EXTRACT |‘The Art of Spending Money’ by Morgan Housel

ABOUT THE BOOK:

Can money buy happiness? Yes. Can spending it make you happier? Absolutely. Yet, many of us struggle to unlock its full potential — either by spending on things that don’t bring as much joy as they should, or by avoiding investments that would truly enhance our mental wellbeing.

In The Art of Spending Money, award-winning and global bestselling author Morgan Housel offers a refreshingly practical approach to managing wealth, while finding deeper meaning and contentment. Instead of cookie-cutter financial advice, Housel provides you with psychological tools to navigate your personal relationship between money and optimise for happiness.

Discover why people often mistake envy for admiration, how to align your expectations with your income, and ways to invest in future happiness while avoiding regret. Learn about the dangers of social debt, and embrace the radical idea that the fastest way to build wealth is by going slow.

The Art of Spending Money delves into the complexities that surround money — envy, social aspirations, identity, and insecurity — crucial aspects often missed in traditional financial books. Armed with new insights into money and wealth, you’ll learn to sidestep common spending traps, make smarter investing choices, and wield money to its fullest potential to enhance your enjoyment of life.

EXTRACT

Chapter One/Early Years

Dr Dan Goodman once performed LASIK eye surgery on a woman looking to ditch her glasses. The patient returned for a checkup a few weeks later, despondent. She said the surgery ruined her life.

There was nothing wrong with the procedure — she could see clearly without glasses for the first time in years.

Goodman pressed: Then what’s the problem?

The patient said she expected that after losing her glasses, her husband would find her more attractive and her co-workers would find her more intelligent. When she realized they didn’t, and love and respect weren’t driven by something superficial like her glasses, she was crushed.

“You have a problem I can’t help you with,” Goodman told her. “I’m sorry I didn’t realize it earlier.”

It’s astounding to witness someone gain what they thought they always wanted only to realize that happiness is more complicated than they first assumed.

And, my gosh, that is so true with money.

There’s an old saying that nothing’s worse than getting what you want but not what you need. That sums up so many people’s relationship with money and success. If you’re lucky enough to get what you want (money), you might still realize it’s not what you need (family, friends, health, being part of something bigger than yourself).And then you’re disappointed. What could be worse?

This book is about how spending money has little to do with spreadsheets and numbers, and a lot to do with psychology, envy, social aspirations, identity, insecurity, and other topics that are too often ignored in finance.

Can money buy happiness? Yes.

Can spending money make you happier? Yes.

But it’s more complicated than many people think.

In between the numbers, charts, and data sits the messiness and absurdity of the human mind. Money is a remarkable tool that can provide a better life if you know how to use it. But knowing how to use it is quite different from knowing how to acquire it.

Winston Churchill famously said that he got more out of alcohol than alcohol got out of him. By the same logic: I have seen rich people whose money got more out of them than they got from it, because they spent their life desperately chasing money without any sense of how to use it to make them happier.

I have also seen low-­income people get tremendous value out of what little money they had, using it as a source of leverage to acquire more of what made them happy.

What matters is not necessarily how much money you have.

It’s whether you understand and can control the psychology and behaviors that can make the connection between money and happiness more complicated than we assume.

There are so many ways that observation can affect your own life.

Think about the broke young person who buys a car he can’t afford because he thinks it will bring respect and admiration from his peers.

Or someone who diligently saved their entire life but cannot bring themselves to spend a reasonable amount of money in retirement because “saver” has become ingrained as part of their identity.

Or the young couple saving for a down payment on a two-bedroom house whose expectations are suddenly inflated by a friend who just bought a three-­bedroom house.

The rich entrepreneur who never feels like she has enough.

The low-­wage worker who always feels like he has plenty.

None of these topics have to do with spreadsheets or numbers. They’re so much messier than that. It’s all psychology, sociology, and understanding how everyone’s different. Understanding how everyone’s just trying to make it through life the best they can, making sense of the world given the experiences they’ve had, who they want to be, and what they think others think of them.

In school, finance is taught as a science, with clean formulas and logical conclusions. But in the real world, money is an art.

I worked as a valet at a five-­star hotel in Los Angeles during college. One day we hosted an invite-­only high-­end furniture show for the city’s moneyed elite. A man came out to the valet stand chatting with a friend about how he just spent $21,000 on an armchair. Several of my colleagues and I overheard him and were stunned. Spending that much on a chair—a chair—was inconceivable to us.

The guy saw our bewildered expressions and said: “Boys, I know. It’s crazy. But when you have money, this is what you’re supposed to do.”

I found it such an interesting choice of words. “Supposed to do.” Did he actually like the chair? Or was he blindly pursuing what society told him he’s supposed to like and how he should spend his money?

I remember then thinking, as a nineteen-­year-­old aspiring to be rich one day: Is that what I’m supposed to do one day? I’m supposed to study long hours in college and grind in a career for decades so I can tell my friends I bought an ugly chair that costs the equivalent of one-half of an average household income? Would that actually make me happier?

As I processed it all, I remember my reaction going from astonishment to amusement to almost feeling bad for the guy.

I got to know a lot of these people. It felt like so many of them had this mindless chase for wealth without actually knowing why they wanted it, other than the primal urge for more. They were very good at making money. But their ability to turn that money into a meaningfully better life felt rocky at best.

Of course, there’s another path. Many people have figured out how to use money as a tool to provide things that actually make them happier in life. But the rich chair guy had it right: What society tells us we’re supposed to do with money is not always what we should be doing to get the most out of it. It’s not our fault. A combination of evolution and social forces tell us — often in a shout — what we should want: more money than other people, bigger stuff than other people, shinier toys than other people.

Sometimes that is what we want, and what you should chase. More often we will realize that spending money to show people how much money you have is a fast way to go broke and an expensive way to gain respect.

Disappointment is often the outcome.

Now, I think you can use money to build a better life. I think buying nice stuff can bring you joy. I love ambition, hard work, and — most of all — independence.

But after writing about money for two decades, I am constantly amazed at how bad most of us are at knowing what we want out of money, or how to use it as anything more than a benchmark of status and success.

And let me be clear: Most of this book is reflections I’ve had trying to figure out money and happiness in my own life.

If you ask parents what they wish for their kids, many will say, “I just want them to be happy.”

Do you want them to be rich and successful? “Well, sure,” they’ll say, “but mostly I just want them to be happy.”

That’s great thinking.

But many of those same parents, in their own lives, chase money and status at the expense of happiness. Perhaps the reason parents wish happiness over success for their children is because they’ve seen the downsides of blindly pursuing one over the other.

Extract provided by Pan Macmillan