What Financial Experts Won't Tell You About Money

You don't have to worry about whether you're doing quotes right or wrong, if it works for you and makes you happy then maybe it's the right thing to do. There is no right answer in finance to investing as we know. It's not intuitive to people, but this is an endeavor where you could find the Morgan family here today. Morgan House, author of The Psychology of Money, is no wonder it is an international bestseller when he was a child and his refrigerator was empty and his mother had three dollars in his name. and he said look, three dollars is not going to fill the refrigerator, it is not going to make a vent, but three dollars will buy you three lottery tickets that will give you the potential to fill the refrigerator, by far the biggest problem for new people investors is not understanding.

How long does it take to put the odds of success in your favor? If you want to break it down like the simplest terms, living below your means, saving the difference, investing for the long term, and diversifying, so

tell

us, I mean, do you think we? If we are headed toward a global recession, be very careful with certainty, including similar certainty and forecasts, such as someone saying we know a recession is coming in the next six months or someone saying we know this stock is going to double. any level of trust, like That's just not how the world works.

There is a lot of advice out there that is bad or good for a person, but not for you. Morgan Hassel is a behavioral finance expert and author of the best-selling book The Psychology of Money. Today we'll talk about how you can be smarter with your finances and how psychology plays a huge role in your relationship with

money

. This book was my favorite read of the year, so it's a great honor to have this conversation. I'm Erica Kohlberg, she taught me Erica and today we're here with Morgan Hausel Morgan. I'm very happy to have you here, so first I want to talk about your book, which has sold millions of copies.

It's really resonated with people. It's the story that people say wow that really had an impact on me or that really helped me understand this concept of personal finance. I think it was one that resonated a lot and resonated with me personally as well, maybe it was my favorite, it's just the idea that there's no right answer in finance. I think we tend to think about finances and finances are taught like math and in math there is a right answer for everyone, no matter who you are, where you are from or how old you are. Two plus two equals four for everyone, that's how math and finance work.

It's just not the case at all from my point of view that people who are equally in

tell

igent, equally educated, equally informed can come to totally different conclusions about how to manage their

money

and I think once you accept that, it does two things: one , it makes you less cynical about other people and less critical about how other people spend their money and two, it gives you permission to be like

what

works for you, which you don't have to worry about. whether you're doing it right or wrong, quote unquote, if it works for you and it makes you happy, then maybe it's the right thing to do and there are things that I do with my own money, my wife and I do with our own money that are probably the quote-unquote wrong thing, that if you looked at it on a spreadsheet you'd say, oh, you should do this differently, but it works for us, it makes us happy, and it helps us sleep well at night, so it's the the right thing for us and I think once you have that little nugget that no one is crazy, people do crazy things, but everything that people do with their money makes sense to them, works for them and yes, there is always room for It gets better and people can be misinformed and do things they're going to regret and we should try to help them understand

what

their options are, but people do so many different things with their money.

Can I tell you a short story that's in the book that most of you really liked? of lottery tickets in the United States are bought by the poorest Americans the lowest decile of people with income for the most lottery tickets now someone like me or you could look at that and say it's crazy that these people who They can barely feed themselves, they are buying scratch-off tickets, that doesn't make sense, it's not rational. I have a friend who is a

financial

advisor. He is successful now, but he grew up in extreme poverty. He was homeless most of his childhood and he once told me a story that he remembers when he was a kid and his refrigerator was empty and his mom had three dollars in his name and he said, look, three dollars isn't going to fill the refrigerator, It's not going to make a dent, but three dollars will buy you three lottery tickets that will give you the potential to fill it. the refrigerator and said until you can understand that mentality you won't understand why these poor people are buying so many lottery tickets when it's your only chance of hope to literally feed your children in this situation, it doesn't make sense and that's it. that's an extreme example, but it shows that there's so much going on inside people's heads and there's no right answer about what's right, so I think we all need to figure out what works for us, be a little more introspective about who we are and what we want and what our goals are, our social aspirations and just finding a plan that works for us, so I've been that too when I started creating personal finance content.

I feel like many people ask me, what is the formula? How do I do it? I was thinking about dieting or I was thinking about how this relates to dieting, like people love 10,000 steps a day, for some reason it was so formulaic that it really resonated and stuck with a group of people and people can remember those ten thousand steps a day, yes, Dave Ramsey saved a thousand dollars, people remember that because it's a formula, it applies across the board according to him and people resonate with that again, do you think? While I agree that personal finances are personal, I feel like some people are just looking for a formula, what's the closest thing to a formula you could give them?

That's a great question because I don't know the answer that comes to mind. the formula was like you wanted to break it down like the simplest terms of how to live below your means save the difference invest for the long term and how to be diversified like it was probably something that I would say is something really broad and not specific like I think once people adopt a formula like saving like CNBC. to invest and you'll see the guy on CBC who says you should sell Apple stock. I don't wonder who you're talking to. Are you talking to the 19 year old day trader?

Are you talking to the widow who lives on a fixed income? because the advice is going to be completely different there, so it's like there's a formula of living below your means, except in the long term, but that's very dry and non-specific, but I honestly think that, in my opinion, that Is the most similar. to a formula as you can get, you just mentioned ten thousand steps, okay, great, save a thousand dollars from Dave Ramsey like yeah, wonderful, but there will still be a lot of people who hear that and might say I can't save a thousand dollars or a thousand dollars that I make, I make a quarter of a million dollars a year, that's not like there's still a huge amount of people that listen to that and say that doesn't apply to me specifically and I think it's almost like a diet too where are there diet principles like eat vegetables, eat like yes, but there are also people who say, I'm gluten intolerant, so this doesn't work for me and that doesn't?

There are going to be so many differences within the group yeah, I think especially for

financial

content when by definition you expect so many different people to see this, different ages, different income groups, the more specific it gets, the more dangerous I get, the more dangerous it gets, I think that's what it is. dangerous about something like CNBC where they are giving universal advice to a wide audience no that totally makes sense so I know once I agree that maybe there isn't a specific formula. Do you think there are principles that apply in all areas? I know in your book one of the things you talk about is the principle of greed and wanting things faster, wanting your money to double faster and not having that patience and the long-term vision for your money is something you think It applies to everyone.

I think it's true that in most endeavors in life there is a pretty quick payoff, for example if you go to the gym, tomorrow you'll be sore, like there's a nice, there's an indication that something is working if you do it. You're like you're on a new diet, you might feel different that day and the next day, it's a pretty quick thing, so people take those payment time periods and when they apply them to the investment, if they're new in investing, they might think, "Oh, I'm leaving." invest a thousand dollars and I'll come back next Wednesday and see how it's done and then or maybe I'll check back, you know, in two weeks and see what's going to happen in six months, that seems like a long time because if you go to the gym for six months and You didn't see any progress, it's like you're doing something wrong here, but investing like we don't, it's not intuitive to people, but this is an endeavor where you could lose money for 10 years. period and that doesn't mean you've done anything wrong, investing is a very, very long effort.

I think the closest example is like planting an oak tree the way it needs to be if you planted a seed in your backyard and you check it next Wednesday and you say oh it doesn't work it's a scam you say no it just takes a lot of time and the The results will be magnificent, but it will take 50 years and I think investing is very close to that and yields a lot. of people, by far the biggest problem for new investors is not understanding how long it takes to put the odds of success in your favor and it's not, it's not a month, it's not a year, it's something closer to five or ten years before it arrives.

Okay, if you've put that much time into it, chances are you should start seeing if you're doing it right or wrong, but even in that scenario, even 10 years from now, even if you're doing it right, it's unprecedented in You may have done all of that quite badly if the economy is doing very badly if there is a financial crisis if there is a pandemic, whatever it is, that is what it is, it is really a lifelong effort and that is what which ruins people if they're not familiar with that time frame, but like the time horizon, what do you think are also the biggest mistakes that people are making when it comes to their money?

I think there's a lot of money to be made in the money business and because there's a lot of bad advice out there and there's a lot of people who look pretty respectable and sound pretty respectable and who are a scam is the wrong word because that implies it's illegal. I think you are, you are, you are, you are. the lawyer, you know, but there are a lot of people who I think have good intentions, but they operate in a system where incentives push them to not give the best advice and to charge outrageous amounts for it.

I always think it's one of the best financial skills you have. What you can have is a very, very fine BS detector, so you can watch an ad or listen to a speech and say I'm not saying you're a bad person, but the product you're selling is bad and has that sensitivity. It's really important and a lot of people don't do it because there are a lot of other fields in your life that are highly regulated like medicine and all that, if you go to a doctor who has a medical degree you can be reasonably sure, I'm not saying there are no bad ones. doctors, but you can be reasonably sure that they are trained, vetted and qualified, and the advice they give you is probably good advice, and in the world of finance there are things like cfp and CFA, these credentials that are pretty good, but There is no need to have them, if you have surgery that person must have a doctor, this would be a licensed surgeon, but you can go to a financial advisor who has very few credentials or took a regulatory exam that took them two. weeks to study because they have a Google degree and can be financial advisors, so many people get carried away with this and there are many who are also online again.

I'm not going to use the word scams but just things online that want to push you in one direction or the next which leads to a lot of bad advice and a lot of these two aren't even commercial products to buy but there are so many blogs and networks social. I'm one of them, I'm not going to throw them all under the bus, but there is a lot of advice out there that is bad advice or good advice for one person, but not for you, and I think having that sensitivity to information is really critical for new investors, but it is very difficult, although I imagine that for these new investors when they do not understand it, when you do not understand what you are looking for, it isdifficult even if you have a good BS meter in general.

It is very difficult to know who is good and who sincerely cares for you and who is good for your specific personal finances versus who is not right, like if someone wears a suit and speaks very confidently it is easy to feel that they are trustworthy very easy especially when you know that there is a lot at stake in money this is sending your kids to college this is retiring this is not just a little game this is like one of the most important areas of your life and since it's not usually taught in high school or even in college, even if you're a very smart woman, a very smart guy, highly educated, you have a degree in chemical engineering, you might not know anything about money. but I always say that the two areas of your life that are going to impact everyone, whether they like it or not, or health and money, it doesn't matter if you don't like those fields, those fields are going to impact you.

They are there? They're going to impact your life, so the fact that we don't generally teach those fields in school has always been crazy to me, but it also makes even very educated people who aren't gullible in any other area of ​​their life Caught by surprise very often, what are some red flags people can look out for? So if you are advising someone who is 20 years old and new to this world of personal finance and money, what would you tell them? Hey, if someone says buy this product or do this with your money, what's the red flag they should look out for?

I would say, in general, be very careful with certainty, including certainty and similar forecasts, like if someone says we know a recession is coming. in the next six months or someone says we know this stock is going to double any level of confidence like that, that's just not how the world works, the best thing you can do when you study economics or investment markets is to simply put the odds of success in your favor, so the best thing you can do is be like we are 60 confident in buying this stock and if it doesn't present itself that way, if it presents itself at any level, this is a safe bet for your life because It simply does not exist in this world outside of an FDIC insured savings account, certainty does not exist in the world of finance, but certainty is what sells and that is why many of the proposals that are online promote this degree of certainty that I think could be really dangerous, that's a big red flag, they're really good, so anything guarantees results if they say, oh, if you invest in this stock, you'll double your money, that's obviously a big sign. alert.

Why is the industry this financial space? It's this industry that you see people on TV saying, "There's going to be a recession, buy this stock, what's your incentive there?" I think again, there is a lot of money to be made in finance, if you think I mean the United States for financial purposes. assets stocks bonds checking accounts are more than 100 trillion dollars it is like an unfathomable amount of money and globally it is several hundred trillion dollars if you are in the world of finance and you take one percent of that as a fee, it is a lot money an incredible amount of money that you can make and you know in fields like Investment Banking and all that, you have people that can graduate from college and make half a million dollars a year in college and they are smart people, they are not a citizen compared to other industries, there is a lot of money to be made in finance and that is why I believe that, otherwise, there are morally good and well-intentioned people when presented with a system where their incentives are to promote certainty or deceive people.

Even if they are good people, they are not scoundrels, they are willing to sell products that are not good for people because they have the potential to make a lot of money themselves. I think that was true, like during the financial crisis when there was a lot of 2008, when there was so much vision of greedy Wall Street bankers ruining, ruining the world, which was kind of the narrative at the time, kind of One unpopular opinion I had was that I think 99 of those people were very good. morally honest people who operated in a terrible incentive system and most of us who might have been saying that the greedy bankers who ruined the world underestimate how you and I might have acted if someone had said: Hi, Erica, 22 years old, I'll give you four million dollars if you package these subprime loans and sell them to widows and orphans.

Yeah, I think a lot of us underestimate what we would have done in that situation and because those incentives exist in finance in a way that they don't exist in medicine or engineering or any other field like that, you really have this boom and bust cycle in the that the incentives pile up and you have a big financial bubble and then everything collapses. I know you've been in the financial space for a long time, over a decade, you've been writing about finance and personal finance, do you think what's happened with social media and the current accessibility of personal finance information to through social networks is in general a good thing for people or do you think it is? a bad thing because even now it's harder to differentiate between possibly bad actors with ulterior motives and good ones who actually want to give good personal finance advice to everyone.

This is a boring answer, but I think it's the truth. I think it's on the net. Good, but it's very thin. I think I'm making this up, but I think it's 51 awesome and 49 terrible, like it evens out to where it is. I think it's a good thing online and it's a good thing because if you come back. For the world before social media, most financial advisors were gatekeepers, if you were just an average Joe and you wanted to invest for your retirement, you want to buy a mutual fund, you need to make an appointment with a guy off the street, wow to his office. knowing how to wear a suit and tie how to wait in the waiting room to be able to go have permission to invest in the stock market and be paid an outrageous fee and commission for doing so, that was the world that existed 15 years ago, not that long ago, and Me It seems wonderful that not only access to financial products but also access to information has become so democratized, and I don't think it is an exaggeration that an 18-year-old boy with an iPhone today has more financial information than a couple. at Goldman Sachs they did it 20 years ago, that's not an exaggeration, it's like a lot of people are just gatekeepers of information and also financial advisors, if you thought, forget about buying a mutual fund, if you wanted to know what mutual funds existed ago 20 years, you had to do it.

Go talk to that guy and pay him a crazy fee and you won't do it anymore, so a lot of those commission-based financial advisors don't exist anymore because both information and access to the product have been democratized. That's kind of surprising, but the other side of that is the number of people who promote products that they shouldn't or people who innocently give advice on social media and all that, who are very innocent, they're just naive to the "The fact of which might be bad advice to someone else, they're not doing it, you can't fault it, but if it's someone who goes on and says, "Everyone should buy this stock, you just might not have the knowledge or haven't done it" I didn't think that a 16-year-old kid in his mom's basement could hear that, put his whole life into it and lose everything because he didn't know what the consequences were, so I think there's a lot of innocent bad information there, too. just casting everyone as bad actors, a lot of it is really innocent and I encourage you.

I think it's great that if you're someone who's interested in finance and you want to start a blog, start doing Tick, start doing YouTube, that's awesome, that's great, yes, but if you spin it a little bit and say that everyone interested in medicine should start posting medical advice in that situation, you'll think that maybe it's not a great idea, but we do it with Finance. So that's why I can see both sides and online I prefer this world to the old world and that's it, yes, we are in a better position, but it is not without consequences.

I'm with you on that, I mean, it's interesting stuff. like what happened with Dogecoin wouldn't have happened free social media in any way, no way, even social media five years ago wasn't that established and things like GameStop uh in early 2021, these things that would have been unfathomable like 24 ago months now are the The reality of the world we live in, I think a lot of that was also coveted, it was related to the fact that people who would otherwise be watching football games hanging out with their friends were stuck inside and The only thing you could do, all sports, was shut down in 2020.

The only thing you could do was day trading and the explosion of Robin Hood accounts and cryptocurrency trading in 2020. You can trade until the day the blocks, it just exploded after that and again I think a lot of it is great. Of these young people, teenagers and twenty-somethings are now actively involved in investing and even if they do it in a way that they regret, I would prefer someone to learn how finance works and how risk works when they are 19 years old. Yeah compared to when they're 45 and putting their kids through college like it's really cool to the extent that Robin Hood was absorbing a bunch of young investors.

I'm like that even if they end up regretting what they did and a lot of them already have I think that's actually a good thing, I think that because I think a lot of the fear of investing comes from not having done it at all and that's what it did that for me, at least growing up, I didn't know that this was something that I didn't, I thought that investing was something for the rich and all it took was me investing my first twenty dollars to say: wow, maybe someone like me can do it too, yes, and I think ultimately it's a good thing, yes. but I think you know you learn these lessons very quickly if you invest in something and it goes down 98 like, oh, maybe it was wrong to invest in that, a lot of this is going to be an unfortunate conclusion if you have someone who was young and new to investing and They invested all their money in call options on Robinhood and they lost it all and what I just described as millions of investors were in that situation, the conclusion they could draw is that investing is a scam and I will never invest again in my opinion. , that is the wrong conclusion.

The bottom line is that you simply shouldn't have invested in call options or penny stocks or bankrupt companies, but investing in a more diversified way in more established companies is not only the right thing to do. do it, but it's absolutely critical to your retirement and sending your kids to college, eventually, like it's a really critical part of the rest of your life, so that's a downside, is that they get so scarred by what happened in the last six. months during which tech stocks exploded imploded, uh, if that scares them for life, then that's a bad thing and I think a lot of these platforms, you know, would present themselves as democratizing investing, but in reality what they were doing was to promote trade. which is very different from investing, those are two different beasts.

I don't look down on merchants. I'm not going to say it's wrong, but I think for a lot of people who say, oh, I'm not that interested in finances. I'm not a financial nut. I don't want to do this 24/7. Those people should probably be investing now if you are a financial nut and you love this stuff and want to be a Trader. I think that's great, that's amazing, but I think there are a lot of people who wanted to be investors who are forced to use a trading product and end up having a bad experience with it just for the people who are listening and who may not know the difference between an investor and a trader.

I get into how you define that. I think a big part of this is the difference between investing in a long-term business where I'm going to buy Apple stock because I believe in their products and their products are going to make profits. and those profits will accrue to me as an investor over the next 20 years, i.e. investing in a business for trading results, trading, I'm going to buy a stock because I think the stock price will go up over the next week and it's more a speculative endeavor and you may be right in that bet that you could make money doing it.

I'm not saying it's wrong, but it's speculation that a stock price might go up rather than that I'm investing in a business whose earnings are going to increase. they will be paid to me as dividends over the next 10 or 20 years so part of it is Time Horizon and part of it is like the bet that you are making and why you are attracted to that company and it's very interesting how it all comes back to psychology because you think about the story you told about the lottery ticket, why is GameStop so much more exciting than saying "hey, invest ina low-cost index fund?", it's because there's hope that, wow, I could double and triple my money.

In a short period of time, yeah versus oh, on average, it comes back 10 year after year, and here's like yes a lot of people don't like that their expectations are really inflated I remember someone on Twitter last year when the markets were going crazy last year they tweeted me and they said if you can't double your money every year in the market. of securities, you have no idea what you're doing. I remember being like there was a sentiment check on where we are in the world, but also like I don't blame them because if you're new to investing, you might.

Thinking that is totally reasonable, but the actual statistics say that if you can earn 12 per year, you are a hero in this market, if you can earn 15 per year. year of your career, you are on the Mount Rushmore of investors throughout of time, like on average over the last 100 years, the stock market in America has returned an average of 10 per year, if you can beat that by one percent per year and gain 11, it's incredible. You're one of the top professional investors in the world, literally, and those are the expectations to anchor to, so when that's the world, like 11 a year, it's amazing when you have people who think you should make 100 a year, they're so disconnected. of the reality of what is likely to happen and maybe they go through a period where they actually doubled their money in a year, but there is just a reversion to the mean that everything will turn against them, which is exactly what happened in the last six months, yeah, do you remember when you first invested your first hundred dollars? idea and then that didn't work, I lost money doing that and then I tried trading other stocks and then I tried holding stocks for a month and nothing worked and I don't regret any of it.

I lost a lot of money doing that, but it was a great learning process. I think there's one thing I did well is that I learned quickly, not that that didn't work, let's try something else instead of being stubborn and saying I have to keep trying this again. and over and over again and it took me a long time to get to where I am now and how I invest, which we can talk about if you want, but I would also say before we get into that, I would say there's a good chance that I'll change the way I invest.

I invest in the future. The idea I thought I already have it all figured out. I think she's pretty naive and there's a good chance that in 10 or 20 years she'll look back and say how I invested. today and even things that are written in my book that I won't agree with I really hope that's the case I hope it's not I I I I I hope my worldview and my world learning haven't peaked at this age I hope I would continue to learn more things and change the way I invest, but it is interesting that while reading your book, I know that many of these finance books need to be updated every two years because some of what is written becomes irrelevant. but your book seems to me to have very timeless principles.

What do you think? Do you have specific chapters you're looking at that you think should be rewritten in five years? I mean, the only thing that stands out is that I finished writing it. in December 2019. So right before Covet started, I think there's a sentence about Covet in the book because we didn't want to seem like we didn't notice, so we included it, but I wrote all that before Covet. Now there is nothing I don't agree with. No, this is kind of like greed can't happen, but greed changed a lot of people's views on risk, including mine.

I won't do it again. I don't think there's anything I would change in the book, but you go through these events in life. 911 2008 covid and suddenly you say, oh, how I thought the world works is actually not how it really works and I think that you and I and everyone else for the rest of our lives, hopefully we will live another 50 years or more, You know? I think historically every 10 years something happens in the world that shatters people's worldview again, like 9/11 and all that, something just happens and we're like, oh, I had this vision of the future and I know it's wrong and I need to readjust it or even at least On a personal level, if you have some personal crisis, your vision of what you thought the future would be like can change in an instant, whether it's a medical condition or whatever, so I don't know what the event would be. , but I would be very confident that within 20 years there will be some massive global event that changes the way I think about risk.

I've told this story before, but it was pretty revealing, so I write about this stuff for a living and I have for over a decade about investing in psychology and staying calm and all that, my wife and I had this plan of long time to sell our house in Virginia in April 2020. long before coveting, that was our plan, we are going to put our house on the market in April in hindsight as the worst possible time because April 2020 was the peak of panic for covid, the economy was melting, the unemployment rate was higher than during the Great Depression, so in March 2020 I called our realtor and said hello I know the plan was to put it on the market in April, but I want to put them on the market right now tomorrow and he said, he said Morgan, don't panic and I said, oh, I'm panicking, you're looking panic in the face. right now and I'm someone who wrote a book about don't panic and in that situation I did, I don't regret it because we were going to sell anyway and it ended well, the house sold, it wasn't a problem, but there is a big difference between how you think you're going to react when everything is calm and everyone is happy and when you're actually in the trenches experiencing it firsthand.

There could be a big gap between that and I would say that, in general, most people think. They have a high risk tolerance when things are going well, yeah, when you're gainfully employed and you're happy and healthy, and I said, Erica, what's your risk tolerance? You probably say, oh, it would be great if the market fell 30. I think that's an opportunity. Great, but when one of these big events actually happens and there's a pandemic that could kill you and your family and you could be heading into the next Great Depression, then you think differently about the world, so that's like I know. that whether it's personal or global, something will happen in my life that will make me think: ah, now I think differently and I don't think that's a bad thing, I don't regret it, it's just that everyone is constantly learning how the world works and what they want, that The other side of this is that I'm sure my wife, myself and my kids will have different goals, different aspirations when I'm 50 than when I was 30, of course, so it would be naïve of me to think that I've got this all figured out. for the next 50 years, that's just not how it works, yes, you're absolutely right.

I remember in March 2020 my father, who to me is very similar to a patient person with his money, he understands that look, he just waits. long term, but he's a couple years away from retirement so he saw his 401k just collapse and when you're against me many years away from retirement and you see your retirement has something like that, it's scary, that's scary and that causes this emotional response that you couldn't have predicted two days before or five days before, yes, and it was very bad with greed also is that in 2008, the financial crisis that was a financial crisis, what was happening was In the finances, the greed of this other item was a financial crisis and a health crisis, not only was your father's 401K plan cut in half, but I'm sure he was worried he might die, that's what worried everyone at that time.

It was like this double whammy of fear in that moment that really shook people in a way they will never forget. Yes, so I know now 50 you might have a different theory, but what is your current approach to investing? Then the other thing. I made it clear in my book that this is not advice and it's not just to make lawyers happy, as everyone invests differently, so just because this is what I do doesn't mean it's what you don't. be. Financial advice, no, no. Financial Tips for Everyone I am a passive investor because I primarily invest in index funds which are very broad, low-cost diversified funds and I plan to hold them for over 50 years.

I never sell and do what's called dollar cost averaging, so I invest. the same amount of money every month, come hell or high water, every month from the first of the month, the same dollar amount over and over again, not based on where I think the market will go next or what it is doing the economy. just a consistent system to invest a little bit more for as long as you can and hold it for as long as you can, that's how I invest in the stock market. My wife and I have a pretty high percentage of cash as our net worth.

It's worth it, if most financial advisors saw it, they would say: What's going on here? Are you saving for a new house or something? And I always say no, I'm saving for a world that I know will take me and everyone else. for a wild ride and I think most people think about risk, they only think about risk they can imagine the risk that makes sense to them and what we know about risk is that the biggest risk is always what doesn't I don't see it coming, I just used like 911 in 2008 in Covid, no one saw those things coming before they effectively destroyed the world and on a personal level it's the same thing, very few people see a divorce coming, very few people They see cancer.

It comes like that and most people think it's not going to happen to them until it happens, so I have a higher level of cash than most people because I want to be aware that even if things go well now, things they change and change abruptly. So in a world where risk is what you don't see coming, you need to have a level of conservatism in your finances that seems like too much because if you're only planning for the risks you can see. I'm going to miss the surprise 10 out of 10 times. So those are my high-level financial philosophies, low-cost, diversified investments for the next 50 years and a fairly high level of conservatism.

I like to think that Saving like a pessimist and investing like an optimist Yeah, I want to save my money with the idea that, oh, the world is fragile and my career might be fragile and I want to be prepared for that so I can handle it, but I invest with the idea. If I can endure it and endure all the ups and downs, then if I can stay invested for 50 years the results will be incredible. It's like that bar personality. Besides investing in the stock market, do you own real estate? Other investments. We own our house and I write in the book that we own it outright, and I would write that it was the worst financial decision we could have made, but the best monetary decision we could have made, that's a big thing, that's one of the things I can't explain on a spreadsheet why we don't have a mortgage because until six months ago you could have gotten a 30-year fixed rate mortgage for two and a half percent, basically free money and without having more it helps us sleeping better at night we like the feeling it gives us so that's another thing like saving like a pessimist.

I put it in that field like I couldn't. I can't show you on a spreadsheet. I can't justify it on a spreadsheet. why we did it, but if for similar moral reasons in our home it's the best monetary decision we've ever made, that's the only real estate we have and besides that, other than that, I mean, effectively, all of our net worth is a house, a checking account and index funds, that's 99 of our net worth and I think it doesn't need to be more complicated than that. There's always the assumption that the more complicated your finances are, the better off you'll be.

I think that's like a knee. -Idiotic reaction of oh, how can I make it more sophisticated? And I think it's almost always wrong, yes, it's almost always the case that simpler will be better most of the time. I know it sounds cynical but a lot of times it's complex and finances are just an excuse to pay higher fees but the results you get rarely show up so I think the simpler it can be, I love that I can understand my finances. in two seconds. I know. Is it that easy for me to track and think? B.

I think when it's that simple, you're removing as many middlemen from the equation to make it as vague as possible, which I think is, for us, at least the right way to do it. Do it, how are you thinking about cryptocurrencies? Look, no, no, I don't have any, so I could probably stop there and say that's how I feel about it, but I wouldn't bet a million years against them either. yeah, I have no fomo in finance, the fear of missing out doesn't bother me in the slightest, when other people do better than me, I wouldn't be the least bit surprised if cryptocurrencies do amazing things and completely change the world.

Also, if I have a view on cryptocurrencies, it's like if you don't find a lot of them amazing, you're not lendingpay attention and if you don't find many of them absurd, you're not paying attention. I like both things and, in fact, in any new industry it is always like that. I always use the example that in the early 1900s there were 2,000 automotive companies and 1997 of them went bankrupt and three of them, GM Ford and Chrysler, went on to change the world, yes, in any new industry it is like that in the 80s there was like dozens of PC companies and they ended up like Hewlett Packard and Dell and a couple of others, there is always in any new industry like a massive failure 99 of new entrants just disappear and cryptocurrencies will be no different, whether it takes six months or six years , but I am very confident that 99 of the current new crypto projects will not exist, but as an industry it can still do very well if the one percent that stay become billion dollar companies, that's what happened with GM Ford and Chrysler.

If you invested in every automaker in the early 1900s, even if 99 went bankrupt, you'd still do pretty well, but then the question is do people have the iron courage that allows them to do that, just like cryptocurrency investors? , if they make 100 investments, is it okay that 99 of them could go under? or that Bitcoin and eth could be the winners if people have that mentality and believe that they have that risk tolerance and I would say that's great, but that's the whole industry of all of these, the whole history of all of these industries, not just crypto it's like every time there was a big innovation there was a massive crash and not like volatility but these projects just disappeared forever, yes I know, so you've taken the very conservative route of low cost S P 500 index funds, i guess.

Do you have any? Do you have a portion allocated only to individual stocks of companies you believe in? I'm on the board of a company called Markell, so I own a lot of Markel stock, since as a board director I should have a lot of skin. in the game I have some Berkshire Hathaway uh, Warren Buffett's company, he was a big inspiration from the beginning, so almost for sentimental reasons I haven't gotten rid of it. Have you been to the annual shareholder meetings many times? It's great, really, yeah, it's really It's a good time to go, it's 40,000 investors that show up and it's crazy a lot of times, the last two times I've gone, I haven't been to Omaha during that time, but in I don't really go in with the shareholder.

Getting together has become an excuse for friends to meet up where people have it's a bit pathetic way, but why don't you dig deeper? They say the same things over and over again every year that they don't say. anything new and everything is like a live broadcast, you can see it later if you summarize what it says year after year, what is, uh, we don't know what the market will do next, buy cheap stocks, politics is crazy, have you Have a good day, Warren. Buffett has the most legendary investor out there, he's really changed his views on things, yeah look what he did, the bet he made on Apple in dollar terms, he made more money on Apple than anything else he did. has invested, which is crazy at one of their annual meetings.

At shareholder meetings, he said that he wouldn't invest in companies that I don't understand and that it was a company that he didn't understand before he invested in it, yeah, people I don't think people would have seen, would have been able to see that. that he would invest and that would be his number one choice. I think the hallmark of a good investor is that they can perform well in multiple different economic cycles and in multiple different assets, that's how you can really separate skill from luck because like during any given economic cycle or any market cycle where things are booming just because of luck, there will be people who will be very successful and some who will make billions of dollars.

The only way to know if they are unlucky is during the next one. economic cycle when there is a new crop of investments, new industries also do well and Warren Buffett has been investing successfully for 80 years and I think honestly every 10 years he has almost completely updated his views, there are many basic principles that no It doesn't change, yes, what are the principles that are really important, but in terms of what industries you're investing in, how you value them, what you're looking for, there are constant updates, I think it's a big area where people get it wrong. about him is that he's kind of He's been stuck in the past and he's been investing the same way forever.

If you look at how he invested in the 1950s, it couldn't be more different than how we invest today and I think that's why he's been successful because he's willing to learn. I think he's just a learning machine, yeah, in ways that most investors aren't. I mean, it's well known that his investment process consists of sitting on the couch reading a book 10 hours a day, he doesn't trade, he doesn't talk to his broker on the phone, he just tries. learn how the world works and update the view of it and use the basic principles that never change and apply those basic principles to how the world has evolved and where it is today what would you say are the basic principles of it?

I mean, you want to invest in companies that have good, honest, competent CEOs, you want to invest at a good price and make sure you're not paying too high a valuation, and you want to invest, as you mentioned, in a company that you understand and a business that understands to have a high degree of confidence at least in where the industry is going those are the really basic fundamentals now someone like Buffett could talk for two weeks straight about the details of the topics I just mentioned it's not that simple he's the best at it and he's the richest one of the richest men in the world because he's very good at the details of those principles, but at the highest level that's really what it's like to buy good companies at a good price and hold them for a long time, yeah, but The distinction that I really learned from you is that he's one of the best investors out there, but really, in terms of performance, the fact that he won is that he's been doing it for so long.

He talks about this in his book, yes. If you look at Warren Buffett's net worth, he's worth 90 years old 91 or two something like that and he's worth 100 billion dollars and he's given away about 50 billion so let's say he's worth 150 billion dollars if you count what he has gifted 99 of that money was accumulated after his 50th birthday and like 98 came after his 65th birthday, so literally, if Buffett had retired at 65 like a normal person, you would never have heard of him, he would never have accumulated a fraction of what you really have and the other part. of this is that he started investing full time when he was 11 years old, so by the time he was 20 years old, adjusted for inflation, he was worth more than 10 million dollars when he was in his early 20s, he had invested so successfully for In At that time, if I had started investing again when I was 25 like a normal person, I might never have heard of it.

The secret to his success is that he has been a good investor, not an incredible investor, but a very good investor for 80 years. Timing is everything and it's very easy to miss because everyone in the industry, when they try to answer the question of how has he done it, how is he so successful, they go into all this great detail about how he values ​​companies. . and what you look for in products and market cycles when really the most important thing, especially for everyday people like you and me, the most important thing is that you've been doing this for 80 years, that's the bottom line and I think for everyday people, Even if you're not as good an investor as he is, if you can get average returns over an above-average period of time, it's equal to investing like timing is everything, especially if you're a young investor listening to this if you're in your teenagers or early 20s and early 30s, whatever amount of time you have in front of you is an asset that 92-year-old Warren Buffett can't even dream of, and even if you're a teenager and don't You have a lot of money, you are like a time millionaire, you don't have a lot of cash but you have a lot of time in front of you and when you realize that time is part of the financial equation it makes all the difference, as if it were a great asset that, hopefully, you will be able to value and take advantage of in terms of time.

Is there anything that you wish that at the age of 20 you would have done differently to better prepare yourself for the future? I would say no different but that doesn't mean I did everything right I don't regret it, but I made all the mistakes you can, but I don't regret it because I learned from it and I think nothing is more persuasive than what you've learned firsthand, like you can try to see other people make mistakes. but until you burn yourself, you burn your fingers, you're fine, I'll never do that again, so I made all kinds of mistakes, the only thing I regret a little bit is that I've always been a great warrior. a lot of anxiety and I had a lot of financial worries and also a lot of professional worries and I wish I could go back and be like everything turned out okay, okay, it wasn't perfect, you didn't do everything right there.

They were painful times, but everything turned out okay, but sometimes I think maybe it worked because I was worried, maybe anxiety was what pushed me forward, but sometimes I feel like I worry, I've worried too much. That was, I think that's the only thing I regret, but other than that, I don't regret the mistakes I made and I still would, if my own kids made the same mistakes I would say no, it's okay. It's okay to make mistakes when you're 19 years old. It's not that it's not a big deal and, as I said before, I'd rather be wrong at 19 than at 45 when the stakes are much higher. 100 I think I think risk is risk.

Aversion makes you a better investor, similar to what you were saying about having a larger chunk of cash than advisors would typically recommend. I lean that way too. I have more cash because I'm a little scared for the future in general. I'm worried about, well, what if there's this unexpected event? Yeah, I'd rather have more liquid cash there than cash that I can't access and I think the question is not will there be an expected event, but oh, there definitely will be and then the question is can you stomach it? Yeah, for me too, having kids was a big change, like the stakes are so much higher now and it's one thing, especially when you're 19 and single, like me screwing it up is like there's no collateral damage. , it's just me and it's going to be a big blow to my ego and it's going to hurt, but when you're married and you have kids it's like I'll screw it up, I'll let everyone else down and therefore I can't be wrong and therefore , I want more money to prepare not only for my own, you know, problems that I'm going to face, but now I have children who are going to have problems in their lives to take care of so that was a big change in my way of thinking, so when your baby was born, what immediately changed?

You are like? Okay, I'm going to save this percentage of cash now. Instead, what did you do differently? I think financially it was probably like a higher level. I think on a professional level I would say more ambition, but I referred to the financial level as ambition mixed with conservatism, if that I don't know, that's a little counterintuitive, but I thought I really have to, I really like it, don't I. It's almost not me anymore, I have this other person who depends 100% on me to do the right thing, so I want to have more career ambitions, but I can't screw it up, so I have more conservatism.

Now it's like there's a little bit of a disconnect there, but uh um, they'll say that what all parents also know is that the moment you see your child you don't matter anymore, it's like this instant change that I didn't have anyone like me. It doesn't matter, it's all about the child now, but there is a lot of financial thinking that goes into that immediate change. Yes, I know there are a lot of parents in my audience. What are you doing as a parent now to prepare your children financially for the future? Do you have certain accounts set up for them or do we have 529 accounts to save for college?

My kids are three and six, so they don't have an allowance or we haven't really taught them much yet, but I think I'm of two minds about this: I have no idea what they're going to be or what my kids are going to want when grow up or what are they going to want, like my daughter wants, does she want to be a partner in a law firm? To work for Greenpeace, do you want to be a kindergarten teacher? And the financial principles she may want to instill in you may be different depending on the path she wants to take and I have no idea where she'll go.

I feel like it would be very difficult for me, even if she's three, to say that you should do this and this is what you should aim for. I think it's different for everyone, yes, so I don't want to pressure them in any way. I also know that what every teenager knows is that it is very natural to rebel against your parents and when you are 19, if your parents tell you that you should do this, immediatelyYou will say: I am going to do the other thing. What I thought was that most 19 year olds are like that and so instead of when my kids are teenagers, instead of sitting them down and lecturing them about what to do because I know they're going to instantly rebel, It's just trying.

Set the right example and lead with Just Lead quietly, but this is what my wife and I do, it's what your mom and dad do, and I'm not going to tell you to watch, but I know you'll learn indirectly. Just going back to what we do, there's a lot of evidence that in politics most parents don't sit their kids down and tell them this is the right political view, this is who they can, most parents don't do that, but there is a huge correlation between your political beliefs and particularly your father's political beliefs, even if they are not explicitly transferred, people acquire them indirectly.

I think for money it's the same as most people will learn a lot about money from their parents, good and bad. I think most people will say: oh. I saw my parents mess up and I'm never going to do that or, oh, they did it so well and I want to do it, but it's usually not explicitly said, it's just picked up indirectly, so that's my general thought on teaching your kids about money. It's like you have to lead by example instead of trying to instill it. Yes, your parents were quite financially illiterate. Yes, my parents had an interesting experience.

My father started college when he was 30 years old and had three children. I'm the youngest of three and then he became a doctor when we were all teenagers, so throughout our adolescence growing up, my brothers and I had no money at all, my parents were students and we had, we were absolutely like a free lunch at the school. We were happy, it was a great childhood but we had no money and then my dad became a doctor when we were teenagers and things changed after that so we saw both ends of the spectrum. The interesting thing about my parents is the frugality that was needed in them. when they were students with three kids who stayed after they had higher incomes, even after my parents had much higher incomes, that frugal mentality really stuck, it just became part of their identity, who they were, so my parents were pretty.

I know we didn't have money growing up and then we had money, but we were still very stingy and when I was a teenager especially, I really looked down on them for that, I was really judgmental, as I looked at them, I thought I knew how. You make a lot of money and I know we could live in a bigger house, but we don't, and I put you down for that, and then my dad was an ER doctor for 20 years and ENT, I think, is literally the most stressful profession you can. having is people dying in front of you every day, so after 20 years you just said, I'm done, I quit, I retired and he could do it because they were so tight-fisted and so frugal that they had saved enough. that they could retire whenever they wanted, yes, and that was the moment, which was not long ago, this is like the last 10 years.

I thought now I understand, the reason you are so cheap is not because you were just a cheapskate. It is because you saved your money to be able to control your time and have full independence and autonomy. The moment he wanted to quit, he just said, "I'm out of here," and he had all these colleagues who were just as stressed as he was, but he had a bigger house and a nicer car and his kids went to private schools and They couldn't leave it and that was like a big change in my way of thinking: I want wealth, not for nicer things.

I like nice houses and nice cars, but the reason I want wealth is to have complete independence in my life I don't want to depend on anyone else I don't want to depend on any career I don't depend on any boss I want to wake up every day and I just said what I can do whatever I want today and when my dad woke up one morning and said he wanted to quit and he did, I thought, that's the dream. I want complete independence and autonomy, that's how I think about wealth today, it's not. For nicer, flashier things, I want complete independence and 100 percent autonomy in my life, and when I graduated law school I was in over 200,000 debt and made it a priority to keep thinking like a lawbreaker. law. student, even though my first job as a corporate lawyer paid me 200k a year, I still liked to walk 30 minutes to work in my suit instead of taking a three dollar bus, like I still lived like I didn't have none. money and that was looking back, that was the best thing I could have done because it's very difficult once you inflate your lifestyle to go, oh yeah, people are very sensitive to reducing lifestyle, it hurts, while it's very easy to get into, oh, you go from the Honda to the BMW it's great, you know you're back in the Honda, your life is over, it's over, it's really hard, people are really tough and I think people should be careful when they have a windfall, especially not to overdo it, because if you're going to have it, Cutting back will be one of the most painful things you've ever done.

People are very sensitive about it and I say it's even more difficult. I don't have kids, but I find it's even harder with parents with kids once you start shipping. your children to a private school oh yes, you have to take them out oh yes, you feel like you have failed, so I think about that a lot I also think about that a lot, my wife and I do, what lifestyle do we want to give our children? So, they don't grow up to be spoiled little brats, but B, if we were to downsize, we would destroy their social lives, we would destroy their feelings, sense of dignity, so that's a tough one, are you pretty frugal like your parents? maybe not as much as my parents, but we have a very high savings rate, everything is relative, but we have, we save most of what we do, what's the biggest splurge you've had in the last year, it's not, really not not much, I like it, I like flying first class, that's all, you pay in cash, yes, wow, not at all, I do, but I keep them a lot and sometimes I exchange them in cash, okay, that's the only thing and that's a great thing it is, but that's the only thing other than that, we haven't really changed much in a long time, but even in first class.

I fly first class only if I can buy it and get it free with points, but now justify it, I say, oh, if I'm on a 14 hour flight, I need to be well rested for the speech I'm going to give, that's the most important thing and come back reduce your lifestyle once you've tried it. In this regard you say: I don't want to give that up. I know it's very difficult. I love what you said about the value of financial independence. Do you follow this fire movement? Financial dependents retire early. I don't do it and the reason I know a couple of people and I've seen a lot of people who are in the fire movement and they retire when they're 28, whatever it is, and in six months they hate it and the part of financial independence is great, yes.

Retire Early I think it's very easy to overlook what that will do to you, especially if you're walking into the fire. You imagine this world we are in. I do not work anymore. I will have all the things to do, but. then generally when you retire you realize that all your friends you want to hang out with work five days a week and they're not going to hang out with you, they don't, they don't. I'll have time to go play golf with you on a Tuesday afternoon, they're at work and that's why I've seen a lot of people in this movement regret it and go back to work doing it and I just think work is a part of the vast majority. of people has a great sense of identity and purpose, so the independence is absolute one hundred percent so that you can work in a job that you really enjoy and love Mr.

Money Mustache, who is one of the creators of this that he makes his porn. he was also one of the original firefighters who retired. I think he was 30 years old with 600 Grand and he quit his job so it doesn't mean he didn't work. It started as a home construction company and is one of the busiest guys. that you'll ever know, it's not like sitting around playing golf, he just retired to a job he enjoyed and did it on his own terms without a boss telling him what to do and when to do it, so I think that's a key part. that if you're financially independent so you can quit your job at a law firm and become an amazing tick-tock star, it's great if you want to retire so you can sit on the couch and watch TV all day, you're nine times out of ten You're going to regret it, yes, that's the distinction I make for your financial independence.

Do you have a specific number you're aiming for? Oh, if I have that much money, I will be financially independent. I've always done it and it's always changed like the goal post always moved in theory. I have a number in my head that lives like okay, if I get to this number I won't share it, but if I get there I would say I think I would close everything and just say, but I know it's not true, I know that if I'm lucky enough to get there There it will be like no, I'm going to continue, I'm going to, you're going to change it and I think the important thing is that your material aspirations don't grow at the same rate as that.

I think it's great and okay to aim for more money, but if your expectations grow faster than your income, you will always be disappointed. What you have, yes, our lifestyle hasn't changed much even if our income has increased and I think that's the important thing, it's the gap between your expectations and reality that creates all happiness and satisfaction, so even if You aspire to more money, almost yes. it's like on some level it becomes a game for you, so I think that's cool. I think where people really get into trouble is when their income doubles and their expectations triple, so they say, oh, I'm in this big financial business.

I got this great new job with a big raise and I'm not as happy as I used to be, it's because our expectations went up so much. Yes, for the average person, when we talk about financial independence, they are getting to a point where you can retire and not have to worry about money. It seems very unattainable if they earn say 15 an hour. What is your advice? What would you say to someone who earns 15 an hour and wants to eventually achieve financial dependence? What should I? what they are doing to get there, there are two parts, like income and expenses, and breaking them down much of modern spending is spent to show other people how much money you have and what you really need to live a decent and happy life.

If your expectations are low enough, it's actually not that much money, especially if you're a single person or a couple who's on the same page and doing this, it's not tremendous and I think people would be surprised at how much of a modern expense it is. . just like keeping up with the Jones effect of whether it's like traveling, not traveling for enjoyment, but traveling to take Instagram photos to show people where you've traveled, clothes and cars and all that, I always say that spending a lot is The gap between your ego and your income is like a big part of what we spend, not all of it, but a lot of what we spend is just to signal to other people that you've made it and if you can subtract at least some of that. of their life, most people would be surprised at how little they can spend and live a happy and dignified life.

Mr. Money Mustache mentioned before being the first to prove that he was married and had a child and that he owned his house outright. right, then you take the housing payments, that equation maybe unfair, but take it away, I was spending like 20 grand a year and living an amazing life, so for a lot of people there's a lot of room to play on the side of expenses of the equation and inside the income side of the equation, it's like whether it's a side business or just moving up in the world, there are many opportunities like this, it's true, it still is even though everything that is happening in the world, like the earth. of opportunity, yeah, and I think what I think is a big thing that we're moving toward is probably a less credentialism world where you don't have to go to the right college or even any college to make a pretty good income. .

Today it is still this, there is still a lot of it. I think we're slowly moving away from the world of credentialism more toward a world of are you good? you have talent? are you a coder? I don't care if you went to Stanford, if you're a good programmer, you'll have a good career in tech, so I think there's a positive movement on the internal side of the equation, which is funny when you mention that gap between What did you say? The gap between your ego and your income is generally like the amount of money you are spending or the amount of money you are saving is the gap between your ego and your income.

How much money do you make and how much do you want to show to the rest of the world? How much do you really earn? You don't need that much to spend that much money to have a decent life. A lot of it is the clothes. cars the house to show it to other people. I also always point out that showing other people, like fluttering your peacock feathers to show peoplepeople than you did it, it's not an entirely bad thing, especially if you're young and you're trying to find a boyfriend a girlfriend a spouse then it's very important that you don't dress like an idiot like it's really important it's easy for someone like me , who is happily married, say oh, you don't need to do any of that, my wife You will love me no matter what I wear, no matter what car I drive, but I'm not, I'm not completely throwing that under the bus, but I think People, if they really dug into it, would be surprised at how much of their current spending is.

I'm just keeping up with the Jones effect, even myself when I look back 10 years ago at the way I spent when I had no money. I was working. I was in college working at Subway and all my income from Subway would go to you. go to the mall and buy shoes I didn't have. I couldn't afford bags I couldn't afford, but then it gets tough because at the time I remember I was buying Coach bags, but there's always a higher level that I was proud of. My 200 300 Coach purses and I carried them with me, but then there are the people at my school who carried the Louis Vuittons, it went up from there and then it continues unfinished.

I don't know what's next, maybe a Birkin. I was going to say the burger. I'm not an expert. I know there are some who never get numbers very quickly. Yeah, six figures. maybe I don't know, yeah, it gets crazy and what's so funny now is that now I just can't wear designer clothes. I feel like a friend, that's smart, but do you think that's wiser as you get older than when you're 19? you can't really rebuild or maybe it's like I said when you're 19 your ability to have nice clothes and a nice bag is really important and even if you went back would you tell yourself not to buy the bag or did you tell yourself yourself that the bag actually made my friends think that I'm part of their group and that that was really important?

No, I think you're absolutely right. I think if I really went back to investigate what it was, it was me. I was insecure, I felt like I didn't fit in, I grew up in a military family so my dad was in the military, most of my graduating class didn't go to college and I ended up at this school called Notre Dame. A lot of the kids that went came straight from private high schools and I just wanted to fit in, I wanted to, I felt like I didn't fit in, so I wanted to buy whatever it took to make me feel a little bit better, like oh. wow, I belong here and that's what I was, it's just this insecurity and wanting to fit in.

I don't know if you think insecurity is the right word or it's more like wanting to fit in when you're around. When you're older, you have other things to hold on to in your career and other things like the wisdom you've learned, but when you're 21 or whatever and you don't have much else to show for it other than your purse, so to speak, maybe not. be so. It's such a bad thing that sometimes I get stuck in this, I don't know, for me I feel like the insecurity is accurate, but I was also young, I wanted to fit in more than I wanted to be smart with my money, yes, yes, but I also hope that when my children are 19 years old they fit in.

I don't want them to be so frugal that no one wants to date them. That is not like that. That would be a terrible thing. In that situation I would say please go buy the bag so you like it, as if it were really difficult. I don't think there's a black and white answer to these things, yeah it's a really hard thing, there isn't, but I'm glad I don't. spending like that now I'm glad I got to a point maybe it came with age or maybe it came with the confidence that came with making more money that, oh, I don't feel the need to do that and it's endless, you know, if I bought the Louis Vuitton then I would have to buy the Birkin, yes, I think so.

I think when you see a 45-year-old person playing that game, whether it's the sports car game or the wallet game, I tend to think, ah, there's something, something's going on there, but I totally understand why the person young man who is trying, for the first time in his life, to make it in the adult world and show who they are. I totally understand it. why it happens, I understand why it happens, but I do it, it makes me sad because some of these young people will go into credit card debt, yeah, and then it becomes very difficult, that could impact them for 10 years before they get out of it and they It gets so hard, so I wish I could go back to my 20 year old self.

It would be like you know where you fit in, don't worry, yeah, yeah, that's good, that's good advice, so during college I was a valet at a really nice hotel in Los Angeles and this was in the mid 2000s , there was a lot of money flowing through Los Angeles, so as a valet, people walked in in Ferraris, Lamborghinis and Rolls Royces and when I met some of these people that I walked in, I realized that some of them actually didn't They were so successful, there were people driving a 300,000 Rolls Royce, they weren't really that successful, they spent half their income on the lease payment for a Rolls-Royce, which was at most. of these and that was for me the first impression that so much wealth is fake and fake it until you make it and what's so difficult about wealth is that I can't see that guy's bank account, I can't see In his statement brokerage, all I could see was his car and it gave me such a false impression of what was going on and the flip side is that there are so many people who drive Honda Accords that you would never have guessed. that they are actually very rich, so wealth is what you don't see, wealth is what is hidden, wealth is money that you didn't spend, which is like you were saved or invested and it's really difficult because, for some like physical fitness, you can see it, you can see it and then it gives you an increasingly accurate view of a role model.

You can say: I want to look like this person. I want to do what he's doing, but for wealth you don't have that. you could look at the guy in the Rolls Royce and say I want, I want to do what that guy did and actually no, not really, he hasn't done much and the guy in the Honda Civic, Jeff Bezos. he used to drive a Honda Accord when he was a Deca billionaire, like you'd see him on the street and wonder: what's going right for that fool? He's actually like an amazing person, so because there's so much hidden wealth, I think it gives us a flaw in our role models and who we aspire to and people really have to be careful about using what they see as an indication of how Whether that person is successful or not, it's a really difficult and fun thing to do because it goes back to what we're talking about. at first like knowing who to trust and who not to, there are reasons why people with Lamborghinis behind them who make videos get more followers than people with normal houses and cars, yes it's because you associate that Lamborghini with wow, it must for to be successful you must be smart, you know you must know what you're talking about, yes I know that's one of the most pathetic things I've ever heard.

There was like a cottage industry on Instagram of renting a private jet on the tarmac that you never leave, but you can rent it for an hour and go in and take a photo sitting in the Jet and post it on Instagram so these people literally like the clouds of Photoshop on the window to make it look like they are flying, but in reality they just paid 100 dollars. rent it at the track and it's a huge industry. I bet more than half the time you see a photo of a private jet on Instagram it's on the ground, but to your point, the people who post it now, everyone who sees it is like, wow!

The guy is on a $60 million plane. He must know what he is doing. We should follow that guy. It's very easy to fake it until you show up on social media, yeah, or wear a fake watch and it's like, oh, look at the protective attitude on him, totally, yeah. It's crazy and a lot of it is because people want things faster and so they buy them before they can afford them. There is a story in his book that I like that deals with the topic of excessive leverage. I don't know if I know which one I'm talking about, yeah, so two of them, the greatest investors of all time, Warren Buffett and his parliamentarian, his partner Charlie Munger, Warren Buffett is worth $100 billion.

Charlie Munger is a billionaire who has been given a lot, so he is not as rich as Warren, but they are probably two like the Mount Rushmore of investors, the greatest investors of all time and it has been this duo that they have been investing together for 60 years and then if you go back to the 1970s, 1960s and 1970s there was a third member of this group, a guy named Rick Gurin and Warren. Rick and Charlie used to be an investing trio and they used to make investments together and interview CEOs together, like they disappeared off the face of the planet.

It looks like you could still find it, but I was wondering why Warren and Charlie became household names and no one has heard of Rick Urn and I heard someone tell a story they heard from Warren Buffett about what happened to Rick Warren. In the 1970s, he had borrowed a lot of money to invest, he was going into debt so he could buy stocks. It's called margin debt leverage and during a bear market in the 1970s when the stock market fell a lot they killed it because when you borrow a lot of money if the stock market goes down 30 40 50 you're done you're completely out and Warren told the story that he said that Rick was as smart as him and Charlie, that he was as talented as an investor, but he said that Warren and Charlie always knew they would get rich so they were in no hurry and he said that Rick was just in a hurry. to get there, so I wanted to borrow money to speed up the process and it blew up. in his face and I thought it was really interesting that people were born as one of the richest men in the history of mankind and he was in no hurry, he said he knew it was going to happen, there was no rush.

I thought it was a really interesting thing that a lot of times when people try to speed things up past their natural growth rate, it's just going to backfire on you, yeah, and I think that's what had a big impact. impact on me it's so natural to want to speed it up and in a perfect world I would love to get rich overnight of course but that's not how it works, there's usually a natural speed with which these things happen and when you try to speed them up. above that level it will come back to haunt you and that's why a lot of these get rich quick schemes you could never trust them, did you ever trust Warren has a great quote about investing in margin loans, he says if you're smart you don't you need it and if you are stupid you shouldn't use it as if there is no justification for using it.

I thought that was a great conclusion, but many investors do it, even novice retail investors opening for the first time. open an account with E-Trade or Robin Hood and you can go into debt on margin, you can borrow money to buy stocks and a lot of people don't realize the ramifications of that until you're in a bear market like we're in now and some of these stocks fall 50 70 80 percent and disappear, they lose everything yeah, it's a difficult situation when you were researching these stories for the book, do you know what the process was? Did it take you six months to just go to a cabin and write the book and research all these stories, it definitely didn't.

I spent more than a decade writing about finance. I started as a blogger at Motley Fool and then worked for Wall Street. Journal for many years and then I started in the collaborative fund six or seven years ago, so I've been a full-time writer for over a decade and I started as a writer in 2008, which was an interesting time because that was when the world was falling into pieces, everything was breaking left and right, so I started my first years as a writer and that is one answer to the question of why that financial crisis happened.

I just wanted to try to explain it really simply and I realized that time went by and I couldn't answer that question through the lens of finance or economics; There's nothing in an economics textbook that explains why 2008 happened, it just wasn't there, but if you look through the lens of sociology, like keeping up. with the Joneses or psychology, greed and fear, politics, history or biology, all these other topics that had nothing to do with finance could perfectly explain exactly what happened in 2008. That opened up this idea for me. that, like you, you can explain the world. of Finance through the lens of things that have nothing to do with finance and as a content creator, that was really important because Finance tends to be very dry and boring, so if I could explain Finance through the lens lens of biology or military history or something that might grab your attention a little bit more, that was one way I was able to grab people's attention as a writer, so for years I just wanted to try to explain what was going on inside people's heads.

I never believed that anyone could forecast the stock market or forecast the economy that I didn't care about. I'm very skeptical that people can choose the next best stock like I do. I had no interest, but I was alwaysvery interested in what goes on inside people's heads, how do they think about greed and fear? and risk because it's usually totally contrary to what the textbook says you should do and it's just contrary to what people think they're actually doing, how they think about greed and fear, so I wanted to find these little nuggets, these little stories to explain it. and after doing that for 10 or 12 years I felt like there was enough to take 20 of what I thought were the most interesting stories and anecdotes and turn them into this book from there came wow, that's amazing.

I want to touch on the topic. the fear part because I remember being quite surprised when I saw this on YouTube. YouTube gives you a rating when you post videos. This is one in ten. This is a 10 out of 10, which is not good and based on fear. I'm talking to all my other YouTube content rater friends, the coming fear-based stock recession will always trump something like five millionaire habits, yeah right, yeah, do you think fear in finance is a good thing in general because it makes people cautious or not? You think it's not, I think if it's good or bad, I don't know, but I know it's very natural, as if pessimism were seductive.

People are so attached to pessimism in a way that optimism is not. I think a lot of that is optimism. It sounds like a sales pitch and pessimism sounds like someone trying to help you, yes, so going back to your example, five millionaire tips, it sounds like a sales pitch and, frankly, it probably is, compared to the recessions that are happening. they loom Red alert, this is what you do, it's like, oh, you're trying to help me you're trying to alert me to the danger. A lot of it is like basic evolution, we are wired to react to threats with greater urgency than opportunities.

That's a good thing, it will always be like that, but I think that's how it is. It's actually true in the media too, like the classic line in the media, if it bleeds, it leads, that gets people's attention, so that's what gets spread. Some of this is also that bad news tends to happen very quickly and good news happens very slowly. And again, I think there's a good side to that, like keeping people alert to threats and aware of threats, but between gaining more clicks on social media and in the media and how much more alert people are, it always goes .

That is to say, even if we live in a society that has been growing and improving with new innovations and new technologies, it will always happen that on any given day the main headlines will always be negative. Yes, there is a story in your book. I talked about a guy named Ronald Reed who would never make headlines because he's too positive, but I thought he was a really good reminder of how the average person can do very well. Can you tell that Ronald Reed story? As the most humble guy you can imagine, he was a janitor and a gas station attendant, he lived not only humble but basically a life of poverty that you wouldn't look at him and think he was a success in any way when they interviewed him. friends after his death, the only friend who could think of a hobby he had was cutting fire, that was the only thing they knew he did besides working as a janitor. type where you say, oh, it's a bit of a sad existence and then when he died he left eight million dollars to charity and people say, where did Gen, the guy who's mopping the floors, get eight million dollars? and did they calculate it?

They found out that they went through his paperwork and all he did was save what little money he could from his job as a janitor and invested in the stock market and left it at that for about 80 years and that was all he needed. One thing I regret about the book is that I think I inadvertently tried to present it as if Ronald Reed was a hero, and I actually don't think I admire someone who lives a life of destitute poverty with eight million. dollars in the bank. I don't aspire to that. I wish Ronald Reed had bought a nice house and traveled the world, so I used him as an example to say: Hey, you can, you don't need to have a Harvard MBA from a blue blood family to achieve a lot of success, this janitor does it. achieved, but I used him as an extreme example and I think most people should aim for a little more balance than him, but you know, like everything, those extreme examples just highlight what's possible, yeah, so you can find more balance than him, yes.

Actually, I don't know if he was that happy in life. I guess I think his frugality was almost like an illness that he endured and when he died he left everything to charity. hospital and he likes a local church and maybe he took a lot of pleasure thinking about it, but the more I learned about him, read about him, I said no, it's amazing what you did, but I don't admire that, how? Do you think people can find the balance between being good with their money and being smart and not spending it all and living paycheck to paycheck, but also living a little bit of life and traveling or buying the things they want?

Think it is so. different for everyone in terms of what will make them happy traveling first class for me. I enjoy it, but there are a lot of things you could enjoy and I would say no. I'm a cheap wine and coffee. A guy and I have friends who like that they wouldn't be able to look in the mirror if they were drinking the wine I was drinking, but that's totally fine with me, everyone has to find their thing. I think there's one thing that people tend to overlook when I was a valet in college. I also noticed something that if someone got into a Ferrari, they wouldn't look at the driver and say that guy is so cool.

I imagined myself as the driver and said people would think I was cool. and that disconnect between I didn't care about the driver, I just wanted to be the driver so people would care about me, it didn't make sense and then I realized that the game I was playing was like no one thinks as much about you as you are all the world when you have a fancy car a nice house nice clothes you tend to think that everyone is looking at me and everyone thinks I'm cool and generally that's not true people think about themselves and even when they look at your nice bag your friends are probably looking at you your person without thinking that Erica is cool, they thought that if I had that person, Erica would think that I'm cool, so once you realize that game, you're like no one is thinking about you as much as you, so yeah okay, so my aspirations to show off money have gone way down and I want to spend my money on things that really make me feel internally like the internal reference point versus the external measure of other people looking at me because it's probably not that I realize It has had a big impact on how I spend, or I just want to spend money on things that make me, my wife and my kids happy, and I don't care what other people think because they are not thinking about me, they are thinking about them. that was that was really important to me what's the track record I know you went from working as a valet you spent a lot of years at the Motley Fool and then at the Wall Street Journal what's your money and The income track record seemed to be are you making more money? this year than ever?

Yeah, yeah, the vast majority of that comes from the book, yeah, so in terms of income, spending hasn't changed that much with kids, you know, grocery bills are double what they used to be because we have two mouths. more than feeding, but in terms of spending, not much has really changed. I think I'm very proud of how my wife and I have kept the goalposts from moving in terms of what we aspire to. We do and where we aspire to travel and where we aspire to, the house we want to live in hasn't stayed flat but it hasn't increased at a slower rate than our income in a way that I think is really important, like I said before like your Income doubles but your expectations triple, you are worse off and that happens to many people and that is why you have so many people.

I'm sure you knew lawyers who make a quarter of a million dollars a year who may have been less happy than when they were in college, yes, I think there is a lot of evidence that people's happiness in life is like a backwards you or their unhappiness is not backwards, they are quite happy when they are 20 years old. They're pretty miserable in their 40s and 50s and then become happy again in their 70s and 80s. I think a big part of the reason is that in your 20s your expectations are pretty low. Most people like to live in the same dorm, maybe you have a 12 hour job, everyone is in the same situation when you are 40 and 50, there is a big difference in how people live, you know, people who they make 20 grand a year, people who make 20 million dollars a year with a huge SKU and then at 80, stuff.

They tend to even out even more, whether you're rich or poor, everyone's body starts to break down at 80, everyone's in the same boat, so I think a lot of it is like your happiness is so anchored to your expectations. and those around you, if you can do everything you can to keep your expectations anchored, it will have a bigger impact on your financial happiness than increasing your income. That's easy to overlook and we put all of our effort in this industry into how can I do that. grow my income how can I grow my wealth? and that's important, that's good, we are totally ignorant of the idea of ​​keeping our expectations in check, but it is just as important as increasing your income if you ask me, would you rather my if my if my? my income could double but my expectations would triple or my income would stay here with the same expectations 10 out of 10 times I want I want the last I'd rather have a lower expectation lower income and sensible expectations than high income and crazy expectations you can always I see this a lot in Major League Sports, where, like in Major League Baseball, the minimum salary is, I think, seven hundred thousand dollars, which for most people watching this would be incredible.

Everyone who plays professional baseball is rich by any standard, but I guarantee it. the rookie on the team was making 700 thousand dollars, who is playing with teammates making 25 million, he feels broke, yes, he feels absolutely broke and that is the best example of how your expectations can run away from you, well, they exist All these studies of professional athletes who have made millions in their career and then a few years later are bankrupt, they're gone. I did an event with some professional athletes a year or two ago and one of them told me something like the details behind that a lot of these athletes come from inner city poverty, you know there's really not much correlation between how rich which was your parents and your skills to get an MBA, so a lot of these people came from deep poverty and then when they're 19 they sign a contract for 20 million dollars it's a Whiplash and one of the things he said is like when you come from a neighborhood that poor and suddenly at 19 years old you make more money than the rest of the neighborhood combined has ever done that money is not yours that money belongs to your grandmother and your aunt and your cousin that is also their money you can't just tell your homeless grandmother I'm sorry the 20 million dollars are mine you still live in poverty.

I'm going to stop by the Mansion, it just doesn't work that way, so the pressure on a lot of these 19-year-olds to spend huge amounts of money is enormous. The other thing is like if you sign a 20 million dollar contract with your friends and family. you might think you have 20 in the bank but like no your agent gets 10 taxes take 50 like they go down very very fast that's what you thought it would be so all these people even when the holder's number is huge They are friends and family. I think it's a lot more than it really is when it's so difficult now that you mention that the offers that these people find are public information because there are all these studies also about lottery winners, how the best ones are the ones who get the money. lottery. secret, keep it secret, secret, that's the first thing if you're not listening, but if you win the lottery, the first thing you should do is get a lawyer and tell that lawyer that no one will know your name, yeah, even if even if it goes to be less, less if there was a situation where the lottery said you can have 10 million but we need to interview you or 5 million and you can remain anonymous like I take 5 million every time, yeah. but I've never thought of it like that, like these poor athletes, it's public, you can just google how much money so and so makes and see exactly how much he makes, that's kind of hard when your friends and family are poor and they know it. how much you make, but they're also blind, they see your salary, they're blind to taxes, agent fees, and training fees, etc., that's a tough thing.

I also asked one of these athletes who said: if you are a rookie who makes 700 Grand and you want to save that money, so you drive the Honda Civic and you arrive at your training practice next to your teammates and their Bentleys and their Ferraris . Are you excluded from the team? She said yes absolutely, so that's really. The hard thing is that they really feel like they have to.keep up with your teammates and it's like you're a poor person living in Beverly Hills and you have to keep up with your neighbors, so it's not like I have any sympathy for people who make 700 grand starting out. 20, but I think it's harder than people on the outside would think, talking about business models and how people get paid, this is your here, it says one million copies sold, but now you just hit 2 millions of copies sold.

Congratulations, by the way, how? the book business job was there and there's a signing bonus like how do you make money doing this? Well, I had an interesting path to it because I thought the idea of ​​psychology money was good. I was very excited about it and all the editors. in the US they rejected it every single one and not only did they reject it but some of them were quite cruel about how there is no way this will work, don't even try and those are the ones who are kind enough to return our emails for everyone to reject it.

There was a small publisher in London called Harriman House that published the book and they are amazing people. I really fell in love with them. They're great, but they were just the only ones. that they were willing to do it and then I took that I signed them out of desperation and I ended up loving them but at that moment it was like I signed with you because you are the only ones who are willing to give. They gave me a chance, so it wasn't an advance, they're a small publisher, but kind of a bigger back-end deal, the back-end royalties, so it ended up working out now that most people, like works traditionally, you would get upfront and 99 That may be the only money you'll see.

You will not earn your advance through royalties. It's like you receive a check in advance and that would be your payment for the book. And if it were a blockbuster, maybe there would be royalty payments after that, but that didn't happen that often. I think it's moving a lot towards the idea of ​​not moving forward, but of a bigger back-end that tends to be as it is, as it's going to be. Now I think for most authors that's a worse deal. It would have been better if you received a big check that you never earned, instead of just receiving royalties.

The book business is also very difficult, where the median book that is published and many of them are really good, the books can sell 2,000 copies, so it is not an easy way to make money. There are over a million books published each year and the vast majority of them will sell a couple hundred a year. A couple, maybe a couple of thousand, if you can sell ten thousand books, that's a big, big success and I always think of it as a Siege stage start-up where even if you do everything right, you'll probably fail at the end. do it. to be a huge success, that's how any tech startup would work, even if you're very smart and do the right thing.

I think books are like that too and even authors who have established names can't count on their books to be a huge success. I was thinking about someone like Stephen King, one of the greatest writers of our time, he's published 50 or so books and like 90 of the sales come from two books, like Stephen King and John Grisham, and all these people publish books that are not Do you sell. Well, yes, and those are the biggest names in the world. I think it's even true for people like the Beatles, who probably wrote 200 songs and five of them were very popular, even at the highest level of success, there's always a pretty big guy. loss rate in what you're doing, so that applies to books too, it's interesting, it's funny that you mentioned that the average book sells 2,000 copies because you told me before, when you first did this, you only prepared 2 000 copies to sell. whether it was two or five thousand that we printed, it was the first print run we did, we thought it would be eight, all it would probably sell and B, if it sold five thousand copies, that would have been great, that's how I would have done it.

I felt good about that, I was quite realistic because I had been rejected by all the publishers and just not because of what I knew about the book world, which is difficult, it is difficult to get people to take out their credit cards to buy content, Yeah. so my expectations were very low when it came out and then what happened we printed two or five thousand copies and I think we did 30,000 preorders before it even came out so when Burke when the book came out like release day, no you could buy it because it was sold out, it was out of stock everywhere and it took us like six weeks to get it back in stock and that was like I thought it was like a flop at the time, although Okay, great, we thought it would sell five and it was it sold five times as much, yeah, but it was really like, well, no, you can't, you can't actually buy it.

These people like to put it in order, but they're not really going to do it. Get it for six so I thought I was done at that point and it took me like six weeks to get it back in stock and then it just took off from there and about half of the sales are international outside of the United States. The best-selling book in India in 2021, wow, India alone has hundreds of thousands of copies and it sold very well in China and Japan, Brazil, so it's definitely been a global thing, not just in the United States, and You didn't anticipate it. zero and I think it was the right thing to do and I'm writing a second book right now and I don't anticipate much of that either, like you, if you know the hit rate of the books, you can't be that confident.

In anything you do, I have to ask you what's next for you. It is very difficult to overcome this success, but I am sure you have it in you. What are you planning now? I'm writing another book right now. It'll probably be out next summer or something, but I tried to spend most of my time reading, going for walks, and talking to people to try to generate new ideas, and I think a lot of people get into the content once they get away from it. core of what might have made them successful to begin with once they move away from that when they say oh I'm going to go work on these other projects and they lose the core of what they had in the beginning, then I don't want to do that.

I still want to spend the vast majority of my time reading and listening to podcasts and talking to friends and all that. I really don't want to lose what I have. I remember the extreme example of this. I don't want to compare either of us to this person, but Jerry Seinfeld said that part of the reason he canceled the show when it was at the peak of its success and just withdrew the court and resigned is because he was becoming so famous that could not. not casually sitting in a deli and watching people order their food or watching people check into their airline flight, which is where he got his joke material from; when he was a nobody, he simply observed the world and made up little jokes about ordering. a sandwich in a deli and when he was a World Superstar he couldn't do that anymore and he was worried that he had lost what made him successful and instead of experiencing decline, he simply said, enough, I'm out.

I'm out of here, so I think on a very different lower level. I think if finding little stories by spending my entire life reading and thinking about them is what made this book, I just want to keep doing it without trying to push it or force it. It's just a bunch of casual reading. I love it because I'm very curious about the business side of things. Do you think you're monetizing to the extent that you could or do you think there are other opportunities where you're leaving money behind? yeah, that's an interesting question because I think the answer is probably yes.

I could be doing more, but I've seen a lot of people that when they try to force it or when they try to max it out they really end up going. over the cliff and I think it's more like trying to go natural and just say, Oh, I enjoy doing this, so let's do it, not because I can make a lot of money doing it because I enjoy it, so that's when you'll probably really do it. make the most money throughout your career, that's the irony of it, it's like if you didn't put in the effort to try to make a lot of money, you would probably end up making a lot of money at the business level.

The two examples are like when Mark Zuckerberg started Facebook, he wrote in the annual reports, he says we don't care about money, we're not in this for profits, we're in this to make a great social network. Lehman Brothers, for example, their annual report to investors was like we were in the business of making money we don't care about anything else and the irony is that Facebook became a trillion dollar company. Lehman Brothers went bankrupt, so I think for a lot of these things, even on a personal career level, the harder you push yourself. If it's worse, you'll be better off compared to if you just follow something you enjoy, the biggest gains will come from that.

I love it, I think it's really good advice for people of all ages, no matter what stage of your career you are at. I want to end this with a little tradition, we do it in my videos there is a slogan that Erica taught me and that's why the podcast is called Erica taught me, but what do you want people to walk away from this podcast being able to say Morgan me taught? Let me give you two things that I think are really important on a personal finance level, like we talked about if your expectations go up faster than your income, you're going to be miserable, so people should spend as much time focusing on their expectations as they do. increase your income.

It's not intuitive for most people and I think it's so important when it comes to investing that you have to realize that volatility and the market going up and down is the price, it's the cost of admission to success, isn't it? If your portfolio follows 20 30, it is not like that. This doesn't necessarily mean you've made a mistake, it doesn't mean you've made a mistake, you're simply paying the cost of admission to get great returns over time and once you view volatility as a fee, not an indication of that you made a mistake, and then you deal with your Markets like the one we're in now become a little more acceptable and easier to deal with.

I think at a high level, those are two things, like personal finance and investing, that are really critical for people. I love it. Thank you so much. Erica. If you enjoyed today's conversation, Morgan Housel's book is called The Psychology of Money and I'll put the link to the book in the show notes and I have a big favor to ask of you, it would mean a lot if you could take a moment to write. a review of this podcast if you enjoyed the episode all you need is just one sentence it really helps support the work we're doing thank you so much for choosing to spend your time with me today.

I hope you learned something and I'm so excited to talk to you next Tuesday for a new episode of Erica Taught Me. See you then.