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Understand & Apply the Psychology of Money to Gain Greater Happiness | Morgan Housel

Episode 205 Dec 2, 2024 2h 15m 21 insights
In this episode, my guest is Morgan Housel, an expert in private wealth generation and management and author of the bestselling book The Psychology of Money. We discuss how desiring, pursuing, saving, and spending money impact our psychology and perception of wealth. We explore why people tend to either overspend or oversave and examine the most common mistakes made in the pursuit of financial freedom. Additionally, we discuss how to best use money — and one’s relationship with it — as a tool to create psychological security, freedom, and a deeper sense of life purpose. We also delve into the impact of purchases, social media, and wealth signaling on our internal reward circuits, the dangers of using money as a gauge of career progress or self-worth, and the healthiest psychological stances to adopt while building wealth at any level. By the end of the episode, listeners will have gained numerous practical tools for making smarter financial decisions and should have a clearer understanding of the role money plays in their psychology, happiness, and life. Access the full show notes for this episode at hubermanlab.com. Pre-order Andrew's new book, Protocols: protocolsbook.com
Actionable Insights

1. Future Regret as Financial Guide

Base all financial decisions on what you anticipate you will regret in the future, as a well-calibrated sense of future regret is crucial for long-term well-being with money. This involves considering if you will regret spending, not spending, making, or not making an investment.

2. Prioritize Independence & Purpose

Reframe the pursuit of wealth as a means to achieve independence and purpose, rather than money being the end goal itself. Money is a tool to gain autonomy and the freedom to pursue what truly matters to you.

3. Avoid Financial Extremes

Steer clear of extreme financial planning, such as saving 90% of income to retire very early or engaging in high-risk, YOLO-style investing. These extreme approaches are most likely to lead to future regret.

4. Invest in Independence with Savings

View every dollar not spent as an investment in your future independence, not just idle money. This mindset helps you appreciate that saving provides marginal increases in autonomy and choice over time.

5. Cultivate Eulogy Virtues

Focus on developing “eulogy virtues” like being a good parent, friend, or community member, rather than solely chasing “resume virtues” such as high income or prestigious degrees. Reflect on what you want your obituary to say and live backward from that vision.

6. Leave on Your Own Terms

Strive to exit careers or significant life endeavors on your own terms, maximizing independence and autonomy over your schedule. This control over your departure significantly influences how fondly you remember the experience.

7. Keep Identity Small

Avoid letting professional titles, financial status, or other external metrics define your core identity. A small, flexible identity makes it easier to adapt, change paths, and prevent money from becoming a psychological liability that controls your life.

8. Focus on Verb States

Identify and tap into the underlying “verb states” (e.g., learning, creating, exploring) that genuinely motivate you, rather than focusing on specific professional titles or external rewards. This self-rewarding energy is key to sustained engagement and creativity.

9. Understand Others’ Money Behavior

Recognize that everyone’s financial decisions make sense to them based on their unique life experiences, upbringing, and circumstances. Adopting this perspective can reduce cynicism and foster a more personalized approach to your own money management.

10. Money as Psychological Liability

Be aware that money can become a psychological liability when it’s deeply ingrained in your identity and starts controlling your actions, rather than serving as a tool. This often manifests as an addiction to having more, even beyond what’s needed.

11. Pursue Effortful Dopamine

Seek rewards that are preceded by effort, as dopamine spikes that occur without effort (e.g., lottery wins) can be less fulfilling and potentially dangerous. Genuine achievement through hard work leads to more sustained satisfaction.

12. Prioritize Unstructured Time

Make a conscious effort to create and spend unstructured time with your loved ones. This type of quality time is often remembered as the most valuable and meaningful aspect of relationships.

13. Manage Social Media Compulsion

Actively manage your social media usage to prevent compulsion and significant time drain. Consider strategies like using a separate device or setting strict limits to avoid being pulled into endless scrolling.

14. Lead by Example in Parenting

Teach children about money and values primarily by leading through example in your own financial behaviors and choices. Kids are highly observant and will internalize lessons from your actions more effectively than from direct instruction.

15. Avoid Humiliation in Parenting

When guiding children, always lead by example and avoid actions that could humiliate them or make them feel inferior. Such approaches can foster resentment rather than positive lessons about grit or independence.

16. Align Parental Lifestyle with Kids

Maintain a consistent lifestyle with your children, especially regarding experiences like travel or purchases. Disparities (e.g., parents flying first class while kids are in coach) can inadvertently teach children feelings of inferiority or resentment.

17. Regular Financial Self-Reflection

Dedicate time to regularly reflect on your personal goals, values, and aspirations, recognizing that these will evolve. This ensures your financial plan remains aligned with your changing self and life circumstances.

18. Use Roka Red Lens Glasses

Wear Roka red lens glasses in the evening after dark to filter out short-wavelength light from screens and LED lights. This practice helps calm your brain and improves the transition to sleep by preventing melatonin suppression.

19. Try Wealthfront High-Yield Savings

Consider using Wealthfront for a high-yield cash account to earn 4.25% APY on deposits. This provides a secure way to grow savings while maintaining liquidity for future spending or investing.

20. Try BetterHelp Online Therapy

Explore BetterHelp for professional online therapy with a licensed therapist. This offers a convenient and time-efficient way to access emotional support, guidance, and insights for overall mental health.

21. Use Function Health Lab Testing

Utilize Function Health for comprehensive lab testing of over 100 biomarkers related to physical and mental health. The service provides personalized insights and doctor-informed recommendations based on your results.