Principles: Why You Spend Money

Credits to Morgan Housel: The Art of Spending Money

What You Actually Want

If you’re confused about what a better life would look like, “one with more money” is an easy assumption.

It’s such a simple idea that influences so many people. “Living a good life” is one of the most complicated topics that philosophers have debated for thousands of years. And “more money” is such an easy and quantifiable thing to chase.

But the desire for more money and the things it can buy often obscures what you actually want: respect and admiration from other people.

An easy connection to make is that if you had more money, you could buy a nicer car and a bigger house, and if you had a nicer car and a bigger house, people would respect and admire you more.

Sometimes they will. But it rarely does, at least as much as you expected, especially from the people you want respect and admiration from.

Reverse Obituary

We like to borrow this mental exercise from the late Charlie Munger. Try this:

Write down what you want your obituary to say, then figure out how to live up to it.

It’s the most direct way to plot out what you want in life and what truly matters.

Everyone’s self-written obituary will be different. But I suspect most people would want theirs to say:

• You were loved

• You were respected

• You were admired

• You were helpful

• You were a good parent, spouse, a caring friend

• You were an asset to your community

• You made a contribution to your industry

• You were wise, funny and smart

Now realize what’s not in there?

Almost no one in this exercise would think about their obituary mentioning how much horsepower their car has, how many square feet their home is, or how much they spent on clothes. Your salary would not be mentioned, nor how many carats are in your wedding ring, nor that you renovated the kitchen with imported Italian marble.

I like nice things. But I’m always struck by the contrast here of what people want versus what they aspire to.

Attention is What You Desire

We view nice stuff as the ticket to what we actually desire: attention. This is not a modern realization. It’s a deeply human reaction.

The great economist Adam Smith wrote in 1759:

To what purpose is all the toil and bustle of this world? What is the end of avarice and ambition, of the pursuit of wealth, of power and pre-eminence? Is it to supply the necessities of nature?

Of course not, because even low-wage workers in his time had food, shelter, and families. What drives them is this, Adam Smith continues:

…to be observed, to be attended to, to be taken notice of with sympathy, complacency, and approbation, are all the advantages which we can propose to derive from it.

It is the vanity, not the ease, or the pleasure, which interests us.

To rephrase what Adam Smith wrote: We value the attention money brings us more than we value the comfort and convenience of stuff that money can buy.

This idea applies to different people with different intensities.

You could say: “So what? If respect and attention are what I desire, and having an awesome car provides it, what’s the problem?”

But is that your last remaining or even only way to gain respect and admiration? If you struggle to gain respect and admiration through your intelligence, humor, empathy, or capacity for love, you might default to the only remaining lever: your stuff.

We can break down this into 3 points.

1. How effective?

Spending money on nice things might be the quickest way to get someone’s attention, because it’s visible, public, and doesn’t require talking to anyone.

2. How durable?

If I’m impressed with your car today, I might give you a little attention. But tomorrow it’ll wear off a little. A month from now it starts to fade off. A year from now I couldn’t care less.

3. Who’s paying attention?

Mostly strangers, and even then there’s a subtle point that when a stranger notices your stuff, they’re gawking at your stuff, not at you.

Spending money is probably the fastest way to get attention, but it’s not durable attention, and it’s probably the least effective towards the people whose respect and admiration you actually desire.

Pride and Envy

Pride can be felt two ways: intrinsically, when you’re authentically proud of yourself; and extrinsically, when another’s opinions tell you how you should feel, what psychologists call hubristic pride.

Jennifer Breheny Wallace, Never Enough

Like many people, I’ve seen a range of salaries during my career. What strikes me is that the things that make me happy with a higher income are the same things that made me happy with a much lower income.

If you want to be proud of your success and display it with nice stuff, let it benefit those whose respect and admiration you desire the most.

You should be proud that your loved ones can benefit from the nice things you have purchased. It doesn’t matter what strangers might think if they happen to see those things.

Another important point here: You might think that displaying your success to strangers is bringing you attention and admiration. But often the emotion it’s actually stirring up in others is envy. That’s not a good outcome.

Be Psychologically Rich

All happiness in life is just the gap between expectations and circumstances. The person who has everything but wants even more feels poorer than the person who has little but wants nothing else. How could it be any different?

That’s not a plea to live like a monk.

You can have a huge house, an expensive car, take incredible vacations and be content with all of it, appreciating it and desiring nothing more. That can be an amazing life.

The key is realizing that happiness is the state when nothing is missing, regardless of the lifestyle you’re living.

The more you say to yourself, “I would be happier if I had this or that,”
the more you’re just focusing on the fact that you’re not happy right now.

Desire is a hidden form of debt that must be repaid before you get to feel
any happiness.

When you realize how important expectations and contentment are, then you will also realize that wealth doesn’t simply means adding more money. The equation changes, I think the ultimate measure of wealth is:

What you have minus what you want.

Desiring less can have the same impact on your well-being as gaining more money. It’s not only more in your control, it’s also a game you can actually win, leading to durable contentment instead of fleeting happiness.

Now, desiring less doesn’t mean giving up. It doesn’t mean you don’t know how to spend money and have a good time. Actually it’s quite the opposite. To be content with what you have is the deepest way to enjoy the things you have.

Being psychologically rich is superior to materially rich; I leave this up to you to decide if it’s true.

I’ll end this with a Stoic saying:

Not needing wealth is more valuable than wealth itself.