The Savings Expert: “Do Not Buy A House!” Do THIS Instead! - Morgan Housel

Mr. Morgan H, author of 'The Psychology of Money,' shares insights on wealth-building and financial success. He emphasizes the importance of recognizing opportunities for generating wealth and making wise choices in life, regardless of one's current circumstances or background.

The speaker writes books about money because of a life-changing book called 'The Psychology of Money' that prevented him from losing all his earnings. He believes in writing for himself, solving his own problems, and sharing what interests him rather than pandering to an audience.

The Psychology of Money Understanding the psychology of money goes beyond financial knowledge. It's about introspection, self-discovery, and understanding one's desires and insecurities. The book aims to spark curiosity and encourage readers to think more clearly about their relationship with money.

What Wealth Really Means Wealth is not just having enough money for expenses; it's the unspent money that provides independence, autonomy, and freedom in life. The author defines wealth as the ability to do whatever you want without being tied down by financial constraints or societal pressures.

Frugality & Independence The story of the author's father illustrates how frugality led to financial independence and happiness. Living below their means allowed his father to retire early from a stressful job while maintaining control over his life. This highlights the importance of saving for independence rather than material possessions.

The Impact of Autonomy and Control Lack of control in life can lead to physiological consequences, stress, cardiovascular problems, and heart disease. John D. Rockefeller's longevity was attributed to his ability to remain unfazed by stressful situations.

Freedom as a Key Factor for Happiness Having autonomy over one's time is crucial for happiness and well-being. CEOs with high salaries but no control over their schedules may feel the same level of dissatisfaction as those doing something they hate.

The Illusion of Control In the pursuit of financial success, I meticulously scheduled every minute of my day, even setting aside time for lunch and personal training. However, I realized that this constant drive to make more money was not bringing me happiness or fulfillment. The idea that having more control over my schedule would lead to contentment turned out to be an illusion.

Chasing Moving Goalposts Many people believe that reaching a certain level of wealth will solve all their problems and bring everlasting satisfaction. However, studies show that as income increases over time, so does the expectation for what constitutes 'enough.' Even historical figures like John D. Rockefeller were never satisfied despite immense wealth because they constantly adjusted their standards based on societal comparisons.

The first rule of happiness is to have low expectations. This means keeping the gap between ambition and contentment small, as demonstrated by Stephen Hawking's perspective on life despite his physical limitations.

The speaker shares a personal experience as a valet in LA, realizing that people are more interested in the idea of owning luxury cars than they are in the actual owners. He emphasizes that nobody cares about your possessions as much as you do and highlights the value of not needing to impress others.

Marriage and career success depend on serving the other person without expecting anything in return. Needy expectations can break down relationships, leading to a toxic need for validation.

The Desire for Respect and Admiration Low-income individuals may exhibit reckless behavior with money as a means of gaining respect and admiration. When material possessions are the only way to gain recognition, people resort to showing off their belongings. As success is achieved through wisdom, love, or friendship, the desire to flaunt material possessions diminishes.

Seeking Hope in Low-Income Circumstances In low-income situations where opportunities seem limited, buying lottery tickets becomes a source of hope. It provides a glimpse of possibility amidst feelings of being stuck in life's unfairness. Additionally, finding pleasure in small indulgences like cigarettes and alcohol can be understood when it's the only avenue for joy amid challenging circumstances.

The Ticket Out: Independence Through Savings To achieve financial independence, it's crucial to view every dollar saved as a bit of your future that you own and control. This mindset shift can alleviate stress and lead to better career choices, happiness, and health. The key is having enough money saved up to choose where you want to live, what job you want, or even when you retire.

Nature vs Nurture in Money Mindset There are three types of people when it comes to saving: those who save, those who don't think they can save, and those who don't think they need to save. While some believe that the ability to understand financial matters is innate ('money mind'), others argue that personal experiences shape attitudes towards money; hitting rock bottom can be a powerful incentive for change.

The Tragic Avalanche In 2001, while skiing out of bounds with friends, a small avalanche was triggered. Despite the danger, they continued skiing and made plans for another run. However, one friend decided not to join them on the second run due to a seemingly insignificant decision that ultimately saved his life.

Life Hangs by a Thread The experience taught him that small decisions can have significant impacts on our lives. It led to humility in making forecasts about the future and realizing how unpredictable life can be despite focusing on big decisions like career choices or marriage.

The Illusion of Predicting the Future Many people make the mistake of believing they can predict future events, especially in investing. However, history shows that major risks and crises often occur without warning or prediction. The biggest news story and risk over the next year is likely something nobody is talking about today.

Risk: What You Can't See Risk is what remains when you've thought of everything else; it's what you don't see coming. Instead of trying to predict specific risks like market movements or economic trends, focus on preparedness by maintaining a financial buffer and liquidity to endure unforeseen events.

Simple Investment Strategy The speaker's investment strategy is remarkably simple, consisting of cash, a house, index funds, and shares in a company where he serves on the board. He emphasizes that simplicity is key to his approach.

Endurance as Key to Wealth Creation The focus here is on endurance as the most important factor in investing. The concept of dollar cost averaging into index funds over time for long-term wealth creation and Warren Buffett's success story are used to illustrate this point.

Ronald James Reed, a janitor who died at age 92 with a net worth of over $8 million. He achieved this by investing what little money he could save from his job in stocks and leaving it alone for 70 years. Endurance in investing is more important than being a genius stock picker, as demonstrated by the fact that even professional investors struggle to beat the market.

Many people are conditioned to save money for retirement, but struggle with spending it once they retire. Financial advisers find it challenging to get clients to spend their savings. It's important to define what a 'rich life' means for you personally, rather than following societal expectations.

Knowing When Enough Is Enough The speaker reflects on the concept of 'enough' in life, sharing a personal story about his father realizing he had 'enough' and breaking away from it. He discusses the misconception that financial independence means stopping work, emphasizing that having enough allows one to choose meaningful work. The importance of not realizing too late the cost paid for never feeling like you have enough is highlighted through reflections on regrets at deathbeds.

Regrets and Priorities The speaker contemplates potential regrets on their deathbed, expressing satisfaction with working hard and saving money to ensure their family's well-being. They emphasize that taking care of family brings happiness and pleasure, outweighing any material possessions they might have foregone due to prioritizing financial security.

Financial Decision-Making The video discusses the importance of thoughtful financial decision-making, emphasizing the choice between saving for loved ones or spending on depreciating assets. It also highlights the concept of giving money to family when it really matters, rather than waiting until death.

Impact on Children's Ambition The impact of wealth inheritance on children's ambition is explored, with a focus on balancing financial support and avoiding potential negative effects. The example of wealthy individuals like Bill Gates and Mark Zuckerberg inheriting wealth at a young age is used to illustrate this point.

Endurance and Patience in Making Money The key to making money is endurance and patience, regardless of market volatility. Warren Buffett's approach of sitting on cash for years before deploying it demonstrates the importance of waiting for good opportunities. Endurance and patience are essential skills for investors, especially with the availability of low-cost index funds.

Financial Survival: The Importance of Financial Flexibility Keeping money requires a different skill set from acquiring it; financial survival depends on enduring unpredictable events. While gaining wealth involves optimism and risk-taking, staying wealthy demands conservatism, fear awareness, financial allocation strategies that allow survival through unknown risks. Young individuals should prioritize building financial flexibility rather than taking huge risks due to life fragility at a young age.

Working for a big company provides stability and linear career progression, but it caps your upside. In contrast, working for a startup exposes you to the potential of failure or success, offering valuable learning experiences. Starting with a stable company may lead to addiction to comfort and missed opportunities later in life.

Investing is like a tale, where only a few things matter. In venture capital, most investments fail, but one or two bring huge profits that drive all the returns. Similarly, in the stock market, just 10 companies out of thousands drive all the returns over time.

The Value of Taking Risks Amazon's Jeff Bezos emphasizes the importance of being willing to fail and take risks. He mentions that for every 10 swings, nine may end in failure, but the one success can be massive. This approach is key to Amazon's success and innovation. Similarly, Netflix CEO highlights the need for a certain level of failure as it indicates taking enough risks.

Avoiding Complacency in Success Success can lead to complacency and laziness which hinders further progress. Jerry Seinfeld's experience with his show illustrates how fame affected his creativity negatively. CEOs face similar challenges when their roles expand beyond their core strengths due to company growth.

The Importance of Hunger and Motivation Stephen received advice from his mentor Shaquille Khan, who told him that after achieving financial success, he needed to realize that he was no longer hungry for the same reasons. He advised Stephen to spend a year doing nothing in order to get inspired and hungry again about something new. The need to understand how motivations evolve over time is crucial for continued success.

Taking on Big Scary Goals Shaquille advised Stephen to take on a 'moonshot' - a big scary goal - in order to reignite his hunger and motivation. This concept is exemplified by Elon Musk's pursuit of ambitious ventures even after achieving immense wealth. Successful individuals often seek bigger challenges as their engagement appetite grows, leading them towards solving larger problems.

The Addiction of Challenge and Stress Successful people are addicted to challenge; they constantly seek out bigger problems once they've achieved one level of success. Bill Gates serves as an example by moving on from Microsoft into philanthropy work focused on eradicating malaria, demonstrating the perpetual need for greater challenges beyond business success.

The story of Jesse Livermore, the most successful investor in the 1920s who became a billionaire multiple times but went bankrupt four separate times due to overconfidence and inability to stop taking risks. Success increased his confidence more than his ability, leading him to ignore warnings about being overconfident.

Staying Aware of Blind Spots and Sustainable Success The importance of staying aware of blind spots in life and the natural humility that comes with sustainable success.

The Cost of Admission to Wealth and Success Understanding the cost of admission to wealth, success, investing, career, and relationships.

Time Horizons: From Renting to Owning a Home Identifying time horizons for different goals in life such as retirement, family support, career enjoyment. The value shift from renting to owning a home based on personal circumstances.

'Buying a House': Lifestyle Choices vs Financial Investment 'Buying a house' decision-making process considering lifestyle choices over financial investment returns. Realizing historical trends about housing prices as an investment option versus rental options.

The best story wins in entrepreneurship, investing, pitching, and sales. Facts and figures are less effective than storytelling. Examples include Ken Burns' documentaries and successful comedians who captivate audiences with stories.

The Power of Storytelling Humans are unique because of our ability to tell and remember stories. Stories simplify facts, make people remember, and eliminate uncertainty. Good news happens slowly while bad news happens fast.

Understanding Compounding Interest Compounding interest can have both positive and negative impacts on our lives. It is a slow process that often goes unnoticed but has significant long-term effects on health, wealth, and other aspects of life. Exponential thinking is not intuitive; we tend to underestimate the power of compounding in both good and bad situations.

Discomfort, pain, and shock can lead to positive change. Major societal improvements often arise from disasters and challenges. Personal hardships like job layoffs or breakups may seem devastating at the time but can ultimately be transformative.

The conclusion offers no specific advice on wealth creation and money. Instead, it encourages readers to think about their lives in a different way. The author emphasizes that the books do not provide direct advice but aim to provoke thought about what readers want, who they are, and their capabilities.

Overcoming Regret and Anxiety The last guest leaves a question for the next guest, asking about their biggest regret in life. The speaker reflects on how they have been prone to mild depression and anxiety, wishing they could go back in time to reassure themselves that everything will be okay. They acknowledge the wasted time spent worrying about things that never happened and express a sense of missed happiness due to not accepting reassurance.

Enduring Principles of Life The speaker recommends two books: 'The Psychology of Money' as the best book on money ever written, offering enduring principles for life; and 'Same as It Ever Was,' which provides advice on money, life, relationships - all based on enduring principles. The conversation ends with gratitude from both parties for having had this meaningful exchange.