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How to Make the Most of Your Money in the New Year — ft. Morgan Housel| Prof G Markets
Morgan Housel argues that money works best as a tool for independence and meaningful experiences, not as a substitute for relationships or status.
Prof G Markets · Ed Elson
- Morgan Housel is author and partner at the Collaborative Fund.
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Skip the holiday-gifting discussion and the later sections on personal spending, resolutions, envy, and young-adult money.
Full analysis · 6 min read
Real Alpha · Nov 8
Morgan Housel says 2008 bonuses fell 80% or whatever, maybe zero
- Housel's 2008 finance example had bonuses falling 80% or whatever, perhaps to zero.
- He treated variable pay as uncertain, but supplied no reserve target or universal allocation.
- Leaders can test runway before letting recurring costs rely on variable compensation.
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6 sections, the 3 other voices it tests Housel against, and what it means for you. Every episode we cut gets one.
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Bonuses only work as upside when budgets survive a cut
The useful number is a downside example, not a forecast. Housel used a 2008 finance example, with bonuses falling roughly 80% or whatever, possibly to zero. That is a stress case he described, not an estimate for this year's payout.
Ed Elson asked whether a bonus is a gift or deferred compensation. Housel said many workers see it as pay already owed. The label matters less than the spending plan built around it.
He recalled talking with a man he thought was Google's head of HR, maybe 10 or 15 years earlier. That man described a rough framework, salary to live on, bonuses to play with, stock for retirement. Housel recalled it as an approach at Google, not a current company rule.
Housel's sharper test is whether ordinary expenses depend on the payout. If recurring bills require the bonus, the payment already functions as income. The budget, not the compensation label, reveals how much risk the household carries.
“if you are counting on your bonus to live off of, by definition, it's not a bonus”
Our read
Our reading is that Housel's advice starts with classification, not a spending formula. A payout is optional only when the baseline plan survives a bad year.
A cash cushion buys options, not a guaranteed return
Housel's runway test asks how long someone could support their current lifestyle after a layoff or another shock. That turns a bonus decision into a question of time, not a preset allocation.
If the answer is zero, he said, the bonus should probably be saved. But he gave no reserve target, interest assumption, or method for irregular expenses. That omission matters because runway depends on obligations, liquidity, and household risk.
On TBPN in July 2026, Morgan Housel separated rising home prices from wealth people can actually use. That offers a useful boundary between paper value and accessible resources, but it does not address bonuses or emergency reserves.
Danny Moses said on The Real Eisman Playbook in October 2026 that household wealth had shifted toward equities, making a stock decline a larger economic risk than housing. That is an aggregate exposure point, not evidence about any worker's cash runway.
On Founders in October 2026, Kurt MacAlpine described CI debt as fixed-rate, covenant-free, and as long as 30 years. This is enterprise financing, not household guidance. It still shows why capacity to withstand shocks depends on debt terms and duration.
Morgan Housel · TBPN · Jul 13Rising home prices don’t always make homeowners wealthier
Danny Moses · The Real Eisman Playbook · Oct 19Equity wealth now poses more economic risk than housing
Kurt MacAlpine · Founders · Oct 18He used long-term fixed-rate debt to fund the pivot
Our read
Our reading is that the runway principle holds better than any implied formula. Leaders should identify accessible funds and obligations, then set their own threshold.
Saving can become another way money controls you
But Housel did not recommend saving every bonus indefinitely. He relayed financial advisers' accounts of clients who saved millions for retirement, then struggled to spend even reasonable amounts. That is an anecdote, not a measure of how common the problem is.
His standard for good spending is control in both directions. Money can be a problem when someone cannot afford something they want, or keeps buying what brings no joy.
For a founder, the parallel is not to spend for its own sake. A reserve earns its keep if it preserves choices, while excess accumulation may displace the goals the money was meant to serve.
The hard part is that saving itself can become an identity. Once a rising balance feels like proof of success, spending may feel like failure even when it serves a real priority.
“It does not control me. I am perfectly in control of it.”
Our read
Our reading is that saving is a tool, not a finish line. A cushion matters for the freedom it protects, not for a rising balance by itself.
Savings goals fail when they skip the motive
Elson cited saving money as America's most common New Year's resolution, ahead of exercise and weight loss. The transcript gives no survey source, so the ranking is the host's setup, not independently supported here.
Housel said a January 1 promise rarely changes habits by itself. Durable saving, in his account, comes from repeated systems and valuing the independence a reserve provides. A calendar date cannot supply the underlying reason to keep going.
But he said a savings goal can be a symptom, not the root problem. Spending on status, social approval, or a hoped-for mood may be the behavior underneath. Cutting costs without understanding that motive can leave the pressure intact.
Take his Maui trip. Housel rated sandcastles with his children there a 10. He put playing Legos at home at a nine or nine and a half. He linked both to uninterrupted time, not travel alone.
In this conversation, Housel previewed The Art of Spending Money, then due the following year. He said it examines envy, jealousy, and social aspiration. That makes motive, rather than a universal list of good purchases, the episode's proposed diagnostic.
“people who have good financial habits don't need goals”
Our read
Our reading is that a budget cut can track behavior, but cannot explain it. The useful audit asks what need a purchase serves and whether a cheaper choice serves it too.
Status loses force when the audience disappears
Housel's deserted-island thought experiment removes the audience. Without people watching, he expects most people to choose utility over status. It is a way to separate personal use from the pressure to signal rank.
For example, he contrasted a Ferrari with a pickup truck, and a monster house with a good house and view. The point is not that premium purchases are foolish, but that buyers should name the benefit they expect.
He said people can see cars, clothes, and homes, but not another person's marriage, children, or mental health. Envy therefore starts from partial information, not a full comparison.
Housel used Bill Gates's divorce and Warren Buffett's biography to illustrate that visibility gap. Those examples do not show that wealth causes private distress. They do show how little an outsider can assess from visible success.
For a CEO, the same distinction can sharpen a spending review. Ask whether a purchase improves the work or signals rank, then test that answer against its actual use.
Our read
Our reading is not that status spending is always wasteful. A visible price tag cannot tell a buyer whether a purchase serves utility, belonging, or comparison.
At 25, saving competes with rare freedom
Housel said he saved well over half his paycheck from his first dollar at 16. He remains grateful for that habit, but now wonders whether he should have loosened up at 25.
His reason is time and freedom, not a rejection of saving. At 25, he had fewer commitments and more freedom to spend time as he chose. Those conditions can make a dollar of spending more valuable than it will be later.
Housel suggested some 25-year-olds might work hard to save $1,000 that could come more easily later. He framed that horizon as 15 or 20 years, not a promise about any individual's earnings.
But future income is uncertain for each worker. The useful comparison is what savings buys against what someone gives up now, given their actual constraints.
At the close, Housel named sleep and eating better as his own aims. That fits his broader hierarchy, where health and relationships can outrank another financial milestone.
Our read
Our reading is not that young adults should spend more. A savings rate cannot be judged without its opportunity cost, personal constraints, and uncertain future income.
What it means for you
- Stress test bonus pay. Separate salary-funded expenses from bonus-dependent ones. Recalculate the plan with the bonus at zero and with a large cut, using your own figures.
- Measure liquid runway. Count accessible cash against essential outflows, then calculate months covered after an income shock. Keep market-valued assets separate from cash available for bills.
- Audit spending motives. For three planned purchases, write down the benefit you expect and whose reaction matters to you. Compare the status appeal with the utility you actually expect.
- Price the tradeoff. Compare one experience you would value now with the savings it displaces. Decide explicitly, rather than treating all spending as waste or future income as certain.
What to watch
- Whether variable pay has become necessary for recurring expenses.
- How long accessible reserves cover essential costs if a bonus disappears or income drops.
- Whether a savings target becomes a durable habit or only a January constraint.
Send this to finance leaders setting compensation and cash policies.
Watch Housel's 2008 finance example, where bonuses fell 80% or whatever, possibly to zero.
Written by Real Alpha from the episode's transcript and the other moments it links, then checked against the transcript. Quotes are the speaker's exact words.
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Read it with Pro, 7 days free- 0:44Holiday gifts add social pressure
Ed Elson cites a figure that 9 in 10 Americans say the holidays cause significant financial stress. Housel says Christmas brings pressure to buy and receive the right gifts, while Thanksgiving centers more on food and time together; he recalls feeling disappointed as a child despite receiving many presents.
- 3:03Thoughtfulness can matter more than price
Housel argues that people can wrongly expect more money or nicer things to fix unhappiness rooted in health and relationships. He and his wife stopped exchanging gifts; for his birthday, she writes him a poem, which he says means more to him than a purchased present.
- 5:25Connection can beat another gift
Housel says gifting preferences differ, but he values a friend's quarterly calls more than the case of wine the friend sends each Christmas. He says children have more pent-up demand for presents, and his kids seem happier with gifts spread through the year than he was with a Christmas bonanza.
- 8:36Money cannot solve every problem
Housel recalls that his family was poor during the first 10 years of his childhood, then his father became an ER doctor when Housel was 12. He says the change in income did little to alter the love, friendships and fun that mattered to him, and that money can help but cannot be the sole source of comfort or admiration.
- 12:17Treat bonuses as uncertain income
Housel recalls a Google HR leader's framework: live on salary, play with bonus money and retire on stock. He says that if you depend on a bonus to cover regular expenses, it is effectively deferred salary, and he invests nonstandard windfalls to avoid turning a one-time gain into a recurring spending expectation.
- 14:33Build a cushion before spending
Housel says he considers how long he could support his lifestyle after a layoff or other setback. If that cushion is inadequate, he says, saving a bonus should come before spending it; he also warns that some people who saved millions for retirement struggle to spend because saving became part of their identity.
- 17:11Keep money under your control
Housel defines spending well as using money as a tool rather than letting it control your choices or identity. He says buying things that bring no joy, or feeling unable to afford what you want, can signal that money is in control; he points to people with multiple homes they barely use as an example of spending that can become a burden.
- 20:33Build habits beyond resolutions
Housel says financial habits are unlikely to last if they depend on a New Year's resolution; he believes durable habits come from systems practiced regularly. He suggests asking why you overspend, including whether you expect nicer clothes or a bigger house to earn admiration or happiness.
- 24:22Look for what actually brings joy
Housel compares a family vacation in Maui, which he rated a 10, with playing Legos at home with his children, which he rated a 9 or 9.5. He says uninterrupted time with his kids—not the resort or the amount spent—was what made the vacation meaningful.
- 25:49Spending reflects social emotions
Housel says spending is personal and social, not a science with universal rules about what to buy. He says The Art of Spending Money examines envy, jealousy, social aspiration and contentment; writing about money has also helped him see that health, sleep and relationships matter more to his happiness than money can provide.
- 28:12Visible wealth hides private struggles
Housel says envy is easier to challenge when people remember they can see someone's car or house but not their relationships or mental health. He cites Bill Gates and Warren Buffett to illustrate that wealth and public accomplishments do not reveal a person's private life.
- 31:29Put family and health first
Housel says his most important priorities are his wife, children and personal health, though he does not rank them. He would rather earn $100,000 a year with a loving family and good health than earn a million dollars without those things.
- 32:47Leave room to enjoy being young
Housel says he saved well over half his paycheck from age 16 and is grateful for the habit, but sometimes wonders whether he should have loosened up at 25. He notes that young people may give up freedom to save an amount that could come much more easily later in their careers.
- 34:24Make space for health and rest
After finishing his book, Housel says he wants to sleep and eat better, areas he can overlook while focused on a major project. He describes The Art of Spending Money as a psychological exploration of envy, social aspiration, happiness and contentment, not a rulebook prescribing what to buy.
Published Dec 19, 2024.
Transcript · 34 min read
Prof G Markets, hosted by Ed Elson, with Morgan Housel.
Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.
Welcome to Prof G Markets. Scott is unfortunately out sick today, or that's what he's telling us, so we're going with it. And so today we're speaking with Morgan Housel, the New York Times bestselling author of The Psychology of Money and a partner at the Collaborative Fund. and we speak with Morgan about financial stress around the holidays and how to create impactful financial plans for the new year. This was, I think, an important conversation about the holidays and the stress that we often feel, or at least that I certainly feel. Morgan is an expert on the psychology of money and how money affects our brains. So I thought this was a really insightful conversation and I hope you enjoy it. Morgan, really great to have you back on Prof G Markets. Thank you very much for joining us. Good to see you, Ed.
So we wanted to talk with you today because it is the holidays and For many, that is a pretty fun and cheerful time, but it's also a very stressful time, largely due to money. So I just want to start off with this one stat, which is that 9 in 10 Americans say that the holidays are a cause of significant financial stress. So pretty obvious question. Why is it such a stressful time financially? But more importantly, what can we do about it? So many people think about Thanksgiving and Christmas. And Thanksgiving, I think tends to be a happier time for people because it's just good food and family and friends. And that's it. There's no, there's no, there's no gifts. There's no expectations. It's like, let's eat some good food and tell some good stories and drink some good wine and all have a good time. Christmas becomes, I have to get presents for everybody and everyone has to get presents for me. And I hope I get you the right thing. I hope you get me the right thing. And one of us is bound to be disappointed. That's all. That's always been the case. My mom would always bring up when I was a kid that Christmas was my worst holiday because I was always disappointed.
They got me a nice presence. I had a great childhood. But whatever they got me, I wanted something more. And I was always, it was like the day of the year when I got everything, I got like presents galore, was my unhappiest day of the year because my expectations were so high. I think as an adult, it turns into, if I don't get you the right present, you're not going to like me. Like, I have to be really thoughtful about this. And then as your social circle grows, and you have to get presents for 20 people, that's a huge stress. It's a massive stress. Not even the cost of it. Of course, that's a big thing.
Read the whole transcript
If you're putting on your credit cards, whatever it might be, but just the social stress of getting it right, that you don't have that with Halloween, you don't have it with New Year's. Christmas is this one that has a ridiculous amount of social pressure. And I think there is a lot of evidence that mental health tends to bottom around Christmas. It's a tough time for a period. A lot of that is because of their families. Sometimes it can be a reminder of the family that you don't have or broken bonds, whatever it might be. But I'm sure finance plays a big role in there. Compare how people feel about the 4th of July, which is just like, oh, day off at work and it's sunny and I'm going to go to the beach with my friends.
And Christmas is like a month of financial and emotional trauma for people. So, I mean, there are two things in there that cause the stress you mentioned. It's the family aspect, but it's also mainly gifts. Do you think that America places too much emphasis culturally on giving gifts? Do you think our gifting culture might be a bad thing? I think it's generally true overall. This has nothing to do with Christmas, but it's true that it is very easy to assume that That if your life is not going well and you're unhappy with who you are, you're unhappy with your career, you're unhappy with your family, it's very easy to assume that if you had more money and if you were spending more money and if you had nicer things, your life would be better.
That's a very easy assumption to make. And by and large, for most people, it is wrong most of the time. It's not that money cannot buy happiness. It can. But it is too easy to assume that if you had more money, all your problems would go away. And particularly for a lot of people, their problems are their health and their relationships, their friendships, their marriages, their relationships with their kids. those are the core to a lot of the problems. And those are the problems that I think money has plays the lowest role in terms of fixing and happiness. And so I think that's the assumption that we make is like, if I had nicer stuff, then people love me more. And if I bought you a big present, you might love me more. And I think those are those are very easy financial assumptions to make. But then you realize that like, the core of what you're getting at is so much more complex than money. It's a social endeavor. And my wife and I, you know, we've been together for almost two decades. And many, many years ago, we stopped buying each other gifts. We have everything we need. And it doesn't make any difference to me. I love you. You love me. And so what my wife started doing, she does this for several years. For my birthday, she does this. She writes me a
poem. And she's so absurdly talented at this. It'll be a poem of something that happened in my life. She's so good at it. They're always funny. They always rhyme. And it's a big thing that happened to me that year. That is a million times more meaningful to me than if my wife bought me a sweater or something. I don't mean nothing to me. This is not my expertise in the slightest, but the thoughtfulness of that makes me so happy. And I think at the core of it, it's because she's buying me something that money cannot buy. She's showing me a level of thoughtfulness and love that you cannot get with a price tag and a credit card. Yeah, Scott and I recently had a conversation about gifts. And our conclusion was that there isn't really a social or cultural code on who's supposed to get gifts and also how much money you're supposed to be spending on those gifts.
It sounds like you have established some of your own code around gifting with your wife. Are there any other rules or recommendations on how people can go about gifting during the holidays? No, I think it's different for everyone. I think how my wife do it too, a lot of people would disagree with that. And they would say that the gifts they get their spouse bring so much pleasure and joy. So this is not black and white. Everybody is different. I've often noticed too, For a lot of my friends, some of whom send Christmas presents, but what I absolutely love about them is once in a while, they'll text me and be like, hey, haven't caught up with you in a while.
How are you doing? Let's jump on the phone and just catch up with you. If I compare, I have one friend, I will not name him. Every year, he sends me a case of wine for Christmas, which I love and appreciate. And about once in a quarter, he texts me and says, hey, how are you doing? Let's catch up and talk about life. I appreciate the wine he sends me, but I love our quarterly phone calls a hundred times more, a hundred times more. And I think a lot of people fall into that category of like, yes, I appreciate your gifts. I like your gifts. Your gifts was very thoughtful. But what I actually want is your friendship.
And that's what means the most to me. I think this is especially true when you have a little bit more money. And you're like, look, when you're a kid and you have nothing, I'm like, if I want that toy, Christmas is my only shot. That's my only shot at getting it. As you become an adult and you have your own money, and by and large, for a lot of people listening to this podcast, they roughly have everything that they need and most of what they want. That's true for probably the majority of people listening to this. And then so you turn into things that money can't buy, like genuine friendship and whatnot.
And I think if you are counting on Christmas to accentuate that, it's going to lead to some disappointment. What about with your kids? I'm sure they would not accept a token of friendship for a Christmas gift. I should try that this year. See how that goes over. I think it's normal when you're a kid, A, because you don't have your own money. Look, I myself, as an adult, if I want something, I usually go and get it. I have to wait till Christmas. Kids usually have to wait till Christmas or their allowance or whatever. So there is so much more pent up demand for physical things that kids have. But I think it's also true that kids are, it's easier for them to make friendships. My kids just started at a new school. Day two, 48 hours in, they had like five new best friends. Whereas for me, I'm like, I have to know you for seven years before I let you into my friendship circle. This is easier for kids to make friendships. So for adults, I think those genuine friendships, because they're so rare, just so much more meaningful than it is for a kid that just wants a new toy. When I was a kid, this is not black and white. I'm going to grossly exaggerate this, but I roughly got no presents throughout the year. And then Christmas
was a bonanza. Like not actually, but it was close to that. And I feel like my kids get more presents throughout the year. And then Christmas is like, cool, it's fun, but it's more mediocre than it was. I don't know which one of those is better. Because as I said earlier, Christmas for me as a kid, it was the only, it was the one day per year that I got presents. It was a bonanza. it was a huge day and according to my mom i was always pissed off i was always disappointed i think it was so emotionally overwhelming that i just could not handle what was happening to it. Whereas I've noticed that my kids actually seem to do better and are happier during Christmas than I was when I was a kid. And maybe that's because it's more spaced out and it's not just this emotional just dumpster at the end of the year just being dropped on you. Yeah, I think the other interesting thing about this time of year is it's sort of like a summary of what has happened in the previous year. And I think when you're giving gifts, especially with your family, I feel like for a lot of people, it's sort of a reflection of like, this is how we're doing right now. And I think if you've had a tough 2024, the holidays seem to
sort of exaggerate that. And on the flip side, if you had a really great year, it might exaggerate that too. But for people who have had kind of like a tough year and they're feeling that financial stress, what are some like tools and strategies that you can employ to deal with that and to to come back stronger next year. I think you're absolutely right. When I was a kid, I've written about this before, spoken about it, but the first 10 years of my childhood, my parents were extremely poor. They were students. We were poverty by any level. And then my dad became a doctor when I was 12, and then things very abruptly shifted. We were not rich by any standards. He was an ER doctor, but it was a very STARK shift. It happened in one year, and I remember that year. I think it was 1993 or something like that, where it was like everything changed. But what I think is true, When I look back to my poverty years, let's say that, my parents loved me just as much.
I was just as happy. I had just as much fun with my friends. The things that actually were core to my identity and feeling loved really did not change that much from my poverty years to my better years. And so I think if you view money as the panacea to all your problems, either your problems or your ability for other people to admire you, that's the problem. Money can be an incredible tool to live a better life. Spending money can make you happy. This is not to say money can't make you happy, but if you view it as the sole source of your comfort and your admiration from others, you are almost certainly going to be disappointed.
How do you make that shift? I mean, I agree with you rationally. It's like, yeah, this isn't the source of, you know, this can't be the source of all of my happiness. But I feel like it's very hard on a day-to-day basis to really practice that and to really embrace that in your daily life. It's just money just sort of permeates around everything you do. you kind of practice that and really employ that in your everyday life. You are absolutely right that it's easier said than done. And I think it is true that there are some people who are just much better naturally at it than others. If you're the kind of person who has had any kind of financial windfall, or if you know somebody who has, I think a lot of those people would say, were you or that person materially happier, better off after the windfall?
The answer might be yes, because money can make you happier. But did it feed your soul to the extent that you thought it would, I think that's the answer is probably no. So I think it's probably one of those things that you cannot actually work on until you've experienced yourself or watch somebody else experience it. And I've noticed this with myself, having had a couple good years in my career, that it has pushed me more towards my wife, my kids, my five good friends. It's pushed me more towards that because I have seen, yes, I've seen what money can do. More starkly, I've seen what it cannot do. And that has made me be like, oh, you know what's actually going to make me happier? Spending time with my kids. And it's done that in a way that I did not understand five years ago when I was doing less well in my career. And I think I'm grateful for that. So I think that's a roundabout way to answer your question. But I think there's no way to actually put it into practice until you've experienced it firsthand. A lot of things with money are like that. We'll be right back. And if you're enjoying the show so far, hit follow and leave us a review on ProfG Markets.
Stay with us. we're back with property markets speaking of windfalls one thing that i wanted to touch on is that around this time of year a lot of people probably a lot of people listening to this podcast may be getting bonuses end of year bonuses just from a psychological perspective i've always found bonuses very interesting because it's like on the one hand it's sort of framed as a gift. I mean, it is bonus to the base. Many other people would say that, no, this is just like regular income. That was sort of factored in from the beginning. As it is bonus season right now, I'd just love to get your perspective on how you think about bonuses. What would be your
“people live off their salary, play with their bonus and retire on their stock.”
that's the spot you want to get to. Yeah. We just did a big episode talking about spending money and we spent maybe an hour trying to figure out what it means to be a good spender. What is spending your money well mean to you? To me, it means that it is always within my control that I am not saying, God, I want to buy this, but I can't afford it. At that point, money is controlling me. Or if I say, this thing doesn't give me any joy, but I'm still going to buy it anyways. That is money controlling me too. The extent that I can be like money is a tool in my life toolbox that I use. And I use it every day and it's a powerful tool. It is a damn good tool, but it's nothing more than that. It's a tool. It does not control me. I am perfectly in control of it. If you are a car mechanic, the wrench in your toolbox does not control you.
You use it. It's a very good tool. It helps you use it every day, but the wrench does not control the work that you do. You are controlling it. And I think if you can use money to that purpose, And I think it is actually extremely common that money controls the person, controls their identity, controls their desires. And I think there's actually a lot of very wealthy people who are like, why do I have this gigantic mansion? Why do I have four of them? They don't bring me any happiness. And in fact, they are burdens. They are huge time sucks and cost sucks. And I don't even go to this fourth house that I have.
It's because money was controlling you and you didn't know what to do with your money. but you're like i i guess i should go buy another house or another car or do this it doesn't even bring me that much happiness so the more that it can truly be like you are in control of it that's the only time you're getting actual independence from your money yeah it was this very similar conversation we had with ramit sati where it's like it feels like so much of the money conversation ultimately gets down to having a very strong understanding of what it is you actually want and it's like all of these different distractions i think it's the same with the holidays too where you're getting all of these ads telling you oh you gotta buy this you gotta buy this like just so many distractions trying to pull you in different directions Like, convince you, like, this is what you want. But I feel like what you're kind of describing there is, like, if you have a very solid, concrete understanding of what it is that you want in life, you're a lot more impenetrable in terms of, like, money controlling you.
Yeah, I think one way to think about this is, it's a stupid thought exercise, but if you are on a deserted island, maybe with your friends and family, but nobody else, no one in society can see you. So there's no need to show off because nobody's watching you. What kind of life would you live? What kind of house would you live in? What kind of car would you drive? What kind of clothes would you wear? And I think most people in that situation would choose utility over status. If there's no upside to status because you know that nobody is watching you, you would be like, hey, like rather than a Ferrari, I'd probably want a pickup truck.
That's like way more utility than status. And rather than just an absolute monster house, I would want a really nice house with a good view because that makes me happy. I don't care what you think about it. It makes me happy. And so viewing it as utility versus status through the lens of like, what if nobody was watching? Because the truth is almost nobody is watching. Nobody's paying attention to you as much as you are. Nobody is thinking about you as much as you are. They are busy thinking about themselves. So it's actually a great thought exercise because it's close to reality. Like, how would I live if nobody was watching is a great thought exercise because the truth is very few people are watching.
We're back with ProfG Markets. The other big ritual that we all do over the holidays is New Year's resolutions. And I was just doing a little bit of research here. It turns out the number one most common New Year's resolution in America today is saving money. it's more popular than working out and eating healthier and losing weight so i'd love to just pivot to new year's resolutions do you think new year's resolutions are effective and do you think you know setting a goal of saving money is a good way to actually ultimately save money it's hard to go against that if someone has a resolution to become better financially how do you how do you say that's a bad thing of course that's good but there's a the famous quote from charlie munger where he said, when teaching money to people, they either understand it instantly or never.
I think there actually is like a grain of truth to that. It's kind of a harsh statement, but there's a grand truth to it. And I say that because if you need January 1st to become better at finance, it's probably not going to last. And if you're like, look, it's December and I can spend frivolously, but come January 1st, I'm going to start saving. No, you're not. No, you're not. And so the people who have good financial habits don't need goals. They just practice those systems daily, and it comes naturally to them. And they're not forced. I think the more you have to force a good financial behavior, of course, the less durable it's going to be. And the people who do well are the people who are like, look, I've been a saver for years and years. And it just comes naturally to me. I enjoy doing it. I like the benefits that I get from saving. I like the independence and the cushion that I get from savings.
And I don't need an artificial constraint like January 1st to get me to do it. So on one hand, Great. If people are vowing to be better with their finances, of course, that's good. I also think that in virtually all of those circumstances, it's not going to be durable. Yeah, I mean, I feel like the research just shows that New Year's resolutions are just very ineffective. But what are some other more effective ways that we can establish some decent financial habits? I mean, say, you know, someone wants to make some sort of change or they want to improve in some aspect. Are there any strategies or tools that they could use to start establishing a better framework for 2025?
This is not universal advice because some people really are in bad situations outside of their control. But for a lot of people, if you aspire to save more money in the new year, that's a symptom of a deeper cause, which is you're not saving enough money. And for a lot of people, that's because you're spending too much money and you're spending too much money because you have social aspirations that you can't afford or you think that spending that money is going to make you happier, whatever it might be. So for a lot of people, they need to dig a couple layers down deeper and be like, why am I bad with money?
I'm bad with money because I spend too much. And I spend too much because I think my friends will admire me more if I had nicer clothes. Because I think that I would be happier if I had a bigger house. Those kind of things. And it's not that a bigger house won't make you happy. But you need to dig a couple layers down to do it. I do think a big, nice house can make you happy because it makes it easier to spend time with your friends and family. And that's what's actually making you happy. So for a lot of financial goals, you just need to dig a couple layers beneath the surface and be like, well, why do I want that?
I want that because there's this hole. Well, why is there a hole? There's a hole because I feel like I don't have enough good friends. Okay, well, you need to focus on that. And the money's not going to get you there. That's a different problem. Have you done this? Like, I mean, just practically speaking, would you recommend someone kind of sits down? Instead of sitting down and like writing down, okay, this year I'm going to do this, this, this. Like, is there like a practical thing that we can do where you maybe take a look at the things in your life that are important to you or some sort of like concrete way to address what you just said?
I think it sounds so trite, but I think it's so important. Take a good hard look about what is the days that you've actually been happier. And it's not for everybody, but I think for a lot of people, and this is true for me, that the happiest days you've had did not require a lot of money. I thought about this a couple of years ago when we took a really nice family vacation to Maui and it was great. We didn't hold anything back. It was a wonderful vacation. And as I was sitting on the beach building sandcastles with my two little kids, I was like, this is a 10. This is a 10 out of 10. this is so great right now. But then a couple of weeks after we got home, I was like playing Legos with my kids on our living room floor. And I was like, look, if building sandcastles in Maui on a fancy resort in Maui is a tent, playing Legos at home with them is like a nine or nine and a half.
Like it was actually really close because what made me happy in Maui was not the fact that we spent a shitload of money and stayed at a nice resort. What made me happy was uninterrupted time with my kids. And I could actually do that at home without spending as much money. So actually, if you dig down to be like, what actually made me happy about that? Was it the fact that I spent a lot of money? Or does spending a lot of money allow me to do something different in my life that actually, if I'm honest about it, did not require spending a lot of money? It was uninterrupted time. So for a lot of people, vacations do make them happier. But it's not because you need to fly across the world to be happier. It's because what vacations give you is uninterrupted time away from work, uninterrupted time with your friends and family. And that's what's making you happy like understanding what the core of the the motivation is is really important what are some of like the main things that you learned about spending because i know you're you're writing this spending book what are some of the main learnings you've you've taken away from that research i think what's so much in finance is true for investing too is that we
teach it like it's math and it's analytical but at its core it's it's all social and so the key to spending money is not understanding what purchases are going to make you happier or less happy because look the book i'm writing is called the art of spending money it's not called the science of spending money because everybody is different you cannot make formulas here by the way now that you say that i think we accidentally stole that title for one of our episode titles so i'm sorry that's fine go for it no worries yeah but look i think that the core to understanding the spending that's going to make you happy is really digging deep and understanding things like envy and jealousy and social aspiration and then those kind of topics it's not a science of there's a lot of times you get these really uh uh these statements like spend money on experiences not on things. It's not that that's bad, but I think it's very surface level. Whereas if you dig deeper into like envy and jealousy, you really get that at the core of why some spending makes you much happier than others. And so I think understanding the emotional side of it rather than the surface level, spending money on this is good and that is bad. It's almost never that
black and white, but if you can get to the core of your own personal relationship with envy and jealousy and social admiration and social aspiration, you get much closer to a good spending habit. Did you learn things about yourself writing this book? Because it sounds like it's a very personal and emotional experience. I feel like everything I've written in my entire career has been trying to understand my own relationship with money, whether that's investing or I feel like all of it is just a diary entry that I phrased a little bit differently. So yeah, as I mentioned earlier, as I made a little bit more money in my career, more than I realized what money can do to make me happier, I realized very starkly what it cannot do. And that was actually a wonderful realization because it pushed me towards more meaningful pursuits. I'm happier with my life with a little bit more money than I had five years ago. But I think one of the main reasons I'm happier is because it made me realize that what's actually going to make me happy is health, sleep, friendship, marriage, kids.
And so realizing that has been a big eye-opener for me personally. You mentioned jealousy and envy as like two big drivers of what's sort of like getting us to spend so much. And I would imagine that the conclusion I'm sure is like, you know, spending your life being jealous and envious is just not a very good life lived. But I would be curious to know if you have found that there is a way to deal with that at a personal level, because I'll just tell you from my experience, it's a little hard to not feel envious at times. And I wish I could just kind of be like, stop, it doesn't matter. That guy has a Ferrari, you don't. Well, who cares like he's probably not even happy or whatever it is but it's like trying to extinguish those emotions while i know at a rational level they're not adding anything to my life i do find that it's kind of a hard thing to detach myself from so i'd be i'd be curious to get your thoughts on like how to deal with that you're right ed that it is it is difficult and i'd be lying if i said that like i'm i'm susceptible to those of course of course everybody is what i think they become easier to extinguish is when you really constantly remind yourself that I can see your car. I can see your
house. I can see your clothes. I can see your jewelry. I cannot see your relationship with your spouse. I cannot see your relationship with your children. I cannot see your mental health. And that's what actually makes a difference. It was really interesting. I live in Seattle. So, Bill and Melinda Gates were like our king and queen. And I mean, Bill Gates, people have their different views about him. But my view is always like, look, the guy worked ridiculously hard, became the richest man in the world, created the most important technology company of a generation, and then gave virtually all of it away towards curing malaria and stuff.
I was like, look, he's not a perfect person. People have their individual views on him, but pretty... damn good life if you wanted to summarize it and then three years ago or so they get divorced and you realize like you you look behind the curtain and you're like look there's a big one but you look behind the curtain and you're like look from the outside this look like literally a fairy tale life but then the curtain is pulled back you're like oh no actually there is some shit going on there there's some really bad things happening but that was invisible to everybody during all that time and the other thing i bring up a lot is the book the snowball which is warren buffett's biography, kind of the most elaborate biography on him, goes into extreme detail about things that people have known for a while, is that Warren Buffett's personal life has not been perfect by any means whatsoever. That's a polite way to put it. There have been times where it's been miserable. And that was really important for me as someone who has looked up to him and admired him for decades to realize, look, I can see his investing returns. I can see his ranking on the Forbes 400 list, I cannot see his relationship with his children. But inside his
head, things like that probably matter way more than his ranking on the Forbes list. So what is visible tends to be the things that matter way less than things that are invisible. So the guy in the Ferrari, yes, he's got a cool car. Yes, I might be envious of that car. There are almost certainly things going on in his life that I cannot see, that if I had a full picture of his life i'd be like look that that car is pretty cool but you're dealing with a lot of shit in your life that i am too and therefore like would my life actually be materially better if i had a nicer car probably not because the other things that move the needle more would be the same do you have like a a ranking system of your own values in terms of like which things are actually important to you because i feel like that's a big part of this is defining what it is that you want and what it is that is meaningful to you and how to spend well and use your money well, you need to understand, well, okay, at the top I've got, you know, I don't know, my kids or my wife or my family and that, like, do you prioritize it in any way?
I don't know if I rank it or prioritize it, but you're right. The three things, I don't know what order this would be in, are my wife, my kids, and my personal health. Like, nothing else matters more than those three. And you can imagine a world where me or anybody is very wealthy, has an incredible career, but they're on their fifth divorce, their kids don't talk to them, and they weigh 300 pounds and sleep three hours a night. Is that success? Not in my book in the slightest. And I would much rather make $100,000 a year and have a wife who loves me and kids who admire me and be in good health and have a good conscience than make a million dollars a year and have none of those things.
And so you can say on one hand that money is very important and money can give you a better life. And money is an incredible tool. And it pales in comparison to other things in your life that are going to be more meaningful. So as we start to wrap up here, do you have any advice for people my age-ish? I'm 25, so I'm a young person, around money and around spending, around honestly anything going into 2025. If you had to advise young, hardworking professionals who want to make this a good year, do you have any advice for them? I don't know if this is advice, but it's a reflection on when I was 25.
Since I've been 16 and earned my first dollar, I've been a very big saver. It came naturally to me. I was always saving well over half my paycheck, no matter where I was. And I think there are some times when I look back when I was 25 and didn't have kids and had a lot more freedom than I do now, that I'm grateful for the savings habits that I had. And I also wonder if I should have loosened up a little bit. A lot of that is because you, Ed, are almost certainly going to be making more money at age 40 than you are today at age 25. So you might be, you know, and so not you in particular, but other 25-year-olds might be working very hard to save $1,000.
And when they're 40, $1,000 will come to them by snapping their fingers. And so the life that you're giving up, both because you are young and you have fewer commitments at 25, you might be going way out of your way to save an amount of money that in 15 or 20 years will come very easy to you. And so I am grateful for the saving skills that I had at 25. And sometimes I do wonder if I should have loosened up a little bit because I didn't know what I know today, which is that once you have kids and more responsibility and your career is more ingrained, you're not going to be able to have the kind of freedom to go out and do the kind of things that you could at 25. A final question for me. I'm wondering if you have any New Year's resolutions for 2025, or at least maybe some goals of your own that you want to accomplish next year. I just finished my book. It'll come out next year.
So writing a book is difficult and takes a lot of time, takes a lot of focus. And so now that that's behind me i think i i aim and aspire to sleep better which is always a big problem of mine uh to eat better which is a problem of mine and focus on some of those things that have absolutely nothing to do with money that are very easy to overlook when you are in the pursuit of finishing a big project. Morgan Housel is a partner at the Collaborative Fund. He's the New York Times bestselling author of The Psychology of Money and Same as Ever. His books have sold more than 5 million copies and have been translated into more than 50 languages. Morgan, as we wrap up here, do you want to just give us like a summary of the art of spending money and what our listeners might learn from it? Yeah, I mean, I mentioned a little bit earlier that it is not called the science of spending money. It is called the art of spending money because it's a little bit different for everybody. So at no point in the book do I say this is how you should spend or this is how you should not spend. It's actually quite the opposite. It is a psychological look at envy, jealousy, social aspiration, what actually makes people happy, contentment, those kind of topics in the
typical storytelling fashion that I like to do. I like to find examples of how other people have done well or done wrong and try to tell their stories in a very quick, hopefully punchy way, moving on from chapter to chapter. Awesome. Thank you so much, Morgan. This was great. Thanks, Ed.
