To Be Smart With Your Money, Don’t Be Smart. Act Smart

Get your financial act together.

If you want to be smart with money, here’s an idea: heed the advice of people who’re smarter than you.

Like Morgan Housel.

He’s a former columnist for The Motley Fool and Wall Street Journal who proved to be so smart with his money that other people gave him theirs to manage as partner of The Collaborative Fund.

Despite the added responsibility of managing others’ millions, Housel continues to write. And in his book, The Psychology of Money, he summarizes his best personal finance advice in the form of nineteen stories. All are tied one overarching premise:

“Doing well with money has a little to do with how smart you are and a lot to do with how you behave.”

Morgan Housel

So you don’t have to be smart to be smart with your money. You just have to be well-behaved.

There’s nothing new to the basics of good financial behavior: save more, avoid huge risks, let compounding do its job. Boring stuff.

And because it’s boring, it’s hard not to get impatient and start acting up. Especially in these wild times of Bitcoin, SPACs, and Robinhood rabble-rousers.

I can’t help but feel the urge to join the fun and act naughty. So good thing Housel stepped in with a dose well-timed discipline.

Here are my five favorite lessons from The Psychology of Money that reminded me to get my act together and be smart with my money.

How to Be Smart With Money

Lessons from The Psychology of Money, by Morgan Housel.

  1. Quit acting spoiled.
  2. Avoid stupid sacrifices.
  3. Don’t rely on any plans.
  4. Keep it to yourself.
  5. Keep your eyes on the prize.
Know how much money is enough.

1. Quit acting spoiled.

My favorite of the The Psychology of Money’s nineteen stories is of author Joseph Heller talking to fellow novelist Kurt Vonnegut at a party in a billionaire’s mansion.

Vonnegut points out that their host made more in a day than Heller ever did from sales of his hit book, Catch 22.

Heller responds, “Yes, but I have something he will never have… enough.”

This got me thinking, What is enough for me?

Obviously, it can’t be that much. If I were greedy, I wouldn’t have become a blogger. But I’d be lying if I said I don’t dream of The Unconventional Route making it big time.

But what’s “big time”? To a vast majority of people in the world, my financial situation is already big time. I’m a millionaire. I make passive income from this blog. How much more do I need?

This made me realize that I should stop lusting after more like a spoiled little rich kid. And I don’t need to take any crazy financial risks to make it big time. As long as I keep doing what I’m doing, I already have more than enough.

Money is not-so-easy to get, easy to lose
Money is not-so-easy-come, easy go. Protect it.

2. Avoid stupid sacrifices.

“Progress happens too slowly to notice, but setbacks happen too quickly to ignore.”

Morgan Housel

The smart strategy for building wealth is a boring one: Play not to lose. That means:

  • Be patient. “If you want to do better as an investor, the single most powerful thing you can do is increase your time horizon.”
  • And don’t die. “If I had to summarize money success in a single word it would be ‘survival.'”

Protect your compounding.

The longer I can keep compounding my money, the more exponential momentum it builds, and the greater my wealth.

But the challenge with money is it’s not-so-easy-come, and it’s very easy go. One freak occurrence, unfortunate accident, or hasty decision can wipe it all away. So the smart money approach is to be content with pretty good returns that can be held onto rather than lust after greater returns that put my precious compounding at peril.

And don’t sacrifice what’s priceless.

Warren Buffett said, “If you risk something that is important to you for something that is unimportant to you, it just does not make sense.”

My reputation, freedom, physical and mental health, and friends and family can’t be bought. So no matter what, I shouldn’t ever risk them when chasing more money. Even if the risk is small, it’s not worth it.

That may sound stupidly obvious, but who hasn’t made such stupid risks?

I sure have. I’ve lost friendships over risky investments, lost my mind over trifling amounts of money, and lost out on potential experiences by working too hard. Clearly, I could use more reminders on what’s too important to risk for money.

Dont make predictions

3. Don’t rely on any plans.

“Planning is important, but the most important part of every plan is to plan on the plan not going according to plan.”

Morgan Housel

Another stupid mistake I need to stop making is thinking I’m smart enough to predict the future.

The world’s unpredictable.

A small number of major events—wars, pandemics, bubbles—moved the financial needle more than anything else. Each time, they were never-seen-before surprises.

History studies these surprises to study the future. But that future never becomes reality because of new surprises come that history hasn’t seen before.

You’re unpredictable, too.

“An underpinning of psychology is that people are poor forecasters of their future selves,” writes Housel. So even though I like to think I know myself pretty well, I don’t know my future self as much as I think.

But I’m making financial decisions on his behalf.

So best to avoid financial extremes. On the lower extreme, that means to not expect my future self to be content living off the minimalist budget Kim and I get by on today. And one the higher extreme, that means not sacrificing myself in pursuit of extra big bucks my future self may not even care about.

So save for the unpredictable.

I ought to manage my money as if for a stranger, which is about as well as I know my future self.

And I shouldn’t only save money specifically to buy a house, pay for my kids’ school, or cover Kim and my retirement. I should save money for no particular reason because nobody has any reasonable idea of what surprises I’ll need it for.

That’ll give me the best chance of surviving to make the most of an unpredictable future.

Dont impress people

4. Keep it to yourself.

“Less ego, more wealth. Saving money is the gap between your ego and our income, and wealth is what you don’t see.”

Morgan Housel

Don’t be too impressed by others’ wealth.

It’s impossible to separate luck from skill and risk. And you don’t see wealth. You only see spending. So when I see people who look rich, I should think twice about emulating them.

Maybe they took crazy risks and got lucky. Or maybe they’re not rich at all. And maybe the not so impressive-looking person beside them is the truly wealthy one I should want to emulate.

Don’t try to impress others.

If I try to impress people with my possessions, I’m not impressing them. My possessions are. And those people I’m trying to impress with my stuff don’t dream of being me. They only dream of having what I have. So I might as well keep it to myself.

And don’t care what others think.

As Housel puts it, “People with enduring personal finance success—not necessarily those with high incomes—tend to have a propensity to not give a damn what others think about them.”

Not caring what others think is one of the few things I’m pretty good at. What helps me do so is to focus instead on caring about what my future self thinks and how to impress him. Even if I can’t predict what he’ll want, I’m pretty confident he won’t give a crap about whether or not I impress random strangers he won’t remember.

The ultimate wealth is independence.
Independence is the highest form of wealth.

5. Keep your eyes on the prize.

“The highest form of wealth is the ability to wake up every morning and say, ‘I can do whatever I want today.'”

Morgan Housel

The ultimate goal of building wealth is independence.

In that case, I’m already rich! And I can’t ever forget that.

I have enough (1), so I shouldn’t take risks to go after more than I need. Instead, I need to protect what matters (2) from the unpredictable (3). If I do that, I’ll impress my future self (4) with my money smarts and give him the one thing I can be sure he’ll thank me for: independence (5).

That sounds do-able, doesn’t it?

It’s not easy. As Housel writes, “Behavior is hard to teach, even to really smart people.” And it’s not exciting. But, on the bright side, you don’t have to be super smart to do it. You just have to get your act together.

Keep getting smarter. (Or less boring, at least.)

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Chris and Kim are responsible for what you've just read and everything on this site. The Unconventional Route exists to help you have a wonderful time figuring out for yourself how to perform a bit better at your game of life. If you're still reading this, you'd probably enjoy getting a fun, free, and fresh idea every 10 days by subscribing to our newslettter, Consider This.

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