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

Added: Nov 6, 2023

One of the main themes discussed is the importance of managing expectations when it comes to money. Housel emphasizes that wealth is not about how much money you make or spend, but rather about the money you save and don't spend. He defines wealth as the money that you did not spend and that gives you independence and autonomy. By living below your means and saving money, you can have the freedom to choose how you want to live your life and have control over your time.

Housel also highlights the concept of the goalpost moving, which refers to the tendency for people to constantly raise their expectations as they achieve financial success. He explains that no matter how much money you make, if your expectations rise faster than your income, you will never be satisfied or happy with your financial situation. He encourages individuals to manage their expectations and focus on what truly brings them happiness, rather than constantly striving for more.

The guest also discusses the importance of autonomy and control in achieving happiness. He shares examples of CEOs who may earn a significant amount of money but have no control over their time, leading to stress and unhappiness. On the other hand, he mentions Warren Buffett as an example of someone who has achieved both financial success and autonomy by effectively delegating tasks and having control over his schedule.

Housel delves into the psychology behind money and the desire to impress others. He explains that many people seek validation and admiration from others through material possessions, such as expensive cars or houses. However, he argues that true happiness comes from gaining respect and admiration through other means, such as wisdom, love, and friendship. He encourages individuals to focus on gaining respect and admiration through their personal qualities rather than material possessions.

The guest also touches on the topic of marriage and happiness. He shares his friend's theory that marriage only works when both partners want to serve each other and expect nothing in return. By having low expectations and focusing on serving their partner, both individuals can experience happiness and fulfillment in their relationship.

Housel continues by discussing the stories we tell ourselves about money and where they come from. He mentions the tendency for individuals in low-income areas to engage in gambling, suggesting that it may be a way to find hope and escape their current circumstances. He also highlights the importance of understanding and managing our need for validation and admiration from others, as it can lead to reckless behavior with money.

One of the main topics discussed is the importance of saving money. Housel emphasizes that saving money is the key to financial independence and a better future. He explains that saving money gives individuals a sense of control over their lives and allows them to have more options and opportunities. Housel believes that saving money is the ticket to independence and a better career, as it provides a safety net and the ability to make choices.

Housel also discusses the relationship between poverty and crime. He suggests that when individuals feel trapped in a lower socioeconomic position and believe that the world is unfair, they may be more inclined to engage in criminal activities as a means of survival or to gain a sense of control. Housel highlights the importance of hope and how even a small glimpse of hope can make a significant difference in someone's life.

The conversation then shifts to the relationship between health and poverty. Housel explains that individuals in low-income jobs, who are exhausted and face various challenges, may turn to vices such as cigarettes and alcohol as a way to find pleasure and cope with their circumstances. He emphasizes the need for empathy and understanding towards those in poverty, as their choices may be driven by a desire for a little bit of hope and pleasure in their lives.

Housel also discusses the concept of risk and uncertainty in investing. He argues that it is impossible to predict the future and that the biggest risks are often unforeseen events that can have a significant impact. Housel advises against trying to predict the market or make forecasts, as it is more important to focus on preparedness rather than prediction. He suggests having a buffer of cash and liquidity to withstand any unforeseen events and to maximize endurance in investing.

The conversation then delves into the concept of knowing when enough is enough. Housel shares the story of a janitor named Ronald Reed, who accumulated a net worth of over $8 million by investing in stocks and leaving his money untouched for 70 years. Housel emphasizes that endurance and patience are key in investing, and that the ability to sustain average returns over a long period of time is more important than trying to beat the market.

Housel also discusses the importance of living a rich life, which is defined by individual preferences and values. He encourages individuals to figure out what brings them happiness and fulfillment, rather than conforming to societal expectations of wealth and material possessions. Housel believes that financial independence allows individuals to have the freedom to pursue their own version of a rich life.

Housel continues by addressing the misconception that saving money is a regrettable decision. He argues that taking care of one's family and having financial security brings happiness and pleasure, and that on their deathbed, people are more likely to regret not having saved enough rather than not buying material possessions. He emphasizes the importance of making financial decisions that prioritize the well-being of loved ones and creating a nest egg for them.

The guest also recommends giving money to family members when they need it the most, rather than waiting until one's death to pass on an inheritance. He suggests that providing financial support during critical periods, such as when children are in their 30s and 40s and raising their own families, can have a more significant impact than leaving a large inheritance later in life. However, he acknowledges the concern that giving money too early may lead to the loss of wealth, and highlights the need for careful consideration and balance in such situations.

Housel then discusses the skills required for making and keeping money. He emphasizes that endurance and patience are crucial for successful investing, as opportunities are rare and require waiting for the right moment. He cites Warren Buffett's approach of sitting on cash for extended periods, waiting for the right investment opportunities. Housel also notes that the ability to endure unpredictable events and financial challenges is essential for long-term financial success.

The guest highlights the concept of long tails, where a few significant events or factors account for the majority of outcomes. He gives examples such as the concentration of value in a few companies in the stock market and the high failure rate of venture capital investments. Housel suggests that recognizing and focusing on these significant factors can lead to more successful investment strategies. He also applies this concept to life in general, emphasizing the importance of identifying the few critical factors that drive most outcomes.

Housel discusses the difference between making money and keeping money, noting that the skills required for each are distinct. While making money often involves taking risks and being optimistic, keeping money requires a more conservative and cautious approach. He emphasizes the need for financial flexibility and the ability to endure unpredictable events and challenges. Housel also highlights the importance of humility in recognizing that nobody knows everything about investing and that even successful individuals make mistakes.

The guest advises young individuals to prioritize financial flexibility and liquidity, especially during periods of uncertainty and career transitions. He suggests taking risks and pursuing unconventional opportunities early in one's career when there are fewer responsibilities and obligations. Housel encourages young people to work for startups or companies that offer unique learning experiences, as these can provide valuable skills and insights.

Housel also discusses the importance of embracing failure and taking risks. He cites examples of successful companies and individuals who have experienced significant failures but have learned from them and ultimately achieved success. He emphasizes the need for a minimum level of stress and challenge in life and warns against complacency and the dangers of becoming too comfortable.

The guest continues by discussing the challenges faced by successful individuals and the pressure they experience. He notes that many successful people are often tortured by the problems they are trying to solve and the weight of their responsibilities. Housel highlights the importance of finding motivation and challenge in life and the need to continually seek new goals and aspirations.

Housel continues by discussing the psychology behind money and how people's behavior and emotions influence their financial decisions. He highlights the importance of understanding that money is not just about numbers and rationality but also about human behavior and emotions. Housel explains that people's financial decisions are often driven by their desire for security, status, and freedom, rather than purely financial gain.

He also emphasizes the role of luck and randomness in financial success, debunking the myth that success is solely a result of hard work and intelligence. Housel argues that luck plays a significant role in determining outcomes, and people should be humble and acknowledge the role of luck in their own success.

Housel then delves into the power of storytelling and how it influences people's perception of reality. He explains that the best story often wins, regardless of whether it is factually accurate or rational. Housel gives examples of how storytelling is used in various fields, such as documentary filmmaking and comedy, to captivate audiences and convey messages effectively.

The concept of compounding interest is another key topic discussed by Housel. He explains that compounding interest is not only relevant to financial investments but also to various aspects of life. Housel uses examples to illustrate how small actions and decisions can compound over time, leading to significant outcomes. He emphasizes the importance of understanding time horizons and being patient when it comes to achieving long-term goals.

Housel also explores the idea of discomfort and how it can lead to personal growth and positive change. He discusses how challenging experiences, such as job layoffs or breakups, can ultimately shape individuals for the better. Housel encourages listeners to embrace discomfort and recognize that it is often during difficult times that significant personal growth occurs.

Throughout the conversation, Housel emphasizes the need for individuals to think critically about their own lives and make decisions based on their unique circumstances and goals. He cautions against following generic advice and encourages listeners to reflect on their own values and priorities.