You are spending your money wrong.

Not objectively. Subjectively. You are not spending your money in a way consistent with your own goals.

Morgan Housel’s new book is a fantastic spur to be more intentional with our spending. It strikes a wonderfully nuanced note, addressing the errors in both extremes: Wasteful spending in areas that won’t make you happy, and self-defeating addiction to frugality.

The core thought is this. Your priorities and values are different from everyone else’s so think carefully about how you craft your life through your spending.

This book is both deeply theoretical and fundamentally practical. Housel takes us through the behavioural and psychological drivers behind our spending and saving urges, and lays out tools to chart a better course. Tools like regret minimisation. What is the likelihood your older self will regret this expenditure. In my experience this is an incredibly powerful reframing and one that I use for all my big decisions.

Along the way there is plenty of practical wisdom. I love the warning to avoid the seduction of the inner circle, taken from CS Lewis. The desire to be included in the inner circle is an ancient desire. We want so bad to belong with those we respect. But this vanity will delude you into spending in ways that promise access but deliver only the futile awareness that there is an even more intimate inner circle. Happiness by circle pursuit is fundamentally elusive.

Housel is particularly insightful in explaining why spending to grow status is so counter-productive. It takes a lot of expense to buy a little status, and you are as likely to trigger jealousy as respect. Just the concept of being clear (and honest with yourself) why you are spending money on any service or product is a great pause.

This book is a warning against behaving like everyone else. The things that will bring you satisfaction, joy, and enable you to achieve your life goals are, of course, different from what will work for others . So you have to be careful about getting swept up in the social proof of what is good to spend on.

One of the key areas to exercise the art of spending is controlling your total amount of spending. Housel doesn’t see saving as delayed gratification. Spending on saving is buying independence. Savings give you independence and protection through life fluctuations.

And independence isn’t binary. Housel develops a staircase of independence to help us see where we are at and what we can do to move to more independence. It’s incredibly helpful to place yourself on the staircase and see what actions you need to take to move up.

One of the key ways to control spending is to be careful who you socialise with. If you socialise with people with different spending goals, different priorities, and different means, you will find it very difficult to stay off the hedonic treadmill. And lifestyle is a one way ratchet. It’s very difficult to dial it back

There is also the warning against becoming trapped in frugality. My mother used to say “You never regret your indulgences.” But this was against a backdrop of frugality that made these indulgences possible. Living well means focusing your spending on those things that most align with what you value in life and what you want to achieve.

Spending wisely on saving and investments gives you control. This is the ultimate luxury: The ability to control your time and having freedom and flexibility to do what you want. But your savings must be a means. If it becomes the end, then you have also spent foolishly. The moth and rust still destroy!

How you spend your money is how you live. Your financial decisions and biases are an illuminating proxy for the other areas where lack of intention is leading you to play other people’s games. Taking the time to look into this mirror has been incredibly helpful to me in understanding where my spending has drifted with culture rather than reflecting my priorities. Spending is personal, not logical, so there is no right way to spend your money, but there is an irrational way. You should spend in a way that is most likely to produce the outcomes you desire.

This is a really excellent book. It strikes the balance between theoretical and practical, spending and saving. I think it’s going to be a hit.

The last word goes to Morgan:

“The most valuable financial asset is not needing to impress anyone.”

Happy reading!

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