Book Club 12 - The Psychology of Money

The following was originally published for Patrons on December 29th, 2023. Get caught up at your own pace by joining at the "Post Parisian" level or above!

Keeping in tune with reworking my mindset around money, I picked up a book that has popped up on a gazillion lists after listening to its author on a podcast last week: The Psychology of Money by Morgan Housel. I was not disappointed. This is definitely one of my favorite books of 2023.

You probably know that I wasn’t raised with a great relationship with money. My family came from two different camps: the post-Depression save-everything-and-never-spend-ever-ever camp on one side, and the I-spent-all-my-money-let-me-borrow-yours camp on the other. Thankfully my parents weren’t full bore on either of these, but the mix did its damage. They didn’t teach me many helpful lessons beyond ‘get a job,’ (you might recall the story of them letting me take out a line of credit at age 16 to do extensive body work on and re-paint my classic car).

Housel gives some insight that I found helpful in understanding my own family, but a lot of the book felt like straight up career advice. I’ll summarize some of what I found most impactful.

No One’s Crazy

We’ve all only experienced our slice of the world. My grandparents were born into the poverty-stricken chaos of the Dust Bowl and a post-Depression world. Too young to partake in World War II, but old enough to have their views formed by a world tipped on its back. On the other side of the family, my uncles experienced an extreme reversal in their world when my grandfather died. I can’t say for certain, but it makes sense that it would lead them to treat money with abandon. Every day could be your last; there’s almost a fatalistic approach when I look back at how they lived. And it makes sense.

Housel’s point was that when approaching saving, investing, and spending money in general, everyone was born into situations they couldn’t control. Markets that might have been extreme, or economic conditions that would never be repeated. As a result, we all see the world in unique ways and will approach stocks, bonds, or consumer debt with entirely different worldviews and values. Just because we don’t understand someone else’s approach doesn’t mean it doesn’t make perfect sense from their perspective.

This is also important for how you weigh others’ views in making your own choices but we’ll get to that.

Risks, and What’s Really Valuable

“There is no reason to risk what you have and need for what you don’t have and don’t need.”

Housel highlights the necessity of understanding what you want and why as a way of guarding against unnecessary risk. If our aims are ambitious and vague, they may lead us into taking massive risks to gain things we don’t really want at the expense of what we need most.

Reputation is invaluable.
Freedom and independence are invaluable.
Family and friends are invaluable.
Being loved by those you want to love you is invaluable.
Happiness is invaluable.
And your best shot at keeping these things is knowing when it’s time to stop taking risks that might harm them. Knowing when you have enough.

This has been an exercise I’ve relished lately, thinking through what’s really enough. Without impoverishing my dreams, what lifestyle would really be enough for me to be happy? Homing in on that not only helps reduce the odds I take some big, unnecessary risks, it also increases the chances that I attain and maintain a deep level of happiness over the long run. “Happiness, as it’s said, is just results minus expectations.”

Compounding Careers

Compound interest is the mantra of the investor. One of the mind-blowing statistics that Housel shares is that: of Warren Buffet’s net worth of $84.5B (at time of writing), $84.2B of that was accumulated after he turned 50. $81.5B of it after he passed his mid-60s. The obvious point is that you have to stick with it and let the results compound, and way down the line those results can be exponential (something our brains really struggle to comprehend).

What I found interesting in all of this was the parallel with careers - especially in something like what I do for a living. There’s a pattern among YouTubers where their careers start moving somewhere in the 7-8yr mark, and then really take off after a decade. It takes dedication and endurance in the face of endless change and uncertainty but the choices, lessons, and small wins compound over time. Eventually, with a little luck, things click into place.

Know the Game You’re Playing

Of course you need to know the game you’re playing. This is why it’s important not to take too many signals from others, especially if you don’t know for sure what game they’replaying. In investment terms, you need to know the time horizon necessary to accomplish your goals. If you have long term goals, like retiring, and you see everyone rushing to invest in a particular stock, be wary they aren’t looking for short term results. Long-term investors following short-term moves are how Housel argues bubbles form. The danger is those short-term investors might be ready to pull their money out with their quick wins and leave you with a loss that could have been avoided.

In a career like producing videos on YouTube, the parallel is easy to see. Everyone has been chasing views through sensationalism for years now (the MrBeastification of YouTube). It’s a game that aims for short-term rewards. Views = cash today. Copying the formats and ideas of more successful YouTubers brings a lot of immediate attention.

But it doesn’t build the same sense of community. It doesn’t showcase the individual, their unique perspective on the world, or a long-term relationship with their audience. They’re just competing for the same crowded ‘idea’ space and, as soon as they run out of ideas or fall too far behind in the competition, they risk fading into obscurity. This is also a massive problem with short-form video content but that’s an orange we can compare another day.

Either way, it isn’t my game. And I took the concept as encouragement to get back to what I do best and focus on the long game.

You Have to Survive to Succeed

Endurance is the key. We change over time, we want different things than we used to. Coming up with long-term plans that are flexible enough to accommodate those changes is important. Building a buffer is vital.

With finances, Housel reminds us that we have to survive to succeed. If you don’t leave enough room for error, you risk wiping yourself out at the first surprise to come your way (and he spends a lot of time reminding us that risk is what you don’t see coming - there will always be surprises).

On the career side, it means taking swings, experimenting, but doing what you need to make it in the long run. There are no guarantees of success, but there are guarantees of failure. Like not showing up in the first place, or risking what you have and need for what you don’t.

In both finances and career, the admonition is to keep the goal posts from moving endlessly. Defining ‘success,’ and ‘enough,’ are invaluable exercises to work your way into a happy life and stay there. It isn’t an argument against ambition and growth, but a reminder that those things, for their own sake, lead to an endless hunger for more. And that hunger can never be satiated.

The Main Point

Is Freedom. “Cash is the oxygen of independence.” Housel’s goal, and mine, is to find a way into a life of real independence. Where I can wake up and decide what I’m doing on any given day, in any given week, based entirely on what I choose and not on what I mustto survive.

“Money’s greatest intrinsic value - and this can’t be overstated - is its ability to give you control over your time.” And control over my time is what I’m after, in every element of my life.

This Week’s Haul

XKCD started a YouTube channel?! If you’ve followed Randall’s webcomic over the decades then you, my friend, are a nerd. And you’ll love his WhatIf? series over on YouTube.

Speaking of decades old, SMOSH got back together and bought back the rights to their own channel. This interview with Padilla and Hecox was a really fun walk down memory lane for anyone who watched the formation of Internet Culture before it was even a blip in the mainstream. I haven’t been a SMOSH viewer since something like 2009, but it made for a great insight into the evolution of YouTube channels becoming full fledged media production companies.

Tom Scott is coming to the end of his run on his main channel and this video about California’s battle with the Mediterranean Fruit Fly is both fascinating and bizarrely dystopian to me. It made me wonder if perhaps this could be why human fertility rates are dropping… aliens irradiating human males and sending them to Earth… or maybe just indocrtrinating incels from space. There goes my sci-fi brain again. Either way, don’t watch this one while eating.

Real Engineering did an in-depth breakdown of how streaming services work. It’s essentially a behind-the-scenes ad for Nebula, but it was a great reminder of the engineering challenges facing a global distribution network. It’s also really impressive that the network was built by YouTubers and, given the sheer volume of creators I love on the platform… it’s getting harder not to split some time from YouTube.

How about you? Did you read or watch anything that stood out this week?