The Art of Spending Money by Morgan Housel

How strongly I recommend this book: 7 / 10

Date read: December 15, 2025

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Summary

In typical Morgan Housel fashion, this book explores the psychology behind how we choose to spend money. Most people spend driven more by hidden insecurities and social signaling than by logic, ultimately arguing that the best thing money can buy isn’t more stuff, but the freedom to be yourself and control your own time.

Key Takeaways

Here are the top ideas that really stuck with me -

Money is a psychological tool, not just a mathematical asset. If you don’t intentionally use money to leverage your values and independence, it will inevitably use you by fueling an endless, unfulfilling cycle of status-seeking and social debt.
The “Inner Scorecard” is the only metric for true success. Spending to impress strangers is the “junk food” of respect; real fulfillment comes from making financial choices that align with your own standards rather than chasing the fleeting admiration of people who are likely just envying your possessions.
Happiness is the gap between expectations and circumstances. You can become “wealthier” more effectively by lowering your expectations than by increasing your income, as desire is a hidden form of debt that must be repaid before you can feel any joy.
The power of contrast is the secret to luxury. Living a simple, baseline life makes occasional splurges feel like magic, whereas constant high-end spending creates a “treadmill effect” where even extraordinary experiences eventually feel bland and ordinary.
Spending should be treated as a personal experiment. Since there is no universal formula for a good life, you should trial different types of spending and “cut without mercy” anything that doesn’t actually increase your well-being, regardless of what society deems valuable.
Independence is the highest ROI money can offer. The ability to wake up and do what you want, with whom you want, for as long as you want, provides a level of psychological wealth that a billion dollars in a restricted, high-stress life can never match.
Memories are assets that compound over time. Trading money for quality time and shared experiences with loved ones is a superior investment because, unlike physical goods that depreciate, cherished memories provide a lifelong “dividend” of nostalgia and connection.
Your spending habits are often a form of emotional “gasping.” Many wild spending decisions are actually attempts to heal past wounds or compensate for a lack of job satisfaction, proving that all financial behavior makes sense once you understand a person’s unique history.
Focus on “Eulogy Virtues” rather than “Resume Virtues.” When we visualize our own obituaries, we never mention carats or horsepower; realizing this early allows us to shift our spending toward things like kindness and community that actually build a lasting legacy.
The greatest gift for children is a “normal” relationship with wealth. Raising kids in an environment where money is a tool for utility rather than a source of identity prevents it from becoming a “psychological liability” that stunts their own ambition and emotional security.

Favorite Quotes and Chapter Notes

I went through my notes and captured key quotes from all chapters below.

P.S. – Highly recommend Readwise if you want to get the most out of your reading.

Introduction: The Quest of the Simple Life

While The Psychology of Money focused on how we grow wealth, The Art of Spending Money focuses on how we use it.
Spending money is more art than science. There’s no universal formula, no fixed rules. What brings one person joy may leave another feeling empty. And so, just as with investing, understanding our emotions— our biases, hopes, and fears— can guide us toward smarter choices. Choices that reflect who we are, what we value, and how we want to live.
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.
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.
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.
In school, finance is taught as a science, with clean formulas and logical conclusions. But in the real world, money is an art.
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.
There are two ways to use money. One is as a tool to live a better life. The other is as a yardstick of status to measure yourself against others. Many people aspire for the former but spend their life chasing the latter.
Money is a tool you can use. But if you’re not careful, it will use you. It will use you without mercy, and often without you even knowing it. For many people, money is both a financial asset and a psychological liability. Blind lust for more can hijack your identity, control your personality, and wedge out parts of your life that bring greater happiness.
Spending money can buy happiness, but it’s often an indirect path. Money itself doesn’t buy happiness, but it can help you find independence and purpose— both key ingredients for a happier life if you cultivate them. A big, nice house might make you happier, but mostly because it makes it easier to have friends and family over, and the friends and family are actually what are making you happy.
Enduring happiness is found in contentment, so those happiest with money tend to be those who have found a way to stop thinking about it. You can value it, appreciate it, even marvel at it. But if money never leaves your mind, it’s likely you’ve found yourself with an obsession, where it controls you. The best use of money is as a tool to leverage who you are, but never to define who you are.
If you’re confused about what a better life would look like, “one with more money” is an easy assumption. But that can sometimes mask deeper problems. Money is so tangible that it’s an easy goal to strive for, and pursuing it can become the path of least resistance for those who haven’t discovered what truly feeds their soul.
Everyone can spend money in a way that will make them happier. But there is no universal formula on how to do it. The nice stuff that makes me happy might seem crazy to you, and vice versa. Debates over what kind of lifestyle you should live are often just people with different personalities talking over each other. Author Luke Burgis puts it another way: “After meeting our basic needs as creatures, we enter into the human universe of desire. And knowing what to want is much harder than knowing what to need.”
In his 1907 book The Quest of the Simple Life, William Dawson writes about how many of his London peers devoted their lives to money and success but still seemed miserable. Those who lived simple lives in the country were comparatively jubilant. His main observation was that those who were trying to get more money were actually held captive by it. They were so obsessed with wealth that it held control over their sanity, their relationships, their quality of life. What they intended to be a strategy to live a better life often became an ideology they were beholden to, like an invisible dictator.
Sometimes the stuff you spend money on has so much influence over your behavior that it’s not clear whether you own things or the things own you. Benjamin Franklin put this so well when he wrote: “Many a man thinks he is buying pleasure, when he is really selling himself a slave to it.”

All Behavior Makes Sense with Enough Information

An important question I love is: What have you experienced that I haven’t that makes you believe what you do?
There’s a saying: Never make fun of someone for mispronouncing a word, because it means they learned it from reading. As a corollary: Never make fun of how someone spends their money, because they learned it from living. Everyone is a product of their own unique past. To understand why people spend the way they do, you have to dig deep into their life experiences.
People seemed to justify wild, unsustainable spending because they were making up for being snubbed and suppressed during the dour years. It felt as if they were righting a wrong, like getting revenge. They weren’t spending wildly because they crunched the numbers and determined it was the right thing to do. They were trying to heal an emotional wound.
Never have I seen money burn a hole in someone’s pocket faster than an investment banker receiving their annual bonus. After twelve months of Excel modeling until 3 a.m., you have an urge to prove to yourself that it was worth it, offsetting what you sacrificed. It’s like someone held underwater for a minute— they do not take a calm breath when they surface; they gasp. A lot of spending is gasping. Related: I have noticed that those most capable of delayed gratification are often those who enjoy their work. The pay might be good, but the urge to compensate for your hard work with heavy spending isn’t there.
The software engineer Billy Markus says, “People are not rational. They are rationalizing. Once you understand this simple fact, all the oddest human behavior will suddenly make way more sense.”
A well- heeled student at an elite university can experiment with cocaine and will probably be just fine. A kid from a dysfunctional home with absentee parents is more likely to ride that first hit of meth to self- destruction. This may explain why a 2019 survey conducted by the Cato Institute found that more than 60 percent of Americans with at least a bachelor’s degree were in favor of legalizing drugs, while less than half of Americans without a college degree thought it was a good idea. Drugs may be a recreational pastime for the rich, but for the poor they are often a gateway to further pain.
Which brings me to two pieces of advice, both critical to understanding the art of spending money: 1. Don’t let anyone tell you what you should or shouldn’t spend money on. There is no “right” way. You have to figure out what makes you happy and fulfilled
“Personal finance is more personal than it is finance,” says financial advisor Tim Maurer. It’s one of the smartest money quotes I’ve ever heard.
It’s not until you acknowledge how personal and emotional our relationship with money can be that you realize you’re on this journey alone. Maybe your spouse and your kids are part of the equation, but at some point you have to find your own way, fearless of what others think of it.
1. Be careful judging how other people spend their money.

May I Have Your Attention Please

You think you want nice stuff, but what you really want is respect, admiration, and attention.
Try this: Write down what you want your obituary to say, then figure out how to live up to it. It’s the cleanest, simplest way to plot out what you want in life and what truly matters. Everyone’s self- written obituary will be different. But I suspect most people would want theirs to say: You were loved. You were respected. You were admired. You were helpful. You were a good parent, a good spouse, a caring friend. You were an asset to your community. You made a contribution to your industry. You were wise, funny, and smart. Now realize what’s not in there. Almost no one in this exercise would think about their obituary mentioning how much horsepower their car has, how many square feet their home is, or how much they spent on clothes. Your salary would not be mentioned, nor how many carats are in your wedding ring, nor that you redid your kitchen with imported Italian marble.
The point is not to say don’t bother trying to gain attention with your car, home, or clothes. Social signaling is important to fitting in and doing well in life. But once you view spending money on stuff to gain people’s attention as the junk food of respect and admiration, the desire to keep spending on things that just show off how successful you are diminishes. My guess is that if your favorite comedian, actor, or athlete turned out to be broke, your opinion of them wouldn’t change that much. It wouldn’t impact how much you admire them, because you admire them for talents money can’t buy.
If you gain your respect and admiration for who you are rather than what you own, your desire to spend more money on flashy things plunges.
In her book, Never Enough, author Jennifer Breheny Wallace writes that “pride can be felt two ways: intrinsically, when you’re authentically proud of yourself; and extrinsically, when another’s opinions tell you how you should feel, what psychologists call hubristic pride.” So much modern spending is an attempt to foster the latter. But so much of the deep, fulfilling pride we naturally crave comes from the former: being proud of who you are and what you’ve done more than what you’re wearing or driving. Perhaps most importantly, psychologist Tim Kasser once pointed out that those who most value extrinsic pride have less bandwidth to pursue intrinsic pride. It’s like those chasing junk food(material status) have less remaining appetite for nourishing food(family, friends, intelligence, humor, love). In long- term studies, those who valued extrinsic pride the most were more likely to end up anxious, depressed, and to abuse alcohol.
Everyone’s different— all behavior makes sense with enough information— but I tend to view my own material desire as a loose proxy for the inverse of what else I have to offer the world. The higher my desire for fancy stuff, the less real value I have to offer for things that actually make me happy.
Observe what actually makes you happy and maximize that. Like many people, I’ve seen a range of income during my career. What strikes me is that the things that make me happy with a higher income are the same things that made me happy with a much lower income: spending time with my family, doing things outdoors, a long chat with a friend. If flying first- class to a five- star resort and building sandcastles on the beach with my kids is a 10, playing LEGOs with my kids on the living room floor of a small apartment was still a solid 8 or 9. I love nice vacations, look forward to them, and spend more on them now that I have a higher income than I did a decade ago. But once you identify what about those vacations makes you happy, the thing you’re pursuing might subtly shift in ways that put you closer to your ultimate goal— in this case, from “I should spend more money on vacations” to “I should spend more quality time with my family.”
Show off the inside of your house, not the outside. You don’t have to take that idea— which I borrowed from author Robert Greene— literally. But the concept is helpful, that if you want to be proud of your success and display it with nice stuff, make it most visible to those whose respect and admiration you desire the most. I love the idea that my friends and family can benefit from the nice things I’ve purchased. I care far less about what strangers might think if they happen to see those things.
Another important point here: You might think that displaying your success to strangers is bringing you attention and admiration. But often the emotion it’s actually stirring up in others is envy. Ben Franklin used to say that one of the tricks in life is realizing that people will admire you more if they aren’t jealous of you. It can be hard to tell when the transition between admiration and jealousy takes place, and it’s common for a flashy person to think they are being admired when they are actually envied.
Columnist David Brooks once made the distinction between “resume virtues” and “eulogy virtues.” Resume virtues are things like salary, job title, net worth, and how fancy your possessions are. Eulogy virtues can be boiled down to how much people actually respect and admire you. I’ve always thought it to be a profound point when choosing what to pursue in life, and thinking about that reverse obituary.
Warren Buffett— one of the richest men in history, who could literally buy anything he wanted— once said, “When you get to my age, you’ll really measure your success in life by how many of the people you want to have love you actually do love you.” He went on: “That’s the ultimate test of how you have lived your life. The trouble with love is that you can’t buy it. You can buy sex. You can buy testimonial dinners. You can buy pamphlets that say how wonderful you are. But the only way to get love is to be lovable. It’s very irritating if you have a lot of money. You’d like to think you could write a check: I’ll buy a million dollars’ worth of love. But it doesn’t work that way.”

The Happiest People I Know

If your expectations grow faster than your income, you will never be happy with your money.
True happiness is when you stop asking what else you need to be happy. When you think of it like that, you become eager to spend less time asking what’s missing and more time enjoying what you already have— regardless of how much or how little that might be. You realize that the key to happiness is being content with what you have, and its antidote is focusing on what you don’t.
The happiest people I know are the most content. Not necessarily the richest, the healthiest, the most beautiful, or the most successful. Just whoever gets to a point of saying, “I’m good, I’m satisfied with what I have and who I am.” That’s nirvana. That’s who takes the happiness crown.
I’ve met half a dozen billionaires in my life— not a single one was as happy as my grandmother- in- law. It was so easy to see why: Her low expectations gave her a sense of contentment, which in turn became an enormous source of psychological wealth that some of the richest people in the world lack.
Psychological wealth is such an important concept, and with money it comes from proper expectations. Happiness is contentment. Contentment is what you have relative to what you want.
All happiness in life is just the gap between expectations and circumstances. The person who has everything but wants even more feels poorer than the person who has little but wants nothing else. How could it be any different? That’s not a plea to live like a monk. You can have a huge house, an expensive car, take incredible vacations— and be content with all of it, appreciating it and desiring nothing more. That can be an amazing life. The key is realizing that happiness is the state when nothing is missing, regardless of the lifestyle you’re living.
Desire is a hidden form of debt that must be repaid before you get to feel any happiness.
There’s a Stoic saying: “Not needing wealth is more valuable than wealth itself.” So much of the art of spending money, and being happier with your money, is taking that wisdom to heart.
I’ll leave it to the excellent book The Molecule of More to describe the process: Dopamine is the chemical of desire that always asks for more— more stuff, more stimulation, and more surprises. In pursuit of these things, it is undeterred by emotion, fear, or morality. From dopamine’s point of view, it’s not the having that matters; it’s getting something— anything— that’s new. Your brain doesn’t want stuff. It doesn’t even want new stuff. It wants to engage in the process and anticipation of getting new stuff.
There’s almost no end to this. The millionaires look at the centimillionaires, who look at the billionaires, who look at the decabillionaires, who look at the centibillionaires. And what do the centibillionaires want? Immortality. It’s always just What’s next? What’s missing? How can I get to the next level?
People often chase the wrong emotion. They go for a buzz of happiness, which is fun but fleeting. It’s better to go for contentment, which feels even better and is much more durable.
Happiness is so similar. It’s a wonderful feeling, but it’s always fleeting. To paraphrase Don Draper: “Happiness is that feeling you get right before you need more happiness.” The problem with chasing happiness is that since it feels great but it’s short- lived, you can quickly enter something that looks like an addiction cycle. When you’re content, you’re no longer chasing— which is a prerequisite to being in the moment. You only get to live in the moment— enjoying what you have right now rather than dwelling on the past or dreaming about the future— when you have a complete absence of expectations that things would have or could have been better than they are now. Then you get to enjoy what you have, what you’re doing, what you’ve created, and who you’re with.
Once you view contentment as the ultimate psychological mountaintop, your goals change. You recognize that the dopamine game can never be won— there’s always a next level you’re striving for— and so the only way to win is to stop playing. To be content. And let me tell you: There are few greater monetary joys than realizing that you have everything you need, right now, to be as satisfied— even as happy— as you can be.
The best measure of wealth is what you have minus what you want.
Desiring less can have the same impact on your well- being as gaining more money. But it’s not only more in your control; it’s a game you can actually win, leading to durable contentment instead of fleeting happiness.
Would you rather be a billionaire who wakes up every morning anxious about what you don’t have and jealous of those who have more, or an ordinary person who wakes up so content, with so much pleasure, able to appreciate what you have regardless of how much that is? My grandmother- in- law was financially poor but psychologically rich. The gap between what she had and what she wanted was smaller than some people’s with one hundred times as much money as she had. Once you see someone master that equation, you’ll never think about wealth the same.

Everything You Don’t See

An interesting thing about money— acquiring it, having it, spending it— is that when you imagine having more of it, you focus almost exclusively on the parts of your life that might become better. What’s easy to ignore are all the hidden parts that probably won’t.
Most of what makes you happy in life has nothing to do with money, and realizing that once you have money can be a painful admission.
Music executive Rick Rubin once echoed something similar: It’s hard to get really depressed until your dreams come true. Once your dreams come true and you realize you feel the same way you did before, then you get a feeling of hopelessness.
Happiness is complicated, but if you simplify it into things like a loving family, health, friendship, eight hours of sleep, well- balanced children, and being part of something bigger than yourself, you realize how limited money’s role can be. It’s not that it has no role, just smaller than you may have assumed.
If you already have some of the core ingredients for happiness, spending money can be like leverage for a good life. But if you’re lacking in some of those core areas, it becomes a false crutch. And it’s a frustrating one, because we’re so hardwired to think that having more money and spending more money should always lead to a better life.

The Most Valuable Financial Asset Is Not Needing to Impress Anyone

The ability to not need to prove yourself to strangers is priceless.
When you don’t feel the need to impress other people, your desires fall. When your desires fall, your satisfaction with what you already have grows. It’s really that simple.
Warren Buffett once said: “The big question about how people behave is whether they’ve got an Inner Scorecard or an Outer Scorecard. It helps if you can be satisfied with an Inner Scorecard.” He used this example: Would you rather be known as the best investor in the world but in reality be the worst, or be thought of as the world’s worst investor when you were actually the best?

What Makes You Happy

A weird thing is that everyone strives for a good life because they think it will make them happy. But what actually brings happiness is the contrast between what you have now and whatever you were just experiencing.
The richest you’ll probably ever feel is when you get your first paycheck and your bank account goes from $ 5 to, perhaps, $ 500. The contrast that generates might be greater than going from $ 10 million to $ 20 million. Going from nothing to something can be so much more powerful than going from a lot to even more. Contrast, contrast, contrast. Once you see how powerful it is, you appreciate how important it is.
When you’re content with what you have now, an occasional treat or surprise can feel incredible. It’s a surprise, it’s a joy. You appreciate and savor it more. And the more content you are now, the more frequently you’ll stumble across little things in life that feel like a treat— a surprise dinner, a hotel room upgrade, a rare splurge, even if it’s small.
A simple life can be the most potent way to enjoy luxury items. That’s so counterintuitive until you realize how powerful contrast can be. Figure out your own details, everyone’s different, but when I find something I love— a restaurant, a trip, a drink— I tend to ask how I can turn it into an occasional treat versus a constant new addition. When you are content with a simple life, the occasional treat truly feels like magic.
The power of contrast can make ordinary things feel incredible and extraordinary things feel bland.
When you have no contrast against current experiences, amazing things can feel completely ordinary.
When you realize how powerful expectations are, you put as much effort into keeping them low as you do into improving your circumstances.

The Rich and the Wealthy

Money is a powerful tool, capable of shaping people’s lives in extraordinary ways. That statement can either be an inspiration or a curse, because here’s the truth: If you don’t figure out how to use money correctly, it will use you. It will control you. It will make you its prisoner, showing no mercy and offering no sympathy. Some people are so controlled by money that they think they’re chasing money to live a better life, but in fact the money plays them like a marionette doll, pulling the strings and demanding that they chase things they may not like and aspire to things they don’t even understand.
Being controlled by money can apply to everyone, at every income level. But you see its power under a magnifying glass among the very rich, who are blessed with lots of money but often cursed by the control it has on their lives. It can be a shocking thing to witness, throwing you off guard when you realize that someone who has so much money has lost so much control over their life. Ernest Hemingway said fellow author F. Scott Fitzgerald had a “romantic awe of [the rich]…. He thought they were a special glamorous race and when he found they weren’t it wrecked him as much as any other thing that wrecked him.”
Just before he died in 1920, William Vanderbilt said, “My life was never destined to be quite happy. Inherited wealth is a real handicap to happiness. It is as a death to ambition as cocaine is to morality.”
He didn’t follow a typical path of what other people told him to like or how to live. He didn’t worship his money and let it dictate how he should live, or control who he was, or capture him to a status- chasing life. He found what made him happy, and used his(enormous) wealth as a tool to become even happier. He may have looked frugal, but he was actually the freest, most independent person you’ll ever hear of. He was wealthy. Feeney is someone I consider a role model, not because of how much he made or the lifestyle he lived, but because he was so clearly in control of the money he had, never letting it become the master of his life.

Utility vs. Status

Buying things for their utility gives you the ability to express your own identity, while chasing status often makes you conform to others’ identity.
When you value utility over status, what actually happens is that you value individuality over conformity. The result, just like in writing, can not only be more fulfilling, but produces a better result. By letting yourself be yourself, without pandering to what others might want you to be, you get to focus on what you’re good at and what actually makes you happy.
I wrote in my book Same as Ever that “things that never change are important because you can put so much confidence into knowing how they’ll shape the future,” allowing you to invest heavily in them. I know that when I’m ninety years old I will value a home with a nice view and memories with my kids— so I can invest in the utility those things provide. But certain clothes, jewelry, a big home, a fast car… what looks awesome today can look ridiculous— even embarrassing— a mere year from now, as you and society change. It’s such a simple idea that can profoundly shift how you think about spending money.

Risk and Regret

Good advice is never as simple as saying “Live for today” or “Save for the future.” The only good advice is “Minimize future regret.”
Daniel Kahneman once said an important part of becoming good with money was having a well- calibrated sense of your future regret. You need to accurately understand how you’ll feel about your current decisions at various points in the future. I love that observation; it’s so powerful. Maybe regret is the best definition of risk. When dealing with money, risk isn’t how much you might lose. It’s not even necessarily how you’ll feel when you lose it— over time, a lot of painful experiences turn into cherished lessons. Real risk is the regret(or lack thereof) that might come years or decades later.
In his book, Die with Zero, Bill Perkins writes: Imagine if, by the time you died, you had done everything you were told to do: you worked hard, saved your money, and looked forward to financial freedom when you retired. The only thing you wasted along the way was… your life.
Part of the reason former President Lyndon Johnson had so much energy and ambition is because he always feared he’d die young.
Amazon founder Jeff Bezos once described his decision to start an online bookstore in the 1990s: The framework I found which made the decision incredibly easy was what I called the regret minimization framework. I wanted to project myself forward to age 80 and look back on my life and I want to have minimized the number of regrets I have. And I knew that when I was 80 I was not going to regret having tried this. I was not going to regret trying to participate in this thing called the internet that I thought was going to be a really big deal. But I knew the one thing I might regret is not ever having tried. And I knew that that would haunt me every day. So when I thought about it that way it was an incredibly easy decision.
Good memories are the closest thing to living for today while compounding for tomorrow.
The anonymous Twitter account FedSpeak once wrote, “The purpose of life is to experience things for which you will later experience nostalgia.” I can’t be alone in realizing that as I get older, memories of things that took place ten, twenty, thirty years ago are some of my most cherished assets. They aren’t financial assets but, boy, they are very real assets nonetheless.
I try to keep in mind that the things I am most likely to regret in the future will be the time I didn’t spend with my kids, the relationships with friends I didn’t put enough effort into, and certain things I’m stressed and anxious about today that I’ll eventually realize deserved more self- forgiveness.
Spending money on a vacation with my kids could form valuable memories. Having a career that pays less but lets me spend more quality time with my kids every day might lead to much happier memories. It can be hard to contextualize, but say you can choose between one job that pays $ 60,000 per year and requires forty- five hours of work per week, or another that pays $ 50,000 per year and requires thirty- five hours per week. The latter “costs” you $ 10,000 per year in lost income, which over thirty years invested at 8 percent is something like $ 1 million. But it gives you back five hundred hours per year, which, over your career is fifteen thousand hours of potential memories doing something you enjoy. And those memories compound over time just like assets.
People love to gawk at the power of compounding when investing their money. It’s much harder to think about the value of compounding memories you get by trading money for time, but the results can be just as incredible. It could easily be the best money you ever “spend,” and the ultimate antidote to regret.
Saving for the future creates independence today.

Look at Them

But let me make a point that’s critical but easy to overlook in the art of spending money: There’s a fine line between being motivated by what others have and you don’t(potentially good) and being envious of what they have and you want(always dangerous).
People like to mimic those who appear to be living better lives, which can make those in enviable positions always feel uneasy and never satisfied, because they are constantly being chased by others who covet their lifestyle and possessions. That’s why you can never truly win the status game— it’s a moving target. When you realize that status is a game that is never permanently won, you see why chasing it can be so unfulfilling.
One of my favorite writers, Lawrence Yeo, once wrote: Envy is inversely correlated with self- examination. The less you know yourself, the more you look to others to get an idea of your worth. But the more you delve into who you are, the less you seek from others, and the dissolution of envy begins.
Charlie Munger once said: “Someone will always be getting richer faster than you. This is not a tragedy…. The idea of caring that someone is making money faster than you are is one of the deadly sins.”
Researcher Suniya Luthar once did a study of teenage mental health, drug, and behavioral issues among poor inner- city kids. As a control group, she compared them to rich suburban kids— who, in a shock to many, were comparatively much worse off by several metrics. One theory is that when rich kids are surrounded by other rich kids, the urge to climb the insatiable social ladder explodes. Free from the burdens of struggling to pay rent and buy groceries, your entire life becomes a quest to become richer and more popular than the person next to you.
Who you socialize with can have as big an impact on your material happiness as how much money you make and how much you spend. When you think of it that way, you choose wisely who you spend your time with.
The simplest formula for a pretty nice life is independence plus purpose.
Spending on independence can be the most wonderful thing money can buy. And it’s more in your control than you might think.

Wealth Without Independence Is a Unique Form of Poverty

Nassim Taleb says, “What matters isn’t what a person has or doesn’t have; it is what he or she is afraid of losing. The more you have to lose, the more fragile you are.”

Henry David Thoreau once explained this concept well. How much an item costs is so much more than what you see on the price tag. “The cost of a thing is the amount of what I will call life which is required to be exchanged for it, immediately or in the long run,” he wrote.

Quiet Compounding

When money comes quickly, the emotional cost of blowing it on something frivolous is low. You are only careful with something when it’s dear to you. Spending quick money that you didn’t invest much time or energy into earning can feel like the equivalent of a one- night stand: impulsive and prone to regret. That’s why old money wants a tax shelter and new money wants a Lambo.

Identity

Investor Paul Graham has a saying: Keep your identity small. “The more labels you have for yourself, the dumber they make you,” he writes. “If people can’t think clearly about anything that has become part of their identity, then all other things being equal, the best plan is to let as few things into your identity as possible.”
If you develop an early system of saving and living well below your means— congratulations, that’s great. But if you can never break away from that system, and insist on a heavy saving regimen well into your retirement years… what is that? Is it still winning? Those whose ultimate goal is to stop thinking about money are stuck. Refusing to recognize that you’ve met your goal can be as bad as never meeting the goal to begin with.
Whatever the opposite of spoiled is, he seemed to be it— which is astounding given the life he was raised in. I asked how his parents managed to pull that trick off. How do you raise a kid to be so normal when their surroundings are so extreme? “It’s not complicated,” he told me. “Money has never been part of our identity.” What was, I asked? “Loving each other, being good employers, being good citizens. That’s what we talked about. And that’s what we judged others by.” He said despite knowing from a young age that his family had more money and toys than anyone else he knew, his parents never so much as implied that this made them superior to anyone else. Money was a tool to leverage who they were, but it never controlled or defined who they were.
Value the ability to change your mind, change your lifestyle, alter your spending, and try something new.
I love the concept of mental liquidity. It’s the ability to quickly abandon previous beliefs and strategies when the world changes, you change, or when you come across new information.
Money should always be a tool to leverage who you are, not a goal in itself.
The best definition of independent thinking is when your beliefs on one topic can’t be predicted from your beliefs on another topic.
The people I know who’ve used money best have inconsistent spending habits. They spend a lot of money on this, and very little on that. They value this, and couldn’t care less about that. They’re independent thinkers, forcing their money to work for them, not the other way around.

Try Something New

I can’t recommend this enough: Within the confines of your budget, experiment with as many types of spending as you can, cutting quickly and without mercy the things that aren’t working for you.
Try spending more than you currently do on food, travel, clothes, sporting events, experiences, whatever it is. But immediately stop if it’s not making you happier, just as if you were reading a bad book. If you do this enough, you will find, by process of elimination, the potentially weird thing that’s right for you to spend money on, and if you cut the other stuff that brings you no joy, you’ll likely have enough money to actually spend on what makes you happy.
Nassim Taleb says, “You are rich if money you refuse tastes better than money you accept.” As a corollary: You are spending wisely if the purchases you reject taste better than the ones you buy. The more you can say, “I tried buying this or that. It didn’t work for me,” the more you know you’re on the right path.
New experiences and new products that you’ve never tried before add a level of excitement that’s hard to replicate any other way. Even when the new purchase didn’t work for you, the memory and knowledge you gain by trying something new can be more thrilling than the monotony of the same experiences repeated day after day, year after year.
The priest’s advice to the kids is to go into the room, one by one, and thank the dying parent for the one thing they’re most grateful for. “In families that I know have had a lot of problems— strained relationships— the child will often thank the parent for something that cost money,” he said. “Thank you for putting me through college. Thank you for putting food on the table. Thank you for buying me a car.” “In the best families, the ones I know have solid relationships,” he said, “the kids say the same thing every time.” “Thank you for believing in me.”
If you’re fortunate to have enough money to spend some on your kids— or your friends, your neighbor, your partner, whoever it might be— remember that the ones who love you almost certainly don’t want your money as much as they want your love and attention.

Your Money and Your Kids

One nuance here is that it’s dangerous for you, as a parent, to live one lifestyle while you demand your kids live a different, more modest one.
Every family finds their own way. But everything I’ve seen tells me that when kids are young and living with their parents, the parents and the kids have to live the same material lifestyle. So you, the parent, need to pick that lifestyle carefully. “You haven’t earned what I have” can be a less effective message than “Let me teach you the value of hard work by doing it together.” Lead by example, not by humiliation.
Generational growth— the feeling that you have matched or exceeded the life built by your parents— is an important part of most people’s well- being. Author Jennifer Breheny Wallace writes: “The parent- child bond is the most important relationship for a child’s mental health. When a child cannot meet a parent’s high expectations, that bond becomes jeopardized.”
Once your kids are grown, stable, and on their own, my philosophies of handling kids and money adapt. When they’re older, I want to use my money to be a last- resort safety net for my kids, but never as a fuel. So much of success in life is learning how to fail without failing so hard you can’t recover. I want to prevent collapse. But I never want to use money as a crutch for my kids to avoid learning— on their own— the values of hard work, dignity, and managing failure.
Here’s how I put it in a letter to my kids: This may sound harsh, but I hope you’re poor at some point. Not struggling, and not unhappy, of course. But there’s no way to learn the value of money without feeling the power of its scarcity. Your parents will work hard to support you and open the doors of opportunity. But we’re not going to spoil you. We’re not trying to be mean. Learning that you can’t have everything you want is the only way to understand the difference between a need and a desire. It will teach you how to budget, how to save, and how to value what you already have. Learning to be frugal without it hurting is an essential life skill that will come in handy during life’s inevitable ups and downs.
Author Rob Henderson makes a related point that’s stuck with me. A noble goal as a parent should not be to raise successful children— success should be an offshoot of raising children who feel confident enough to find success on their own. He writes: I’ve come to believe that upward social mobility shouldn’t be our priority as a society. Rather, upward mobility should be the side effect of far more important things: family, stability, and emotional security for children.
I tell my kids that true success is when the people who you want to love you do love you. And that love comes overwhelmingly from how you treat people, rather than what you spend or a level of net worth.
The most important financial advice I can give to my kids is that money alone won’t provide the thing that they and almost everyone want most in life. No amount of money can compensate for a lack of character, honesty, and genuine empathy toward others.
Your kids are paying attention. Always, and all the time. Whether you realize it or not. If the parents are spoiled and materialistic, the kids will be too. If the parents are hardworking with good values, watch what happens to the kids.
Over time, through the accumulation of thousands of subtle clues— few of which the parent meant to be explicit— the child builds up what become firm political beliefs. Money can be so similar.
They made a mental note of how happy you were when you came home and announced that you got a raise, or how scared you looked when you got laid off. They noticed when you were envious of your neighbor’s new car. They heard you and your spouse bickering over spending decisions. They noticed when you were greedy. They noticed when you were frugal. They paid attention to all of it. And by the time they’re adults, it will have accumulated into a profound effect on how they think about money.
I want to show my kids how you can use money as a tool to live a better life. I do not want to burden— or even poison— them with displays of insecurity and greed. I want to show, by example, that if you’ve already covered what matters in terms of family, health, and friends, you feel less desire to use your money to show off for strangers. I want to show, by example, that no amount of money you have, and no material item you possess, will cause people to like you if you’re also a jerk, lack empathy, or feel superior to those who haven’t been as fortunate as you. I want to show, by example, that the highest use of money is to use it to control your time, granting freedom and independence, and living life the way you choose.
Remember what they’ll remember you by. Jonas Salk, inventor of the polio vaccine, was once asked what his main aim in life was. “To be a good ancestor,” he replied. What a wonderful goal for every parent. To leave your kids, grandkids, and future generations the knowledge of how the world works, the wisdom to know what matters, the independence to make their own choices, the confidence to take risks, the prudence to be a long- term thinker, and the values to know how they themselves can become good ancestors.

The Finer Things

Historian Cyril Northcote Parkinson coined a thing called Parkinson’s Law of Triviality. It states: “The amount of attention a problem gets is the inverse of its importance.” Parkinson described a fictional finance committee with three tasks: approval of a $ 10 million nuclear reactor, $ 400 for an employee bike shed, and $ 20 for employee refreshments in the break room. The committee approves the $ 10 million nuclear reactor immediately, because the number is too big to contextualize, alternatives are too daunting to consider, and no one on the committee is an expert in nuclear power. The bike shed gets considerably more debate. Committee members argue whether a bike rack would suffice and whether a shed should be wood or aluminum, because they have some experience working with those materials at home. Employee refreshments take up two thirds of the debate, because everyone has a strong opinion on what’s the best coffee, the best cookies, the best chips, etc.
The amount of attention a problem gets is the inverse of its importance. I think part of the reason this happens is because focusing on small- budget items makes you feel like you’re being responsible, taking action, and making progress, which makes it easier to ignore the big problems. People can recognize when they’re being oblivious, giving zero attention to a problem. But when you can say, “Look at me, cutting lattes from my budget like a responsible budgeter,” it’s harder to recognize that you’re being irresponsible with much larger purchases.
For the vast majority of people, a handful of budget items make up the vast majority of expenses: College Home Car Health insurance Childcare That’s it. That’s what should get all your attention. Everything else is a rounding error.
It’s almost impossible to build wealth without controlling your biggest expenses. And it’s very difficult to grow wealth without caring about smaller expenses.

The Life Cycle of Greed and Fear

Greed happens when you double down on actions that at one time worked but aren’t sustainable, or that cause you to overestimate how influential your actions were on outcomes.

How to Be Miserable Spending Your Money

So let me offer you a brief guide on how to be miserable with your money.
Let money— the making of it, the spending of it, the accumulation of it— become a core part of your identity. Spend more time thinking about money than the life you’ve built with that money.
Fantasize that having more money is the solution to all your problems. Tell yourself that you’d wake up every morning with a smile on your face if you had just a little more money. Imagine that you’d be more liked, more admired, you’d have more friends and healthier relationships. Believe that none of your current fears, anxieties, doubts, and confusions in life would exist if only you had more money than you do now.
Have such a fierce saving ideology that you’re never able to treat yourself to a good life you can afford. Act like money’s only purpose is to accumulate in your bank account, where instead of a tool to live a better life you’ve essentially formed an accounting hobby.
Ignore the hidden social, emotional, and expectations costs that come from certain purchases. Ignore what some purchases will do to other people’s impression of you. Forget that you may have created a higher bar you’ll need to exceed during the next purchase, which is a hidden form of debt.
Treat all financial decisions as math decisions with no appreciation for reasonable emotion, sentimental value, and desire to feed your soul. Become more interested in making the spreadsheets happy than making yourself happy.
Be persuaded by the advice and lifestyle of those who need or want something you don’t. Want what society says that you should want. Desire what the marketers say you should desire. Look to other people, including strangers, for answers on what’s best for you. Have no appreciation for the vast spectrum of people’s needs, wants, and desires.

The Luckier You Are, the Nicer You Should Be

Independence offers the highest ROI that money can buy, and I don’t think it’s even close.
Over the years I’ve come up with a few simple thoughts that guide how I think about money in my own house. Spend less than you make. Quietly compound. Money serves you, not the other way around. No one is thinking about you as much as you are. Independence is wealth. Health is wealth. Aim to be a good ancestor. Love your family.
The luckier you are, the nicer you should be.
If you’re fortunate enough to live in a prosperous region, in a prosperous era, surrounded by the ability to learn about the world and express who you are— a beneficiary of the accumulated efforts and wisdom of the one hundred billion people who came before you— the more you should go out of your way to appreciate what money can’t buy.