It’s Ok, You’re Not Nuts
It’s Ok, You’re Not Nuts
The Psychology of Money
What do we know about money? I would say, not a whole heck of a lot. As Canadians, I would argue we collectively know more about basketball or how the Canadian flag came into existence - thanks to Canadian heritage minutes - than we do about money.
Can you imagine how better off we would be as a country if our government made minute long promo videos about investing rather than teaching us about what smelling burnt toast has to do with seizures? What a wild time the early 90s were. Sorry Gen Z, you will never experience the pure joy of Canadian heritage minutes. But I digress.
Anyway! Yes, as Canadians, North Americans, and global beings we (likely) know little about how we relate to the central pillar of our lives: money.
It’s odd to me that such an important tool garners so little education and so much stress. And it’s not like resources on the topic are lacking, there are so many fantastic books, blogs, podcasts, videos (etcetera) to learn from. It’s surprising we don’t have a better relationship with the green stuff.
Many moons ago I mentioned a little gem of a book called The Psychology of Money, and I hinted I would be discussing it. But then life went in a different direction, as it does. Remembering recently that I had not yet discussed this fantastic resource, I thought why not now? Now is the best time for anything, after all.
Zee Book
For those of you who are into reading finance books, The Psychology of Money is somewhat old news. It was published in 2020 (right before the blessed event that made us all introverts for two years) and breaks down how we humans understand and relate to money. Though money has been around for a little while now, humans are famous for not being really great with the stuff and this book unpacks why that may be.
It also provides helpful tips for how we can change our relationship with money to be more productive by acknowledging simple truths and embracing basic habits.
If you enjoy that sort of thing (which, if you follow this substack, I assume you might), I would recommend getting your meaty, sweaty paws on a copy. But enough of that, let’s talk about being crazy.
No One is Crazy and We’re All Crazy
As alluded to in oh so many posts, we humans are odd creatures. Yes. That’s right. You. Me. Your uncle Todd. We’re all “unique.” The handy thing is no one is immune to this fact. Us humans tend to do things in a way that we think is best, which can lead to some interesting results.
But here’s the thing - when it comes to our finances, being our odd little selves is actually pretty standard. As Morgan Housel shares early on in The Psychology of Money, no one is crazy when it comes to how they manage their money because we all manage our money in ways that make sense to us individually.
We’ve all met people who hold the vast majority of their money in bonds, or are heavily invested in real estate, or the stock market, or the (dreaded) crypto market. Reading that list I bet one of those investment vehicles made you scream - NO!! - in your mind. But that’s the point. We invest in things that make sense to us.
All of the experiences and circumstances of our lives are individualized to us. And these experiences shape how we engage with the world, and what we do with our money. This plays out through financial decisions and investments that “make sense to us” based on our comfort levels and understanding.
For instance, someone raised during the great depression will have a different understanding of risk and debt than someone raised during the booming 1950s. Likewise, someone raised in the 1980s will have a different understanding of interest rates than someone raised in the 2000s.
The point here is that our experiences guide what we understand as a safe bet or a major risk. And so, what may seem absolutely bonkers to one person is the most rational decision to another.
In a sense, this frees us from the opinions of others. We will (and ultimately need to) invest in ways that make sense to us, and that is just fine, in fact that’s the point.
In the end, we’re all flaming nuts. You need to make financial decisions that work for you, and allow you to sleep soundly at night. But to figure out what to do with your hard earned cash, you need to have it in order to do something with it.
Save, For the Love of Hummus Save
Life is pretty random. Sure, we can plan and have investment strategies, but at the end of the day we really have no idea what’s going to happen. And, as Housel points out, humans are notoriously bad at predicting the future. In fact, we suck at it. When we think something will go our way, it won’t. Or maybe it will, but not the way we think - there is no job secure enough, no home stable enough, and (as many politicians have discovered) no server protected well enough - life is random and chaotic and unfair.
An apt example of the randomness of life is the fact that Crocs was included in Time magazine’s 2010 list of the 50 worst inventions. And now the company is worth $9.45 billion. Yeah! We have no idea what’s going to happen.
With this in mind, the best thing we can do for ourselves and our financial future is to simply save.
You will never regret having a few extra dollars waiting for you in a high interest savings account. And sure, it would be great if you had a financial plan that maps out your financial decisions for your entire life, but that’s not realistic for the majority of us.
And yes, this may not sound like a fun time. Saving, ew. Who wants to save when our society is constantly telling us to spend all of our money now. We only have one life right? Why not spend the money we have when we’re young? Everyone around us is spending a lot of money and living an extravagant life, why can’t we? We deserve it!
These and similar narratives are wildly destructive. They are also shallow justifications to act like complete insane people. Sure, spending money is fun when the good times are rolling. But life is full of peaks and valleys. Embracing a pragmatic view of the future will pay off in the long run.
Save money as life goes along. Your future self going through a rough time will thank you.
It’s About Behaviour
From doing what makes sense to us, to not being able to predict the future and simply saving, this post really just scratches the surface of the wisdom contained in The Psychology of Money. Housel goes on to explore so many more assumptions, pitfalls, examples and historical events that are applicable to almost everyone.
Housel emphasizes how our behaviour is the true bellwether of fortune making. He goes on to explain how avoiding expanding expenses as your salary increases, keeping your emotions in-check as you make financial decisions, and being frugal and flexible all expand your chances of increasing your wealth.
Personally, in reading this book I found myself assessing my own behaviour and thoughts around money. It really helped to put my own experiences into perspective. Sure I haven’t done phenomenal with my finances, but my past decisions were also based on my limited understanding at the time. I’ve learned a lot, and my behaviour now definitely reflects that learning.
This book also made me realize that I’ve been looking at my financial situation the wrong way. I used to have this idea that I just need to have X amount of money in my bank account and I would feel like I made it, I would suddenly feel like a real adult!
But the truth is anything worth investing in - like relationships, exercise, healthy eating, stress management, building a skill - is about consistent behaviour. There is no end point to these things, and how we handle our finances is much the same. To get better at managing my money means I have to change how I do things. It’s about achieving a savings or investment approach that I can be consistent with for (essentially) ever.
At the end of the day, living an awesome life that moves us closer to our ultimate goals is what we’re really after. I’ll often reference that money is a tool to be used to help us along our path. Don’t lose sight of the fact that being financially responsible and doing what’s right for you will look very different to almost everyone.
Learn to invest in ways that move you closer to your goals. And give The Psychology of Money a read, it’s worth it.
Always remember, we’ve got this!
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