Book Club: Psychology Of Money


Show Notes

Steve and Tyler discuss Morgan Housel's 2020 book, "The Psychology of Money". It distills a lot of financial wisdom into an easy-to-read anthology of advice and, especially, cogent explanation.

Embrace risk but beware of ruinous risk. Get the goalposts to stop moving. Be wealthy versus rich. Don't let your ego stand in the way of accumulating wealth.

  • (00:00) - Lemonade stands
  • (01:19) - Psychology of Money
  • (06:03) - Experience vs. perception
  • (09:42) - The newness of "retirement"
  • (14:35) - Rich vs. wealthy
  • (17:58) - Getting the goalposts to stop moving
  • (25:47) - Luck, tail events, and risk
  • (33:28) - Ego



[00:00:00] Tyler: There's been an interesting development in my neighborhood recently and I'm really happy about it. And it's that the kids who run Lemonade stands around here have started accepting Venmo instead of just cash.

[00:00:11] Steve: That's a brilliant idea. I drove by Lemonade Stand the other day and I couldn't stop because I didn't have any cash, but maybe if they were taking Venmo, I could have stopped.

[00:00:20] Tyler: love stopping and.

[00:00:21] Steve: Well, also I was late, but I.

That's beside

[00:00:24] Tyler: Well, there's the real reason. No, I love, uh, patronizing kids' Lemonade stands, but yeah, there's been a while where I haven't been able to, 'cause I completely stopped carrying cash and they don't take Venmo, come on children. And I know it's their parents' account or whatever. But yeah, it's great.

I've, I've seen that a lot more lately and it's, uh, I can resume my, my ways of drinking watered down nasty lemonade and helping kids, you know, be entrepreneurial. Support them. Yeah,

[00:00:52] Steve: among the rising generation.

Hello there. Dear Listener, I am Steve.

[00:01:02] Tyler: and I'm Tyler, and this is, it's not about the money where we discuss a wide range of topics related to creating and running small businesses.

[00:01:10] Steve: Tyler and I are small business owners ourselves, and we're just trying to make sense of the world. One podcast at a time.

[00:01:19] Tyler: And today in our book Club episode, we're gonna be talking about the Psychology of Money, a book by Morgan Housel. This is a book that I read recently that kind of blew my mind.

[00:01:30] Steve: I really enjoyed it. It was sort of a distillation of a whole bunch of personal finance reading that I have done over the years. You get a little bit of Mr. Money mustache, you get a little bit of Total Money makeover,

A little bit of millionaire next door. There's a lot of, lot of good stuff here. Really easy to read too.

[00:01:50] Tyler: Yeah, I, I, I think. It's almost like a summary of personal finance principles. Right. And you know, it's interesting if you read enough books on a topic, whether it's productivity, personal finance, business, et cetera, I, I like reading a lot of books on the same topic because you can start to zero in on the core principles behind the topic.

Right. And it's like amazing to me sometimes that there's. Anything new to be written or said about a topic because the principles are so fundamental, but I think I figured out why. Why I like it. It's because even if the principles are the same in every single book that you read about the topic, what you're getting is someone else's perspective on those principles and like how it's like applied to them.

And there are situations that they've encountered, encountered in their life. So I, and that gives it more nuance. So even though the principles are the same, you get more depth, maybe more perspective with each book that you read. And this book seemed, to your point, like a great encapsulation of many of those books on personal finance.

Just kind of boil it down.

[00:02:53] Steve: Mm-hmm. I also feel like I relate to Morgan's particular, uh, philosophy, uh, on their own money, which when you get to chapter 20, is like the, by the way, I told you all of this stuff and here's what I actually do myself. And a lot of those things, uh, are also things that I do or, uh, aspire to do.

[00:03:17] Tyler: Yeah, I

[00:03:18] Steve: know if that came out while I was reading it, but, you know, I, I felt like I related to this author.

[00:03:23] Tyler: I was kind of in suspense, right? Because I think he hints a few times throughout the book. Like, I'll tell you later what I

[00:03:28] Steve: Yeah. Right.

[00:03:29] Tyler: But here's all this information. And yeah, so I wasn't sure what to expect really, but, uh, I was taken aback when his, what he does personally is actually just follow the advice of the book he wrote.

I don't know why that's surprising, but, um, yeah, and it's, it was really relatable to me as well, and kind of reassuring in a way, I guess.

[00:03:50] Steve: Mm-hmm.

[00:03:52] Tyler: So as we talk about this book, I mean, we've described it as kind of a. Or you know, summary of personal finance principles, maybe a high level overview of personal finance.

What are some of the ideas, thoughts, or quotes from this book specifically that stuck out to you?

[00:04:11] Steve: One thing that I liked right at the beginning of the book is they talk about nobody's crazy. They, everyone is making decisions based on their knowledge, their experience, their upbringing, their expectations, their goals. And so it might look to you like, why are they doing that? Why are they making that decision? Why are they buying a lottery ticket? Uh, and there's, there's a good explanation for it. If you could get inside their head and understand what it is like to be them and to experience money the way they do, it would make sense. I really liked that, uh, perspective of just, uh, being able to have empathy for, uh, the way other people go about in the world with money.

[00:04:57] Tyler: I think the line, the exact line from the book is people do some crazy things with money, but no one is crazy.

[00:05:04] Steve: Yeah.

[00:05:05] Tyler: I love that. Yeah. And, uh, I think that's a good principle in general, in life, right? Uh, replace money in that sentence with just about anything

and, and it works, right? And I've experienced this, uh, firsthand in, in my coaching.

Some of the scenarios I see, like, actually it, I'm getting better at it, but like the first few clients that I worked with that were in real financial trouble, I was stressed out. I was like, what are you doing? I don't understand. And it's taken me a while to realize this, right? Like everything that they're doing, transferring, you know, balance transfers, like taking out loans to pay off loans, whatever, whatever. Although it doesn't make sense to me because of my personal history and experience and background, it totally makes sense to them. And so to help them understand how to get to a healthier spot, it's like not just telling them what to do. That never works, right? You have to like,

[00:05:52] Steve: Mm-hmm.

[00:05:53] Tyler: Find out what they're seeing and help them change their perspective and have an insight.

Otherwise, people just do what they do.

[00:06:03] Steve: The corollary of that is, I don't remember the exact line, but, uh, everyone's, uh, someone's experience of money is like a tiny fraction of actual human experience in the history of the world, but it's like 80% of what they believe, how they believe money works.

[00:06:25] Tyler: Yeah. Do you want me to read? Do you want me to read it? I've got it right in

[00:06:27] Steve: Would you please?

[00:06:28] Tyler: So it says, your personal experiences with money make up maybe 1e-08% (That's a lot of zeros!) of what's happened in the world, but maybe 80% of how you think the world works.

[00:06:43] Steve: Okay, there we go. And that says to me that it's along these lines of, uh, nobody's crazy. I. But, uh, the way I think money works is may seem in my head like a foregone conclusion. Like, of course that's how it works. Doesn't everyone understand it this way? And well, actually, no. Uh, because my experience has been very particular to me, and there may be overlap with the people that I interact with, but there may not also.

And so I need to do the work of understanding what is it like for them to experience money? What are their goals? What has their experience been? What's their history with it? What was their upbringing like so that I don't, um, project my expectations onto them?

[00:07:29] Tyler: Yeah. I actually wrote in my note on that line that I highlighted, I said, consider that there may be no objectively best way to think about or manage money.

[00:07:42] Steve: Ah, I, I got that message throughout the whole book.

Of like, there's, there's lots of ways to do this and none of them are necessarily wrong. It's like, do pick the thing for you that helps you sleep best at night was kind of a big overarching message,

[00:07:58] Tyler: Yeah. Which can be frustrating. Like if anyone, if someone's listening to this and they're just like, so just do whatever I want and like I'll be fine. There's a difference, right?

[00:08:08] Steve: right? Yes.

[00:08:10] Tyler: because I. When people struggle with money, it's not because they're objectively doing it wrong, it's because whatever thoughts, beliefs, and actions they're they have or they're doing, are not producing the results that they want.

And maybe they don't understand why. And so that's a problem that can be as unique as every single person is. But, um, anyway, it's kind of, kind of a tricky. Space to talk about actually.

[00:08:44] Steve: Right. Well, and we talked about in the Total Money Makeover episode that there are foundational principles of personal finance. Uh, and then there are the application of those principles, and I think that applies here, where like, um, your savings rate is more important in the long run than what you, the, the particular investments you choose in the meantime, like the, the savings rate and the time value of money compounding, that's the thing that will get you to where you want to go.

Uh, but how you apply that principle is different for everybody. Uh, based on your risk tolerance, based on your time horizon, whatever it might be, what helps you sleep well at night? That's, that's where you've gotta decide for yourself. But the principle of you need to have a high savings rate is, is universally applicable.

[00:09:42] Tyler: Yeah. Yeah. Well, and that's another thing that I found fascinating. Another point in this book is that that's relatively a new idea, right? So he talks about how throughout all of history, Before World War ii, like up until, up until and through World War ii, most Americans worked until they died. And that was not only the, the reality, but that was the expectation.

There was no retirement, there was no, you know, you just, you worked, you provided for yourself and then you died. And so I find it fascinating that this concept of retirement, right? And like saving up a bunch of money throughout your life so that you can not work at some point, like that's new. And so, He points that out to say that like, you know, we as human beings struggle with these ideas like delayed gratification and saving up and investing for the long term because we've never had to do that before or think about it, right?

And so

we're only a gener a couple generations into this whole thing. The Roth I r a, I didn't know this was not born until 1998.

[00:10:46] Steve: Right. Yeah, that, that shocked me. And the 401k is not much older than that either.

[00:10:52] Tyler: That's, uh, 1978

[00:10:54] Steve: Yeah. So they seem like, uh, fixtures of the financial landscape to me having been born in the eighties, like, but yeah. Uh, they're relatively new. Like, and, and our psychology does not adapt as quickly as our society changes.

[00:11:12] Tyler: So, I mean, I'm probably overgeneralizing here, but the way I'm interpreting this is like basically up until like say the 1950s, there was no expectation of retirement. And I even think the concept of a career was somewhat new as opposed to just like a job or working

[00:11:28] Steve: Oh yeah.

[00:11:29] Tyler: Um, and then for a period between, I don't know, somewhere between the fifties and the seventies, uh, you know, there was this concept of pensions, I suppose.

And then quickly at the end of the seventies, It was like, oh, how about if you save for your own, your own retirement? You know? And I know it's been like that's way overgeneralizing it, right? But there was just like a brief window. And it's interesting because some of the, uh, I guess you could say, hmm, influencers in the financial space are like in that they were alive during that time, right?

So like, Or maybe our parents or our grandparents like, have pensions or like have no problem retiring. But I don't know if anyone before or after is gonna have as easy of a time. It's, it's just interesting to me, you know, that it's so new.

[00:12:14] Steve: it is super interesting. Another big theme that I liked is prioritizing reasonable over rational.

[00:12:25] Tyler: Ooh, tell me more about that.

[00:12:27] Steve: Yeah, rational is like, let's run all the numbers, let's get the spreadsheet out. Let's figure out what is the numerically optimal thing to do. And reasonable is more like, it may not add up in the spreadsheet exactly, but it is the thing that will give me the peace of mind that I'm looking for or will help me sleep at night or help me get to, uh, a different goal that I have that is not strictly about money, for example.

Uh, so in, in, uh, chapter 20, they talk about, Paying off their mortgage as being the worst financial decision that they ever made, but the best money decision they ever made because the, the point for them was they don't want to have any debt hanging over their head. They, the, the peace of mind of getting rid of that house payment was worth the cost of, or the opportunity cost of being able to like invest money instead and getting a higher rate of return perhaps on the investments than the mortgage rate was, which was pretty low. Uh, and so that's, that's an example of it. It was reasonable to do that even though rationally if you ran the numbers in the spreadsheet, you'd be like, no, you should keep the mortgage because it's got a low interest rate and you can get a higher return on that in money markets.

Or, you know, or something more aggressive than that.

[00:13:53] Tyler: that's interesting. It actually reminds me from a concept from my political science days called Rational Choice Theory, which in a nutshell, you know, posits that no one can ever actually make a rational choice, because in order to do so, you would have to have all the pertinent information, including what the outcomes would be.

[00:14:16] Steve: Oh

[00:14:16] Tyler: To, to be totally rational, right? So like in this example of paying off the mortgage early or not, right? Um, you never know when, for example, you're gonna die. So like, uh, without that piece of information, you can't really make a rational decision about how to plan for the future.

So another concept that this book talks about, that I've been thinking about a lot is the difference between being rich and being wealthy. I.

[00:14:45] Steve: Oh yes. I liked this part.

[00:14:48] Tyler: Like, I have been thinking about this constantly. I've been telling my friends about it, I've been telling my clients about it. I just, I love it. It's, you know, one of, one of the pieces of this is that wealth is measured in things you don't see. Things you don't buy, basically money you don't spend. Right.

Because wealth is basically having money, whereas richness, at least as he defines it, is, you know, having the trappings of having a lot of money. You know, having nice things, having a nice car, having a big house, whatever those, whatever, right.

[00:15:19] Steve: or maybe even bringing in a large income.

[00:15:22] Tyler: Or maybe even bringing a large income. Yes. Uh, and I remember he had a story about some, I think it was a financial advisor that was sued by their client because, The client ran out of money and his offhanded remark was something like, well, I didn't think I had to tell my client that once he spent the money, you would have the thing, but not the money.

That seems pretty self-evident

[00:15:50] Steve: Right.

[00:15:52] Tyler: anyway.

[00:15:54] Steve: Have you read The Millionaire Next Door?

[00:15:58] Tyler: I have, it was many years ago, but I, I am familiar with with it.

[00:16:02] Steve: It's the, the main thing I remember from that book, it was also many years ago for me, but uh, was, was this exact idea of the, your neighbor who lives in a normal sized house and drives a Honda Accord that's 10 years old is more likely to be a millionaire than the, the guy with the fancy car and the big house. Uh, or, well, that's not the right way to say it. Uh, uh, a, a millionaire, someone who is wealthy is more likely to not have the big flashy trappings of expensive, fancy things. They're more likely to live in a, in a modest house and drive an old used car. not, not look particularly rich because their, their wealth is the money that they did not spend.

[00:17:00] Tyler: And they didn't necessarily, they didn't inherit the money or, you know, uh, necessarily get it because of a big business deal or something. If I remember, that book talks a lot about how to be, you know, people become millionaires this way, especially.

[00:17:14] Steve: Mm-hmm.

[00:17:15] Tyler: Anyway, that, yeah, and, and I just think it's such an empowering idea because it allows you to realize that everything is a trade-off and that you are the one making that call.

Like, if you want to spend your money on a nice car, go for it. You know what I mean? That's, that's really empowering. But you know, the trade-off is you won't have the money anymore. And you might be car-poor you know, you might not have much money to spend on other things, or you might not be able to retire, but maybe that's a really good trade off because you are fine with the idea of working until you die or whatever.

You know, it's, or you're not sure that you will live that long or you know, I don't know. It just depends on what you believe about all this stuff, but,

[00:17:56] Steve: Exactly.

[00:17:58] Tyler: Okay. How about this one? The hardest financial skill is getting the goalpost to stop moving.

[00:18:07] Steve: That sounds like, um, lifestyle inflation

[00:18:10] Tyler: Yes.

[00:18:11] Steve: or the hedonic treadmill

[00:18:12] Tyler: Yeah.

[00:18:13] Steve: kind of thing?

[00:18:15] Tyler: Can you, can you just describe the hedonic treadmill for maybe if people haven't heard of that before?

[00:18:20] Steve: uh, yes. We have, uh, an immense capacity of adjusting to whatever our circumstances happen to be. Good or bad. And so when we get something new or something, uh, better, we think, oh, it's gonna be great. This will solve all my problems. But it actually, we, we get used to it rather quickly, and then it just becomes part of the baseline, the

[00:18:48] Tyler: The new normal

[00:18:49] Steve: new normal.

And so if you're always looking for that next thing that will make your life better. Uh, it's very easy for that to run away from you because you keep just getting used to the new things.

[00:19:04] Tyler: Yeah. So I got a question for you. What do you think is a good approach or how would you approach this challenge of getting the goalpost to stop moving financially speaking, like as you earn more and more money? And again, this is not like a, a, a moral question per se. It's more of a priority thing, but assuming, you know, he's saying the hardest skill is getting the goalpost to stop moving in reference to building wealth, right?

Because if the goalpost always moves, then you'll never have any extra money. So assuming you wanted to, to build wealth, I guess that's the assumption here is assuming that you wanted to build wealth, like what, how ta how would you tackle this challenge?

[00:19:43] Steve: Right. I don't know that, uh, I have really conquered this skill yet, but one, one tactic I have tried before is, uh, is when I get like a, a raise or go to a new job or something where the, the salary is like significantly more. Like it's not just a, a tiny little raise that I'm not gonna notice where it's like a substantial amount of money.

I will try to, before that money ever starts coming in, like bump up the 401k contributions or put more into the HSA or something so that, so that I don't see it, uh, and that, uh, sometimes works and sometimes doesn't, because, you know, in the back of my head I also know, well, there is this extra money that's going to this other thing now that we could pull and use it for whatever.

[00:20:29] Tyler: Yeah.

[00:20:30] Steve: Uh, but that's, that's one thing that I've tried, uh, with varying degrees of success.

[00:20:35] Tyler: I think that's smart. I think I have a similar approach or I would like to have a similar approach. The the thing is, is I, my financial goals change from time to time, and so I've just, I've been all over the map yet.

[00:20:48] Steve: Well, and the, the book talks about that too. Like,

[00:20:50] Tyler: that's true. You're not the same person your

[00:20:53] Steve: yeah. Right. Yeah. You should expect your goals to change and you should feel build. Your structures so that they can be resilient to that change and support you in whatever your new goals happen to be.

[00:21:06] Tyler: Yeah. You know, I've been thinking a little bit about, a little about this and I, I don't think this is an answer. This is just more of a thought that I've had. But I think that for me, it has something to do with the goalpost. Well, let's see. There's lots of areas of life, financial, mental, social, family, all these things, right? I've wondered if I could focus more on moving the goalpost in those other areas and like let that distract me from moving the goalpost i'd financially. I don't know, it was just kind of a random thought that I had, but I'm, I think there's also kind of like, um, There's, there's an insidiousness to this, to this lifestyle creep sometimes if you're getting kind of regular increases in your salary over the years.

Right. It's real easy just not to think about it and, and your lifestyle can basically just match it right the whole time if you're not careful. Um, but I don't know. To me it seems like there's some kind of breaking point between the ability to like, Go out to eat more, going out to eat more, or like buying a Ferrari, like, like I don't think, I don't foresee myself being in this, the latter situation, right?

Of like, oh yeah, I just, I suddenly started making a ton more money so I can go like buy like these luxury type items.

And so I'm, because of that, I feel like I don't like, Right now I have a place to live. I'm able to kind of eat the way I want to eat. You know, I've got transportation. Like I'm trying to tell myself this is it.

Like the next time I get a raise, I don't need anything else. I don't even really want that much else. So maybe to your point, I should just put most of it into, I. Retirement savings and, uh, and just take a little bit and, and I don't know what I'd even spend it on, but, uh, I'll report back if that ever happens and see if I do it or if I, you know, go buy something.



[00:23:01] Steve: Mm-hmm. In your example, would you say the difference between those things is, incremental, growth in the spending versus, big bang like all of a sudden I'm buying a fancy car? Because I also can't see myself like jumping to that sort of level of spending, but it is very easy to just let the, let all of the normal spending sort of creep up

gradually over time

[00:23:31] Tyler: Well, I've got an example. Maybe I'll just share an example from my, from my personal life. So I was paying off my student loans years ago. And I had, uh, I don't know, a pretty good chunk left, maybe $20,000. And just because I got lucky and luck is another big topic in this book, by the way. Uh, I lucky with my timing and purchasing a home and then selling that home.

I, you know, had some pretty serious capital gains in selling that home and was able to finish off my student debt in like one fell swoop.

[00:24:05] Steve: Oh, nice.

[00:24:06] Tyler: Then I had extra, and so this was like a real life situation for me. It's like I just had a windfall. What do you think? I did?

[00:24:17] Steve: I

[00:24:18] Tyler: It wasn't

[00:24:18] Steve: you stuck it in a savings account and uh, held it for the next time you're gonna buy a house.

[00:24:24] Tyler: No, no, I did not. That would've been the smart thing to do. Well, I don't know. It's, I guess it's subjective, but, so I paid off my student loans and then I bought. A camera, a coat, and what, what else? Like a lens for my camera. I just, I, I spent the rest of it. I, I was young, everyone. I was young and, and flush with cash, relatively speaking.

And I think back on that and I'm like, okay, well that's an interesting experience that I had. So next time I have a windfall. What am I gonna do? I, I like to think I'll behave differently. I, you know, I would at least put, uh, and, and you know, look to my credit, I guess I paid off the student loans first, so I eliminated

[00:25:05] Steve: Yeah, that's a big win.

[00:25:06] Tyler: So I felt like, yeah, maybe it's justified. Um, and maybe it was so I'm not beating myself up, but, uh, I just think it's interesting 'cause like, you know, people like, yeah, you bought stuff you could have put it in, you know, in 30 years that could have been worth a million dollars. I'm like, yeah, yeah. Maybe I regret it, but I still wear the coat and I still use the camera.


[00:25:31] Steve: Yeah, I mean, I think ultimately you're the, you're the one that. Gets to decide whether you're happy with that choice or

[00:25:40] Tyler: you're not gonna judge me?

[00:25:41] Steve: No, your camera looks great. So works works well.

Do you wanna talk about luck and like tail events and those kind of things? 'cause that's another big theme in this book.

[00:25:55] Tyler: I do wanna talk about it. I don't know if I like, fully, fully grasp all the things he was trying to say about it. But I loved it. So, so I can tell you the gist of what I got out of it, and then you can say, you know, some of your smart observations that I'm sure that I'm sure that you have about this.

But it goes, it goes back to the idea that like, uh, I think he also says you have to be careful in personal finance, who it is you choose to admire and look up to and follow, and who you choose to like judge and look down upon really, because luck and risk are such huge factors, right? So just because something worked for someone else does not mean that it's gonna work for you.

And there are these events that can happen that you have no control over and no, no ability to predict. Right? And those can have a big impact. And that's kind of, that's kind of the surface level of what I took away from this.

[00:26:48] Steve: Yeah, that's a good summary. Uh, I would be really interested to know what this book would have been like if they had written it two years later. 'cause it was written like right before the Coronavirus Pandemic and so that, but they're talking about a lot of the big I. Events that in history that, uh, nobody saw coming.

You know, the World Wars, the recession in

[00:27:17] Tyler: Mm-hmm. Mm-hmm.

[00:27:18] Steve: uh, and the, and the pandemic fits, uh, real nicely into that same, uh, theme but I, I guess the, the, the main theme I took away from that is the, the goal in investing is to stay in the game. Don't take, so like, don't be afraid of risk, but, but be, uh, what's the, oh, here's the quote. "You should like risk because it pays off over time. But you should be paranoid of ruinous risk because it prevents you from taking future risks that will pay off over time."

[00:27:54] Tyler: Yeah.

[00:27:55] Steve: So if you're going too far into something where it's gonna wipe you out, and now you're outta the game, that's bad. Avoid that at all costs.

But don't be afraid to take risks, uh, with within your margin of error so that when you, so that you're in the game when the unlikely but statistically possible good things happen that then do a lot of good for your balance

[00:28:27] Tyler: Yeah. What comes to mind when you talk about this is the whole GameStop thing a few years ago. Do you remember that?

Uh, and then also just the, the subreddit /r/WallStreetBets, stay away. Uh, but, but yeah, it's basically stories of catastrophic failure and success, you know, where people have traded stocks, ex uh, by leveraging themselves like out the wazoo basically.

And in some cases ended up losing, like, going way negative, right? Not just losing everything they had, but also just like going way negative. And that's the, that's kinda the point. Like they're outta the game now, right? Like, they're gonna spend a lot of time just digging themselves out to a hole instead of earning money because they, they crossed that magical threshold of too much risk.

[00:29:17] Steve: Yeah.

[00:29:18] Tyler: And it's irritating because there are also people who crossed that threshold and got the disproportionate gains that can come with those kinds of risks. Right.

[00:29:28] Steve: Right.

[00:29:29] Tyler: So like, what

[00:29:30] Steve: But you don't

know before going into it whether you're gonna be one of the lucky ones or not.

[00:29:34] Tyler: Exactly. And to me, I guess, I mean this is not a hot take, but that's a little bit that, that's fundamental to the difference between investing and gambling. You know, I, I think investing is, is a longer term activity where you have a much more reasonable, uh, Assurance, I guess you could say. It's not, nothing's sure, but you know, there's a much more reasonable chance that over the long term there'll be value created in the companies that you're investing in or whatever you're investing in real estate or whatever, as opposed to like trying to make a quick buck by just like gaming the system.

Right. That's whew. But it's tempting. It's addicting. We saw it with, uh, cryptocurrencies too.

[00:30:23] Steve: Yeah, that's true.

[00:30:25] Tyler: And, uh, along this line in the book, he says, there are many things that are never worth risking, no matter the potential gain. And I don't remember if he's talking about money specifically there. I mean, he might be talking about things like your reputation, your freedom, your independence, your relationships, uh, things like that.

[00:30:45] Steve: Mm-hmm. It's, it's all a balance, uh, across your whole life. Money's a big important part of that. But don't take risks that will jeopardize your financial, uh, stability, but also. Don't take risks that will jeopardize some other part of your life that's important to you.

[00:31:07] Tyler: Yeah, and, and along, you know, he has some good thoughts about how to apply this. He talks about room for error, like leaving yourself plenty of room for error, which is often called margin of safety.

Um, he said that that concept, leaving room for error, is one of the most underappreciated forces in finance, and it's for this reason, right?

If you, if you leave yourself room for error, you will be able to survive and stay in the game, even if something goes temporarily wrong.

[00:31:40] Steve: Yeah.

[00:31:41] Tyler: And what that looks like, by the way, if you're like, okay, margin of error or margin of safety, room for error, what does that, it's like, well, you know, don't overload yourself. Some examples he has is, you know, live below your means. Basic, you know, personal finance, rule number one. Just, you know, spend less than you make.

Uh, other ways to increase your margin of safety would be live on a frugal budget. Be flexible in the way you think about things and have a loose timeline, which I like that, you know, you can't be desperate. You don't have, you can't put be in a situation where you have to sell at a bad time.

That, that's hard. I think for people who wanna get in on the investing game before they're maybe financially stable. Like maybe they still have a lot of high interest debt, but they want to be investing because like, oh, I could be earning money. But the cost to to to that, the potential risk there is is much bigger than, you know, losing some money in the stock market when you don't have debt.

[00:32:37] Steve: Right.

[00:32:38] Tyler: Double negative,


[00:32:42] Steve: Uh, and Dave Ramsey is, is very much on the, you should have no debt ever whatsoever,

[00:32:47] Tyler: Mm-hmm.

[00:32:48] Steve: uh, end of the spectrum. And I liked the take in this book of like, explaining why that is, because the, the leverage is the thing that like, yes, it can pay off if you're lucky. It can be a really good multiplier for something, but it can also be ruinous if you take it on the wrong way, or you have too much of it, or it's in the wrong things. And so being able to recognize, let's be cognizant of what is this leverage, what purpose is it serving, and what are the risks? If it all goes wrong, uh, can, can really help you make the right decision about that.

[00:33:28] Tyler: Okay. We've gotta talk about another line from this book that just has been haunting me ever since, ever since I read it. And I've been sharing this with everyone too, and they all think I'm a jerk now. But, um, he says, past a certain level of income, what you need is just what sits below your ego. I think he also says in there, wealth is the difference between your income and your ego past a certain level of income.

So once you've covered your basics, It's up to you how wealthy you are and the differences between, you know, it's your margin, right? It's like, uh, I think you could replace the word ego with desire, you know, it's wealth is the difference between your income and your desires, and it's a little less, you know, spicy, I guess.

But it's interesting. I mean, that's, that's been haunting me, like I said, ever since.

[00:34:21] Steve: Uh huh. And so when he says ego, that's, um, like the, how you want to be perceived in the world of like this, these are the things that I have bought. And so that, that therefore should tell you a story about who I am.

[00:34:41] Tyler: I think so. Yeah. Like, and, and you know, this is going back to the Millionaire next door. Be willing to live in not the nicest neighborhood. Right. Be willing to drive, not the nicest car. I get there are other reasons beside ego, like you wanna live in a safe neighborhood, right? But, um, but he says, you know, when most people say they want to be a millionaire, what they might actually mean is, I'd like to spend a million dollars.

And that is literally the opposite of being a millionaire.

[00:35:07] Steve: Right.

[00:35:07] Tyler: I love that. So, yeah, I just think, I mean, I, maybe the reason this has been haunting me is 'cause of, it's just like, it's really, it's cutting. It's, it's really puts the responsibility on you. It's like you're, if you don't have money past a certain level of income, again, that's an important caveat here, then it's because you're spending it.

It's, you know, on things that you'd rather have to support your ego. So something to think about.

[00:35:33] Steve: Yeah.

Well, I think we covered all the points that I wanted to talk about in this book. If you're really pressed for time, you could just read chapter 19, and that is like a good summary of. The whole book in a couple of sentences for each chapter. I mean, you, you miss all of the, all the color and the stories underneath it.

So I think, I still think it's worth reading the whole book, but you could just read chapter 19 and get the 30,000 foot view of it.

[00:36:06] Tyler: Yeah. Now this book is full of great things. I feel like we could talk about it for a lot longer, but we shall spare people that, and we gotta leave something to the imagination.

[00:36:20] Steve: I highly recommend it. I really enjoyed this book.

[00:36:23] Tyler: Yeah, me too. I think this is a book I'm gonna keep coming back to over and over again over the years. So yeah. Great read.

[00:36:29] Steve: Mm-hmm. Well, if you, dear listener, have questions you'd like us to answer or a book you think we ought to read on a future book club episode, uh, let us know. You can email us at Uh, we'll see you again on another episode of It's Not. About The Money.

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