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S4.E4 - Psychology of Money - Ch. 12 - 14
58 Plays5 months ago
Welcome back to another episode of the Books Brothers Podcast! Listen as (Adam) Stehlin leads our discussion of chapters 12-14 from The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness by Morgan Housel.
- Chapter 12: “Surprise!” (0:44 - 10:19) - Have any of you experienced a large financial surprise? If so, how did you deal with it?
- Chapter 13: “Room for Error” (10:20 - 16:26) - In light of the concept of “financial humility”, what are specific financial strategies that you implement or adhere to?
- Chapter 14: “You’ll Change” (16:27 - 27:21) - What are some examples of circumstances that have changed throughout your life that have impacted or altered the way you interact with money?
Next week we’ll discuss chapters 15 - 16 (pages 155 - 174).
You can buy the book on Amazon by clicking here.
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See you next week! Until then - read, reflect, and connect.
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Transcript
Introduction to Books Brothers Podcast
00:00:06
Speaker
Welcome back to the Books Brothers podcast, a group of friends from college who have stayed in touch with this book club. We read books together, reflect on them as they relate to our lives, and connect with each other by sharing our experiences. I'm Adam. And I'm Thomas. I'm Matt. I'm Garrett. And I am Flez.
Exploring 'The Psychology of Money' by Morgan Housel
00:00:22
Speaker
We are currently reading The Psychology of Money by Morgan Houssell. This has been a great read thus far. In today's episode, we will dive into chapters 12 through 14.
00:00:35
Speaker
So we start with chapter 12, surprise. Hausl talks about the unpredictable nature of financial markets and life events in this chapter. He highlights the inevitability of surprises in both personal finances and broader economic landscapes, emphasizing their potential to disrupt even the most well-laid financial plans. He references specific historical events such as the Great Depression, World War II, the 9-11 terrorist attack, and many others. He notes how these events were unpredictable and drastically affect the economy.
00:01:03
Speaker
Through these examples, he underscores the importance of preparedness, adaptability, and resilience in managing unexpected financial changes. He notes that it is by planning for surprises that individuals can better withstand the impact of unforeseen events and position themselves for long-term financial success.
Coping with Financial Surprises: Real-life Experiences
00:01:20
Speaker
Have any of you guys ever experienced a large financial surprise? And if so, how did you deal with it? I would say taxes.
00:01:29
Speaker
when I'm doing my tax return and then it's like, oh shoot, I got a good return. And then like, oh crap, I owe it a ton. So how I deal with that is technically, I mean, it's however you want to like put it in a budget. We just call it like, I think tax escrow is what we're calling it. That's going to be used to pay for taxes. I can think of a couple instances where I've been surprised by a financial bill.
00:01:59
Speaker
Right after we had Lucy, she was a couple months old, I think our heater went out in February or March or something. I can't really remember, but we had to replace our heater right after having a kid. So it would have been a little bit more. Okay. If we didn't have a newborn in the house, we probably could have touched it out in a little bit, but with a newborn, we kind of need heat.
00:02:28
Speaker
And we were not expecting to have to buy a whole new heater for our house. How much how much is a new heater? How much is a new here to like give us a range? I honestly don't remember. A couple 1000 3000 you blocked it out. Yeah, just blocked it all out. Even this last week, our garage door stuck working.
00:02:50
Speaker
And that was unexpected. It wasn't a huge expense, but it was an unexpected expense. And it's just kind of annoying and frustrating that it happened. So we had to get that replaced. We had it replaced yesterday, actually, the motor that pulls up the garage door, which now that I'm saying that, that sounds like a very privileged thing to have and to be able to do. Like there's a lot of people that don't have a garage door.
00:03:20
Speaker
let alone a garage door that opens automatically. I don't have a garage door, man. Like, you need to count your blessings, bro. Come on, man. For real. I would live in your garage. If you love me. For real, though. It's a large garage. I don't know if you guys can relate to this, but I feel like every time that we have a car problem, that's always one that feels very stressful.
00:03:49
Speaker
It's usually big numbers and it's usually going to very much inconvenience you for the next couple of days. And that's one too where you definitely can have, yeah, you have a car obviously. So you know, you're in that place, but I think they're, you know, the obvious answer to that is just like having, like as Garrett talked about kind of having like your, your rainy day fund of sorts, your emergency fund.
00:04:14
Speaker
But sometimes some of these, some of these bigger expenses, it's tough because it feels like you're forced into a decision. You don't can't really like, like shop around like heater going out. Prime example matter, you know, a car expense,
The Impact of Medical Bills on Finances
00:04:26
Speaker
we need to get driving again. Like our similarly, Matt, like our, our air conditioner broke while we were at the hospital before Ruth gave birth to Daphne and it was early July. And so it was like one Oh seven, one Oh eight. And yeah, we had to pay for that.
00:04:42
Speaker
What about medical bills? Did anybody say that? Anybody brought up medical bills? Kind of brought that up. I mean, one of the last chapters, but that's a major one. Yeah, it's like the number one of the major reasons for people going bankrupt, right? It is number one. Yeah, it is number one. Really? Yeah, that's what I thought too. Imagine like a trip to the emergency room and then you get that bill in the mail. It's like, holy cow.
00:05:09
Speaker
You guys, I know Matt's been to the emergency room. I remember that in college. Yeah, I was, but I was on my parents' insurance at the time. Nice, nice. See, that's everybody. I didn't do it before. That's how you do it. Don't worry about any of this stuff. Just stay on your parents' insurance. And that's all the wisdom that we have to offer. You're always 25. You're perpetually 25.
00:05:34
Speaker
Matt, do you feel like with, because you shared a couple of examples there, do you feel like having gone through a couple of things like that, have you done things differently to prepare for those situations or in any mind? No, not really, because we, since I started actually making money after college, I've always been big on paying off debt.
00:06:02
Speaker
and saving for an emergency. And I'm, I'm blessed because I was taught that I had a lot of good. Older people in my life to tell me, these are some things that you should be doing at this point in time, right out of college, you should probably save up to at least three months of your salary.
00:06:26
Speaker
Um, so I've always tried to do that. And so when these big expenses hit, we had the cash, we had the savings to pay for it. It just dips into that savings account where we're, you know, we're trying to save up to buy something else, something bigger. So it'll be a little bit longer to pay for those things, but it never broke us. We never had to go into debt because of those things or.
00:06:53
Speaker
go into financing options, which we're really thankful for. So no, I haven't really had to change anything. It's just trying to make sure that we have enough saved up for those emergencies to where it's not going to break us and continue to make financial decisions that allow us to have those savings. I've saved money and been like, and why am I saving this?
00:07:21
Speaker
Like you have that three months or whatever everybody tells you, but then you keep saving money and you're just like, should I be saving this if I don't really have a good purpose in mind for it? I remember when, before we got married, before I even knew I was gonna propose to my wife, it was kind of like that. And then after I proposed and we got married, I was like, man, I'm sure glad I saved.
00:07:47
Speaker
what I did because weddings are expensive and all that kind of stuff. I don't know if you guys have felt like that. Saving for the sake of saving, like what's the point? I honestly don't think I'd do that. I'd save for, oh, I got to get like, we're going to buy a house when you save for a down payment. I think that's what we do too. We need to get a car. So we need to save. And there's always that three months or whatever that the goal is for.
00:08:17
Speaker
I haven't gotten to a point. I feel like we invest fairly well, but we probably save less than the average person just for like straight cash in the bank account. And again, that's all relative. It's very privileged because we, yeah, if one of us lost our job, we would be fine for three to six months. I just mean that concept of saving just to save. It's, that is harder for me. I'm like, no, money can't just sit there.
00:08:47
Speaker
Yeah, I can agree. I can agree Garrett. And I feel like, and I think this is what I do to justify it. Is that like I say, like, oh, we're saving for these five, six different things. Most of the time those aren't all needs. And so if something comes up where we do have to shift and say like, well, I was saving for this, but now we're going to use it for this. Like we're, I mean, we've definitely had a lot of times we've had to like shift gears like that. I don't know if you can relate to that in your situation. Let's take a quick break for a word from our sponsors.
00:09:17
Speaker
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Speaker
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00:10:01
Speaker
And now back to the show.
Embracing Financial Humility and Planning for Errors
00:10:05
Speaker
Obviously talking about like saving, saving for the sake of saving. And really that's what Hausl gets into in chapter 13 titled room for error. So he stresses the importance of leaving room for margin when financial planning, he notes, you have to give yourself room for error. You have to plan on your plan, not going according to plan. In this chapter, he discussed the idea of financial humility.
00:10:28
Speaker
which that was a new concept for me. It talks about being humble enough to realize that you do not and cannot know what can happen next. In an anecdote that we likely can all relate to, he shares that when analyzing other people's home renovation plans, most people estimate the cost in time will be 20 to 50% over budget, while the homeowner themselves tend to believe that the plan will go on time and according to budget. So to conclude this chapter, as we've really been already hitting on here some,
00:10:57
Speaker
He stresses saving for the sake of saving because we cannot always predict what the future holds. So what do you guys think about the concept of financial humility and what are maybe some specific strategies that you guys implement to align that concept in your life? Stay paranoid. Stay paranoid, okay. I have an old coworker that I worked with at a prior job. He was the most paranoid dude. He was like an engineer.
00:11:26
Speaker
Most paranoid dude, he did almost all of our estimating and a lot of our construction management though. He was the best at controlling costs, finding ways like value engineering, finding ways to do things that achieved the same outcome.
00:11:44
Speaker
in a way that was cheaper and more efficient. And his entire, the entire reason he was like, like that, because he worried that every single thing that could conceivably go wrong would go wrong. And it drove everybody kind of crazy at first, because you didn't realize like, you were just like, man, this guy's so paranoid. He's driving me crazy with all these things like he's so negative about, but then once stuff actually happened, you're like, wow, I'm so glad kind of he's on the team.
00:12:11
Speaker
looking out because inevitably something always happens and it costs more or takes longer. So in your life, I guess, yeah, I mean, you start to think about when's the last time I hit a unexpected expense and it kind of makes you nervous because you know,
00:12:28
Speaker
Some things might be right around the corner. I guess paranoia is not always bad if you can manage it and it doesn't drive you crazy or make you worry or stress out. I wouldn't know. I don't know if I would call that a strategy, but this didn't affect my personal finances, but I think of COVID and how that affected my assessment of risk and project management in my own job.
00:12:54
Speaker
There came a point with, because I work in consumer products and international manufacturing, supply chain, logistics. The contract manufacturer we worked with for a certain product at the height of COVID was requesting forecasting for, I think 63 weeks out or 73 weeks out for a product. And if you're not familiar with
00:13:21
Speaker
forecasting and planning for consumer products. That is a very long time, very long. If we order a Tumblr today, it will probably be here including shipping time within six months. So by the time they manufacture it, put it on a boat and get it here from China is six months total. They're asking for 13 months notice
00:13:49
Speaker
14 months notice just to get enough raw materials to make the parts. I mean, it was insane. And there was an aspect of, man, if anything can go wrong, it will go wrong during COVID. From a health standpoint, from all of the things and then our consumer products landscape. I think that has trickled into a lot of my personal finances.
00:14:15
Speaker
whether it be with taxes or buying a house, like my first time buying a house, I was like, oh yeah, we can do 10% down payment. And then they're like, here's the closing costs and here's this and here's that. I'm like, I think we're gonna put down 5% for our down payment. So there's just a lot of things like that where I think COVID has impacted my risk assessment on most things in life. Yeah, I mean, I think the thing I kept
00:14:46
Speaker
Like the phrase I kept thinking about in this chapter was to live within your means. And you guys have probably heard me say that as I've been going throughout this book. I think it's just crucial. And I think that, you know, making sure that you're not, you know, consistently running yourselves in the, in the red, you know, with where we're at with our current like financial status, like that's, I would say a big, you know, we're not really at a point where we're doing tons of investing or anything like that. But the big thing for us is just like being, you know, making sure we're
00:15:15
Speaker
taking care of everything. And we're, you know, we have like a Dave Ramsey, like every kind of every dollar budget. And that's really been like our biggest strategy of to live within our means or to, you know, essentially to plan for unexpected by knowing that we're each month, we're putting a buffer and we're doing things to basically make sure that we're
00:15:35
Speaker
not going to be in the red and some of that includes saving you know that we you know we plan saving and so it's been really helpful for us around time we're not the best at it but it's been something that's been really helpful for us. You guys know anybody who just seems like they're always juggling like there's always something yeah the ball dropped here so they got us borrow money from over there yeah or their credit card here got
00:15:57
Speaker
I don't know, maxed out. So they got to try to take something else out and get another line of credit or like I know people like that and it just seems so... You do? Yeah. I don't actually to be honest. Maybe I know them and they haven't told me, but no, I don't. No, like to them, it's just kind of how life is, you know, it's like every week or two something, you got to figure something out. And I think a lot of people are like that. I think we're all...
00:16:24
Speaker
kind of like in a bubble of acquaintances or family or whatever that most people we know aren't like that. But I think that's actually pretty normal in terms of people's experience with money. In Chapter 14, titled You'll Change, the focus is on the inevitability of individual change in personal finance and the importance of adapting one's financial strategies every time.
Adapting Financial Strategies to Life Changes
00:16:47
Speaker
Hausl emphasizes that individuals undergo significant life changes such as career shifts, family dynamics, and personal goals.
00:16:53
Speaker
which impact their financial priorities. When facing the reality that our goals and circumstances will change in our lifetime, the author leaves the reader with the following advice. Avoid extreme ends of financial planning. Trust the simple concept of compounding investments over time and accept the reality of change and move on as soon as possible. So for you all, what are some of the ways in which your life circumstances have changed and how has it affected your relationship with managing money?
00:17:20
Speaker
I think of two things, one having children, especially with both parents, both of us work. Daycare was and is very expensive. You go from expecting your first child and all right, there's gonna be diapers and eventually there'll be food and clothes and then there's, I mean, I joke, but I don't joke. We have,
00:17:45
Speaker
the cost that my parents spent on me to go to Missouri State for four years, I think we have paid for our kids to go to college at Missouri State two to three times already. I mean, granted, I got like a scholarship for tuition, but so yeah, just like,
00:18:06
Speaker
Tuition at least like two or three times. It's crazy how expensive they need a daycare. Oh shit. Dang. Yeah. So I think that has affected like, all right, we, right now we're about to start pre-K and it was a big conversation of like, all right, finally, like
00:18:26
Speaker
public school, let's go, like don't have to pay anymore. And then we just had a lot of conversations. Very long story short, we're putting Graham in private school. That was another rational versus reasonable conversation where I was like, I really want this money in our bank account. But then there were a lot of these reasons where it's like, okay, there's these good reasons too. And I can give that up. So that's one.
00:18:53
Speaker
And then the other one is just career changes. I mean, I feel like I'm probably beating a dead horse, but starting out of college at a nonprofit job where I had to fundraise my own salary to 10 years later, our income has grown and it's kind of scared me at times when I think of the concept of Jesus talking about stewarding and being good stewards of our money.
00:19:22
Speaker
Going back to that previous chapter about being humble, starting with a little has helped us have humility and ask for help. Like we have a financial advisor, someone who actually was involved at crew at Missouri State and he's, he's great. But yeah, it definitely has affected my relationship with money when.
00:19:44
Speaker
You have kind of two ends of the experience at the start of college and then 10 years later, and then you throw kids in the mix where they're very expensive and how you look at it, where you want to spend it, where you want to save and invest and give it. There's a lot of life circumstances that have happened over the last 10 years that have really impacted our relationship with managing money.
00:20:09
Speaker
I was going to add for me personally with this, and I've already kind of touched on a little bit in previous episode, but COVID and business shutting down and divorce really humbled me and kind of made me realize like companies have different departments for a reason. You know, like some people are just better at managing finances. Some people are better at managing logistics. Some people are better at, you know, X, Y, or Z.
00:20:36
Speaker
I had to realize I am just not good at managing money, but I am good at delegating. And so that's one area of my life where I've humbled, I had to humble myself and just have more help in management of that. I didn't know that until some failures kind of made that apparent. That's definitely changed the way that I personally.
00:21:05
Speaker
manage money and I have specific roadblocks set in place for certain things. Like I only a lot spending about $200 a week on food supplements, stuff like that. So that's like one tangible thing that I do specifically that is different from before. And so it just keeps me mindful.
00:21:28
Speaker
for sure of like day-to-day spending, specifically, you know, if I'm only allotted $200 a week, even though I could spend more than that based on like income and all that, it prevents like, you know, more impulsive purchases like on Amazon or something like that. You know, for me personally, I have struggled with like getting into the woodworks on research with
00:21:55
Speaker
like supplements, like sports nutrition and all that kind of stuff. That's my background. And so my basically addiction is like getting too into that kind of stuff. And so my purchases can sometimes be like that impulsive, like maybe this supplement will help X, Y or Z. And so then it's, you know, a lot of my money goes to that. So the thing of like 200 a week is like, well, if I do that,
00:22:21
Speaker
then that's going to cut out money for food or like gas, which is it? That's right. That being said, like I willingly have these roadblocks set up, but it's like the atomic habits thing really setting up roadblocks to habits that you don't, that you want to get rid of and making new habits that you want to start easy, as easy as possible to even make them as easy as possible. And so that's definitely,
00:22:50
Speaker
One thing that's changed a lot with me just being more risk averse in general, but then more humble and delegating and something that I'm not good at.
Critique of the FIRE Movement's Frugality
00:23:00
Speaker
Have you guys heard of the FIRE movement? Financially Independent Retire Early is what FIRE stands for.
00:23:06
Speaker
And it got really big before COVID. I don't know when it started, but it was basically these folks, a lot of them were young, just out of college, had really high income. They worked for tech companies a lot of times like Google or something. And they were all about extreme frugality and saving so much money that they could retire when they were like 30 or something like that. And that type of extreme,
00:23:35
Speaker
made it to where at such a young age, they don't realize that as you go through life, your needs and your mindset about money and what you want or need is going to change. So they spent a decade of their lives essentially just saving and saving and saving, but not really knowing how that might play out.
00:23:58
Speaker
And what happened to the fire movement is it got criticized pretty harshly. And now it's kind of shifted into like more of a well-rounded type strategy.
00:24:11
Speaker
where yes, people save, but they also realize like retiring early isn't everything. And a lot of people who retire early actually have a lot of trouble transitioning to that because it's a totally different lifestyle with totally different spending habits. And if you spend 10 years doing nothing but being super, super frugal, then once you let yourself spend, you're just going to be paralyzed. You're just going to be like, I don't want to. Spending equals bad. I'm kind of in a part of life right now that
00:24:41
Speaker
We've we've saved a lot. I haven't splurged on a whole lot of stuff, but we kind of want to get into having kids soon. And it's kind of one of those things where it's like, man, if we want to do anything, we better do it quick. And then also. When.
00:24:58
Speaker
It's only been you and your wife, which is also kind of frugal. Like you just, you don't buy a lot of stuff you don't really need. And then once you have kids, I'm sure that there's a lot of expenses where you're just like, I just have to spend this money and be okay with that. So I guess that's something I haven't fully grasped yet, but I'm expecting it's going to be difficult for me just because
00:25:21
Speaker
I don't like spending on stuff that's not directly correlated with some function of my future. You know, like spending on the now isn't something I've been used to, I guess. I guess I can relate mostly with what Garrett said, and I don't need to rehash that, but a different take on that is.
00:25:42
Speaker
I feel like I've had some good mentors, some older mentors in my life when I was in college, fresh out of college. And I kind of hit on it before, but when I first got a credit card, it was actually through our youth group, through the church.
00:26:04
Speaker
So I had my own credit card, but it was mostly for youth group purposes. And I was told to never overdraft, always pay it off. And that stuck with me my entire life, having someone to tell me how to manage a credit card well, which in turn has given me a really good credit score.
00:26:30
Speaker
which I think is a ridiculous thing to have, to be honest. It's just so stupid. But I also did a little bit of work for a company called Primerica, and they do investments, life insurance, things like that.
00:26:48
Speaker
I wasn't with them for very long, but it did teach me about investing early and the importance of investing early, even if it's just a little bit of money each month. Basically, since out of college, I started a Roth IRA and I've mostly just been putting the minimum amount in there, but just letting that grow, letting it compound and working towards a decent retirement. Hopefully, that's a goal of mine.
00:27:17
Speaker
I think just having those mentors in my life providing guidance and advice on what to do financially. When I was fresh out of college and I had no idea what to do with money, that was really helpful for me.
Closing and Listener Engagement
00:27:31
Speaker
Thank you for listening to this week's episode of the Books Brothers podcast. Join us next time as we discuss chapters 15 through 18 from the book, The Psychology of Money by Morgan Housell. If you haven't yet, there's still time to get the books. You can follow along with us. If you've enjoyed listening or benefited from our conversations, please subscribe, give us a review, and share with a friend that you want to connect with. We also would love to hear your thoughts. You can reach us by email at connect.booksbrotherspodcast.com or on Instagram,