How We Think About Spending Money

By Ben Dolan, CFP®

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Books are my favorite holiday gifts. There is very little I enjoy more over the Christmas/New Year’s break than sitting with a coffee, a pencil and something engaging to read.

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Those of you that have spent enough time with me (or have been a client for more than a few years) have probably heard me mention personal finance writer, Morgan Housel. In 2020 he published The Psychology of Money, a must read, but especially important for those in the first few years of their careers, when opinions about savings, spending, and finances in general are formed.

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Last year Housel published a new book helpful for all ages, but geared toward a slightly older cohort; The Art of Spending Money. There’s a lot of wisdom in these pages. If you enjoyed his 2020 publication, I think you’ll like his recent work (even if there are some redundancies).

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One chapter stood out to me as it is an homage to another favorite author and investor of mine, Charlie Munger (longtime business partner of Warren Buffet). On more than one occasion, Charlie is known to quote the 19th‑century German mathematician Carl Gustav Jacob Jacobi when thinking through a problem: “Invert, always invert” (by the way, if you can’t get your adult children to sit down and read The Psychology of Money, have them try Charlie’s 1986 Commencement Speech at the Harvard School in Los Angeles. It’s short, timeless, and masterful in the use of inversion).

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The chapter, utilizing Munger’s suggestion to invert, is titled “How To Be Miserable Spending Your Money, A brief guide to bad decisions.” Housel can’t tell you how to be happy spending your money, obviously. But he can provide some guidance on how to be miserable. Here are his ideas:

• Direct your gaze at the socioeconomic group just above you, assuming that within it you will find a level of durable happiness.
• Pursue status at the expense of independence.
• Let money – the making of it, the spending of it, the accumulation of it – become a core part of your identity.
• Spend so much of your income that you become completely reliant on the decisions of other people, like bosses and bankers.
• Fantasize that having more money is the solution to all your problems.
• Assume money can solve none of your problems, and that it is the root of evil and ego.
• Have such a fierce saving ideology that you’re never able to treat yourself to a good life you can afford.
• Compare your inside with other people’s outside, envying others’ success without having a full picture of their lives.
• Ignore the hidden social, emotional, and expectations costs that come from certain purchases.
• Have no sense of your own tendency to regret.
• Associate net worth with self-worth (for you and others).
• Be persuaded by the advice and lifestyle of those who need or want something you don’t.
• Anchor your lifestyle expectations to the most successful people you know.
• Become so optimistic that your expectations grow faster than your income.
• Risk what you need in order to gain what you don’t need.
• Overestimate the attention you get from having nice stuff.
• Assume you have all the right answers.