Morgan Housel’s book, The Psychology of Money, was a welcome departure from money books that simply advised you on how to grow wealth. The bestselling book instead addresses how we think about money and how it affects our lives.
In his forthcoming book, The Art of Spending Money, Housel again uses narrative storytelling to offer tangible lessons on how the way we spend money can focus on enriching our lives instead of our bank accounts.
We spoke with Housel about how the way we spend our money directly impacts our happiness and how to spend for a richer life.
This interview has been edited for length and clarity.
SUCCESS: In the introduction of the book, you differentiate between being good at making money and the ability to turn it into a meaningful, better life. What do you mean by that?
Morgan Housel: One of the things that I wrote about in the book is that some people who I’ve met—and I’m sure you’ve met—and other people who don’t make a lot of money, they might make very little money, and they’re totally happy. They’re content. They love going for walks and playing Legos with their kids and gardening and watching the sunset.
And then some very, very monstrously wealthy people who I’ve met who are, by every metric, less happy. I think that’s just biology that the majority of very wealthy people have to work 100 hours a week for their entire life. They cannot stop. They cannot retire. It’s completely antithetical to how their brain works.
But this isn’t to say that money can’t make you happier. It absolutely can, but I think we massively overestimate in society the impact that it’s going to have. The people who use money wisely are the ones who use it as a tool to leverage things that will actually make them happier, like friends and family and health.
I use the idea in the book: Can a big house make you happier? And the answer is yes, if that house makes it easier for you to spend time with friends and family, and the friends and family in that situation are actually what’s making you happier. So it’s an indirect path toward happiness.
S: You mentioned the role of subjectivity in how we assess the worth of things. For example, drinking a glass of water when you’re thirsty is going to be better than a cocktail from a Michelin-starred restaurant. Tell me about that.
MH: If you’re eating Michelin-starred food three meals a day, compare that to going on a long hike. Let’s say you hike 10 miles, you’re done with the hike and you’re famished. You’re so hungry, and then you go to Taco Bell. That Taco Bell burrito tastes better than the Michelin-starred meal.
S: You gave the example of a couple who was being evicted and their comment that they did not have the luxury of thinking about the future. Tell me how readers can use empathy to spend their own money with purpose.
MH: In The Psychology of Money, the phrase that I used was “no one’s crazy.” People make very bad decisions. People make regrettable decisions; people make uninformed decisions. But every financial decision that people make makes sense to them in that given moment.
It’s very easy for me and you, and a lot of other people, to look at someone who is being evicted because they couldn’t save or spent all their money on lottery tickets or blew their money gambling, like whatever it might be, and say, “You idiot. What were you thinking? How could you have possibly done that?”
And I think the vast majority of the time, you might have done the same thing or I might have done the same thing if we were in their shoes. If you’re paycheck to paycheck you might believe anything if that gives you a little bit of hope.
S: You talk about how saving for the future instead of spending money creates independence. Give me a brief summary of the levels of independence and why small saving does actually matter.
MH: I think independence is the greatest financial goal. The greatest use of money is to achieve independence. And so many people, if you tell them that, will say, “I’m not independent. Financial independence means I don’t have to work anymore.”
If you think of independence as black and white, like either you have to work or you don’t, then it seems completely out of reach for 99% of people. But all independence is on a spectrum, and every dollar that you save is a piece of your future that you now own.
Let’s just say you’re able to save $1,000, and then you get laid off from your job. If having that $1,000 in savings means you can spend one week looking for a new job instead of having to take the first job that you can find tomorrow because you have no savings, that’s a level of independence that you had that you didn’t have before.
S: You talk about how spending has an impact on kids. As a father, what are the top three things you would like to leave for your kids?
Like any parent, I just want them to be happy. It doesn’t matter to me if they’re successful. I just want them to be happy. And I would say, try to use money as a tool to make you happier, rather than as a yardstick to measure your social progress.
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