The Savings Expert: “Do Not Buy A House!” Do THIS Instead! - Morgan Housel

In a conversation with Morgan Housel, author of "The Psychology of Money," themes of wealth-building, financial independence, and the psychology behind financial decisions are explored. Housel emphasizes the importance of understanding one's relationship with money, noting that true wealth is about having unspent money that offers independence and autonomy. He shares insights from stories like that of Ronald Reed, a janitor who amassed an $8 million fortune, highlighting the power of endurance and simple investing. Housel also discusses the pitfalls of rising expectations and the importance of defining personal success beyond material wealth.

• The world is divided between those who don't know how to start making money and those who don't know when to stop.
• Building wealth is not about having a high income but about understanding the opportunities available to you and making informed financial decisions.
• The book "The Psychology of Money" aims to help readers introspect about their relationship with money and what they want from life.

"The world is split between people who don't know how to start making money and people who don't know when to stop making money."

• Highlights the dual challenges in personal finance: initiating wealth-building and knowing when to stop accumulating wealth.

"If your expectations rise faster than your income, you're never going to be happy with your money."

• Emphasizes the importance of managing expectations to achieve financial happiness.

• Morgan Housel writes for himself, addressing his own interests and problems, hoping it resonates with others.
• Traditional writing often panders to an audience, but Housel prefers authenticity and personal relevance.

"I write what I'm interested in and I write it in a way that I think is interesting and I try to solve my own problems."

• Describes Housel's writing philosophy, which focuses on personal interest rather than pandering to a specific audience.

• Wealth is defined as money not spent, offering independence and autonomy.
• Independence allows individuals to live life on their terms, free from financial constraints.

"Wealth is money that you did not spend and maybe you will not spend. So wealth is hidden."

• Clarifies the concept of wealth as unspent money that provides independence and freedom.

"I never wanted to become rich; I just wanted to become independent."

• Highlights the goal of financial independence over mere accumulation of wealth.

• The frugality and financial decisions of Housel's parents influenced his understanding of money.
• Living below one's means can lead to financial independence and happiness.

"The frugality that my parents had to have when they were poor stuck with them even after they started making a little bit of money."

• Illustrates how frugality can lead to long-term financial stability and independence.

"The moment he woke up and said, 'I want to be done,' he was done."

• Shows the power of financial independence in allowing choices like early retirement.

• Autonomy and control over one's life are crucial for happiness and health.
• Lack of autonomy can lead to stress and health issues, while financial independence provides freedom.

"One of the things that makes people really happy in life is having control over what they're doing."

• Emphasizes the connection between autonomy, happiness, and health.

"He never lets anything bother him; he spends plenty of time outside, and he leaves the table when he's still a little bit hungry."

• Describes John D. Rockefeller's approach to stress management and longevity.

• Keeping expectations low can lead to greater happiness.
• Comparison and rising expectations can diminish happiness, even with increased wealth.

"The first rule of happiness is low expectations."

• Suggests that managing expectations is key to achieving happiness.

"My expectations were reduced to zero when I was 21, and everything else since then has been a bonus."

• Stephen Hawking's perspective on happiness despite severe physical limitations.

• Societal pressures often drive people to seek validation through material possessions.
• True happiness and success come from personal fulfillment and meaningful relationships.

"Nobody cares about your stuff as much as you do."

• Highlights the futility of seeking validation through material wealth.

"The definition of success is when the people who you want to love you do love you."

• Warren Buffett's view on success being about meaningful relationships rather than wealth.

• Money can buy happiness to an extent, but it's not the sole determinant.
• The key to happiness is balancing ambition with contentment and managing expectations.

"If your expectations rise faster than your income, you're never going to be happy with your money."

• Reiterates the importance of aligning expectations with financial reality.

"The hardest financial skill is getting the goalpost to stop moving."

• Discusses the challenge of finding contentment and satisfaction with financial achievements.

• Individuals in lower socioeconomic positions often resort to gambling and other risky behaviors due to a lack of perceived opportunities and a sense of unfairness in the world.
• Hope, even in minuscule amounts, can provide a necessary spark of joy or motivation for those facing daily struggles.
• The connection between poverty and health is influenced by the need for small pleasures, such as cigarettes or alcohol, which can be the only sources of joy in a challenging day.

"If you feel the world is unfair, then it's very natural to think, 'I might as well cheat too.'"

• This quote highlights the mindset that can develop when individuals perceive systemic unfairness, leading to justifications for risky or unethical behavior.

"If the only thing that day that gives you a little bit of pleasure is a cigarette and some alcohol, I get it."

• This statement underscores the link between poverty and health, where small pleasures become vital coping mechanisms.

• Achieving financial independence is about gaining control over one's future, not through material possessions but through savings.
• There are three types of people regarding savings: those who save, those who think they can't save, and those who think they don't need to save.
• The mindset shift towards viewing savings as future control can alleviate stress and lead to independence.

"The ticket out is Independence... and the only thing that's going to give you Independence is having enough money saved up."

• This quote emphasizes the importance of savings as a means to achieve independence and reduce stress.

"There are three types of people: those who save, those who don't think they can save, and those who don't think they need to save."

• This categorization highlights different attitudes towards saving and the impact of these mindsets on financial stability.

• Financial behavior may be influenced by nature, as some individuals naturally understand and engage in saving, while others do not.
• Life experiences, such as trauma or significant events, can alter one's risk appetite and financial attitudes.
• The unpredictability of life events challenges the notion of making precise financial forecasts.

"On the nature-nurture spectrum, I think a lot of money is nature."

• This quote suggests that innate tendencies significantly influence financial behavior, though it’s not entirely deterministic.

"The world hangs by a thread... tiny little no nothing decisions... can utterly change the course of your life."

• This statement reflects the unpredictability of life and the difficulty in making accurate long-term financial predictions.

• The biggest risks are often unforeseen, as demonstrated by historical events like 9/11 and the COVID-19 pandemic.
• Investing should focus on preparedness rather than prediction, building a financial buffer to endure unforeseen events.
• Endurance in investing, maintaining steady returns over time, is more valuable than short-term gains.

"Risk is what's left over when you think you've thought of everything."

• This quote captures the essence of risk as the unforeseen elements that remain after planning.

"Invest in preparedness, not in prediction."

• This advice encourages focusing on building a financial safety net rather than attempting to predict market movements.

• Endurance, or the ability to maintain consistent investment returns over time, is crucial for wealth accumulation.
• Compounding returns over decades can lead to significant wealth, as illustrated by Warren Buffett's and Ronald James Reed's stories.
• Simple investment strategies, like dollar-cost averaging and index funds, can outperform complex stock-picking efforts over time.

"99% of Warren Buffett's net worth was accumulated after his 60th birthday."

• This statistic highlights the power of compounding and long-term investment strategies.

"If you have endurance, you're going to beat literally 97 or 99% of the genius stock pickers."

• This quote underscores the importance of patience and consistency in investment success.

• A rich life is subjective and should be defined by personal values and pleasures, not societal expectations.
• Knowing when enough is enough involves recognizing personal satisfaction and avoiding the endless pursuit of more.
• Reflecting on potential regrets can guide decisions about work, savings, and lifestyle to ensure a fulfilling life.

"You need to learn how to live a rich life and figure out what that is for you."

• This advice encourages individuals to define wealth and success based on personal happiness rather than external pressures.

"If I were on my deathbed tomorrow, would I regret working hard and saving a lot of money? Absolutely not."

• This reflection emphasizes the importance of aligning financial decisions with long-term personal values and priorities.

• The speaker reflects on the importance of financial decisions that prioritize long-term happiness over short-term material gains.
• Emphasizes the value of saving and providing for family over acquiring depreciating assets.
• Discusses the concept of giving financial support to children when it is most impactful, rather than waiting for inheritance.

"What makes me gives me so much happiness and pleasure is taking care of my family, and if I were to go tomorrow, I wouldn't regret for one second the car that I didn't buy, the big house I didn't buy, the nice clothes I didn't buy."

• The speaker finds fulfillment in family care rather than material purchases, suggesting that prudent financial decisions lead to long-term satisfaction.

"There's another great book called Die with Zero, which basically the title is self-explanatory, and one of the concepts is even if you want to give money away to your family, don't wait until you die."

• The idea of distributing wealth during one's lifetime when it can make the most difference is highlighted, challenging traditional inheritance norms.

• Discusses the dilemma of providing financial support to children versus teaching them the value of money through experience.
• The speaker shares personal experiences of setting expectations and the consequences of spoiling children.

"We flew my son who was, I guess he was seven at the time, we flew first class and we explained to him that this was not normal, this was not going to be the way it is."

• The speaker recounts a lesson in managing expectations and the impact of luxury experiences on children’s perceptions.

"There's a great quote from Charlie Munger where one of his rich friends says, Charlie, if I give my kids all of my money, is that going to ruin their ambition? And Charlie says, of course it will, but you have to do it anyways."

• Discusses the balance between financial support and fostering ambition in children, with a humorous yet insightful quote from Charlie Munger.

• Highlights the distinct skills required for acquiring wealth and maintaining it, emphasizing endurance and patience.
• Discusses Warren Buffett's investment strategy as an example of long-term financial planning.

"The hardest thing to be a great investor is to be able to sit on your hands and do nothing."

• Emphasizes the importance of patience and restraint in successful investing, as demonstrated by Warren Buffett.

"Making money and keeping money require two different skills...staying rich is like the exact opposite. You need a level of being conservative."

• Discusses the contrasting approaches needed for wealth accumulation and preservation, highlighting the need for a conservative mindset in maintaining wealth.

• Encourages young professionals to take risks early in their careers by joining unconventional companies.
• Suggests that early career risks can lead to significant learning experiences and future opportunities.

"When you graduate college and you're looking at your career, don't take the safe job which is usually like the big company, the blue chip company. Go for the weird company."

• Advises against early career complacency, advocating for bold career choices that offer unique learning opportunities.

"In the weird startup, you're going to be so close to the failure, and failure is the knowledge you're going to learn so much."

• Highlights the educational value of working in startups, where proximity to failure can lead to significant professional growth.

• Discusses the role of failure and risk-taking in achieving significant success, using venture capital and corporate examples.
• Emphasizes the necessity of embracing failure as part of the innovation process.

"For every 50 investments that venture capitalists make, statistically half of them will completely fail, 10 will do okay, and one or two will make huge profits that drive 100% of the fund's returns."

• Illustrates the 'long tail' concept in venture capital, where a few successful investments compensate for many failures.

"If you think that was a big failure, just wait. You've seen nothing yet."

• Highlights the mindset of successful companies like Amazon, which embrace failure as an integral part of innovation.

• Discusses the dangers of complacency after achieving success and the need for continuous challenges to maintain motivation.
• Explores the psychological need for stress and challenges to stay engaged and motivated.

"Success has its own gravity...The biggest source of gravity there is laziness."

• Warns of the complacency trap that often follows success, leading to decline if not actively countered.

"When people get successful, they play defense to their detriment. They don't play offense as much as they need to."

• Emphasizes the importance of maintaining an offensive strategy and avoiding complacency in business.

• Explores the relentless drive of highly successful individuals and their insatiable hunger for new challenges.
• Discusses the psychological and motivational factors that push successful people to continue striving for more.

"The reason that they are successful is because they have that complete swing for the fences."

• Describes the mindset of successful individuals who continually pursue ambitious goals, driven by competition rather than financial need.

"I think most people in that situation, the word that I would use is tortured."

• Suggests that the relentless pursuit of success can lead to a tortured existence, highlighting the potential personal costs of high achievement.

• Discusses the role of luck in success and the dangers of overconfidence in one's abilities across different domains.
• Cautions against assuming that success in one area guarantees success in another.

"A lot of those people will think, therefore I can also be an effective politician, therefore I can also be an expert on whatever it would be."

• Warns of the overconfidence trap where success in one area leads to misguided attempts in unrelated fields.

"The more money he made, the more risk he wanted to take."

• Highlights the story of Jesse Livermore, illustrating how success can lead to increased risk-taking and eventual downfall.

• Success can lead to overconfidence as people may not provide honest feedback due to perceived intelligence or authority.
• Maintaining humility is crucial, even when achieving significant success.
• Historical practices, such as Roman warriors having someone remind them of their fallibility, highlight the importance of staying grounded.
• Successful partnerships, like Warren Buffett and Charlie Munger, rely on honest, critical feedback to avoid overconfidence.

"When you're rich, maybe because you employ them or because they think that you're so smart, even when you say something stupid, they might go, 'Yeah, maybe it's right, go for it.'"

• Highlights the risk of overconfidence when people around you don't challenge your ideas.

"Roman Warriors...would have someone by their side whispering in their ear... 'You're not that great.'"

• Illustrates the historical value placed on humility and staying grounded despite success.

"Charlie Munger is that to Warren Buffett...a big part of Charlie Munger's job is to tell him when he's being an idiot."

• Emphasizes the importance of having someone who provides honest feedback to maintain humility.

• Financial security is a form of humility, ensuring one is prepared for downturns.
• The wisdom of saving money and being prepared for career changes is emphasized.
• Recognizing the potential for success to create blind spots is critical for long-term stability.

"Confidence which comes from success often really does create blind spots...I just go just save loads of money Steve because the day you're wrong you don't want to go broke."

• Stresses the importance of financial prudence and humility in the face of success.

"When your career is so high and you're so famous, you think so highly of yourself that you can do anything. That's when you're going to get yourself into trouble."

• Warns against the dangers of overconfidence at the peak of success.

• Success in various areas requires enduring challenges and volatility.
• Identifying and accepting the costs associated with success is crucial for achieving it.
• Success in investing, careers, and relationships requires enduring specific challenges and sacrifices.

"The price you pay to be wealthy is the volatility you have to incur along the way."

• Explains the inherent challenges and uncertainties in achieving financial success.

"Success in life is just identifying what the cost is and being willing to pay it."

• Highlights the necessity of acknowledging and accepting the costs associated with success.

• Time horizons refer to the period between the present and one's goals, varying by individual circumstances.
• Understanding personal time horizons is crucial for effective life planning and achieving goals.
• Different life stages and goals require distinct time horizons and planning.

"It's the amount of time between now and whatever your goal is, which is very different for everybody."

• Defines the concept of time horizons and their individual variability.

"Once my kids start getting older, I want to make sure that like I'm always there for them when they need me."

• Illustrates the importance of aligning time horizons with personal and family priorities.

• The decision to buy a house is more about lifestyle and emotional factors than financial investment.
• Owning a home provides stability, especially important for families with children.
• Financial decisions should be separate from emotional and lifestyle considerations.

"What's more important to me is stability. I want my kids to go to a stable school, know their neighbors, have friends."

• Emphasizes the emotional and lifestyle benefits of homeownership for families.

"Don't buy houses to make money because you have the ability to play a different set of games that very few people can play."

• Advises against viewing homeownership primarily as a financial investment.

• Storytelling is a powerful tool for persuasion, often more effective than facts or rational arguments.
• The best story wins by capturing attention and resonating with audiences emotionally.
• Stories are memorable and can influence beliefs and decisions significantly.

"It's not the right answer or the best answer or the mathematically accurate answer. It's just whoever gets people to nod their heads in the right direction."

• Highlights the persuasive power of storytelling over factual accuracy.

"If you tell people what they want to hear, you can be wrong forever, and people won't care because you tell them what they want to hear."

• Warns about the potential dangers of storytelling when it aligns with existing biases.

• Compounding can have both positive and negative effects on various aspects of life.
• Good news compounds slowly, while bad news often occurs rapidly.
• Understanding compounding is crucial for long-term planning and avoiding negative impacts.

"Most good news happens slowly, and most bad news happens very fast."

• Describes the differing rates at which positive and negative events unfold.

"One cigarette per day for 30 years is catastrophic."

• Illustrates the long-term negative compounding effects of seemingly minor habits.

• Discomfort and challenges often lead to significant personal and societal growth.
• Difficult experiences can catalyze innovation and personal development.
• Recognizing the potential positive outcomes of adversity is important for resilience.

"Stress, pain, discomfort, shock, and disgust...it's also when the magic happens."

• Highlights the transformative potential of challenging experiences.

"When you have maybe it's a job layoff or a breakup or a medical emergency...it changes you for the good."

• Explains how personal adversities can lead to positive growth and transformation.

• The importance of personal reflection and understanding one's life goals is emphasized.
• The books discussed aim to provoke thought rather than provide direct advice.
• Encourages readers to reflect on their lives and make informed decisions based on their unique circumstances.

"I hope it gets you thinking about what you want and who you are and what you are capable of."

• Encourages introspection and personal growth rather than prescriptive advice.

"I wish I could go back to different periods of my life in a time machine and just say it's going to be okay."

• Reflects on the value of reassurance and perspective in managing life's challenges.