01:00:02):

And I think just having that awareness of what's going in and what's going out, it's the most basic advice. But for people who are new and starting out, nothing goes further than that. It's not a lack of intelligence, it's ignorance. You just have to become aware of what you're spending and how much is coming in and how much is going out. That's the very first thing.

 

Mel Robbins (01:00:18):

And what's the next thing?

 

Morgan Housel (01:00:19):

The other thing is financial independence exists on a spectrum. It's not black and white. So most people would say, we talked about this earlier, why save $20? That doesn't seem like it's going to make any difference whatsoever. So I'm not even going to save. Every dollar that you save is a piece of your future that you own. Every dollar that you save is a little bit marginally more comfort that you're going to have if you get laid off, if you have a medical emergency, if your car breaks down, every single dollar is getting you to that place. So if you view independence as black and white, either on filthy rich or there's no reason to do it, then I understand why you would say, why even save when you view it as every dollar that I save is a piece of my future that I control. It's a night of sleep. In the future that's going to be a little bit better. I think the desire to save becomes even more and you don't feel like it's idle money, you're saving money and it's just sitting there not being used. It can give you pleasure today right now. And I think some of the best financial decisions I've ever made was what I didn't do. I almost bought a house in my early twenties that I wouldn't have been able to afford, that would've locked me down to a region of the country that I didn't want to stay in that would've done all kinds of things that in hindsight would've been terrible. And the freedom, the independence that I had by renting earlier in my life of getting up and going, moving to where the jobs were. I look back at that in hindsight as being an absolutely wonderful thing.

 

Mel Robbins (01:01:43):

Well, as I listened to you, what I'm realizing, it's also a matter of expectations. If you expected to be able to afford a house in your late twenties or early thirties, then of course you're going to think you failed. But if you shift your expectations and say to yourself, if I'm patient markets go up and down, inflation goes up and down, mortgage rates go up and down. If I am patient, I will be able to figure this out. And when the timing is right and when I can afford it, I will find the right house for me.

 

(01:02:15):

And that's the way that you manage the stress that you feel now because it's your expectation based on what society's telling you or your parents are telling you that is making you miserable around the topic. One of the other big lessons of your work is the importance of mastering saving money. And I had always made the mistake of thinking about making more money. I got to make more money in order to have more money. And you really switched my thinking to focus on saving. Can you talk about why saving is so important versus the obsession with making more?

 

Morgan Housel (01:02:51):

Well, so much is just what you need to be happy and content. And for someone, I've always felt like my level of savings since I don't need that much to be happy. My wife and I live a good life, but not a very materially flashy life. So we don't need that much to kind of check the boxes in our life. And so I feel like that can be a super superpower for your savings. If you need $10,000 to be happy, but I only need a thousand dollars to be happy, I'm getting way more out of that savings than you might. And so once you realize that that gap between expectations and reality is super supercharging your savings, then it has a totally different feel. And so this was especially true when I was younger where saving a hundred dollars or a thousand dollars, that made an extraordinary difference in my life.

 

(01:03:43):

I think the wealthiest I've ever felt was when I had $5,000 in the bank and I remember just feeling like it was such an unfathomable amount of money at that phase in my life. And I look back at it now where that's a less meaningful amount of money to me now than it was back then. But I look back at it now, I'm like, yeah, but I thought it was more extraordinary back then. And isn't that kind of sad? That made me feel so rich? I remember when I had $5,000 just being like, I can't even fathom how much this is. And now I don't get that feeling with that kind of money. And isn't that kind of sad? That's what happens when your expectations kind of spiral up. So the idea that the power of your savings is completely dependent on the expectations of what you have and the lifestyle that you want to live, I think is a pretty powerful idea.

 

Mel Robbins (01:04:29):

How do you switch the focus though from this obsession of making more to understanding the importance of saving?

 

Morgan Housel (01:04:37):

I've always viewed it as, again, back to independence. And if you are earning a high salary, but you need that money to pay your bills this year, you have no independence whatsoever. But if you have lower expectations and a lower level of life, still a good life, not a completely frugal life, a good life and your savings can cover some portion of that, that's going to give you a better sense of contentment in there. And so look, I want to earn more money. I want to earn more money this year than I did last year. I want to earn more money next year. I have that as well. I think ambition is a wonderful thing, but I also have a level of savings that would tell me that if I did not earn more money next year, even if my income collapsed next year, I'd be okay. And particularly at this phase of my life with kids, nothing matters more than me to that. If my career collapsed next year, we'd still have our house. We'd still have this level of savings that I've been saving for for almost 25 years, having the savings built up to which we're going to be okay because income can be much more fickle than savings is most people over the course of their life. What are the odds that you will get laid off at some point in your life? Very high

 

Mel Robbins (01:05:44):

Guaranteed,

 

Morgan Housel (01:05:46):

Almost a hundred percent that at some point in your life your income's going to fall to zero. It might be for a week, it might be for a year. It might be who knows how long it's going to last, but it will happen to you. So income is much more fickle than savings. And when that happens to you and it will or maybe it already has, the savings that you've built up in the previous years is going to be the most valuable thing that you've ever imagined.

 

Mel Robbins (01:06:06):

Morgan, what do you recommend we do every time we get a paycheck or get paid?

 

Morgan Housel (01:06:11):

I view savings as an expense, just as I would view rent or food and whatnot. Now, obviously it is more subjective. You don't have to save in the sense that you have to buy food, but once you view savings as a nice to have, it's almost unavoidable that you're, you're going to avoid doing it once you view it as, I don't need to do this. You're going to view it as I shouldn't do it then.

 

Mel Robbins (01:06:36):

So how do I think about it? If I think about it as an expense,

 

Morgan Housel (01:06:39):

I think about savings as the most valuable portion of my financial life. I think the idea that life is more fragile than we want to admit, careers are more fragile than we want to admit. The economy and geopolitics are more fragile than we want to admit is why you should save. If we all lived in a world where we knew exactly what our income and expenses would be in the future, this would all be very easy. But don't. It's a constant chain of unknowns and surprises in your personal life and throughout the broader country, the broader world. And that's why savings is mandatory. And just like I think everyone has a desire, it has an obligation to manage their health, you have to manage your health. You can't just put it off. It's going to affect you whether you like it or not. I think money falls in that bucket or two as well. Even if you don't have any desire to learn about money or finances, you have an obligation to learn about it and to respect it because it's going to impact your life whether you like it or not.

 

Mel Robbins (01:07:36):

Here's one way that I have started treating savings like an expense. Use the 10% rule no matter what you're getting paid, save 10%.