3 Words That Can Ruin Retirement: 'I'm a Saver'

Housel, the author of the bestseller “The Psychology of Money” and a former contributor to The Wall Street Journal, calls trying to keep up with influencer trends on social media “danger[ous]” because what’s seen is a “fake performative view.”

Housel, named one of MarketWatch’s 50 most influential people in markets, says that “having no FOMO [fear of missing out] might be the most important financial skill” and that “minimizing future regrets is the only good advice.”

Here are highlights of our conversation:

THINKADVISOR: Why is spending money more art than science?

MORGAN HOUSEL: It’s a very complicated individualistic formula, and that’s why it’s an art.

Everyone has their own background and unique insights. This can trip up people because what causes the most damage in finance is when investors follow advice that’s right for someone else but not right for them because it doesn’t fit their personality.

A financial advisor might say, “You should invest in this — it’s working for [others].” But it might not be right for you.

Another reason spending is an art is that your life is going to change. You’re constantly evolving — in your beliefs, your desires, knowing how you want to spend your time.

THINKADVISOR: “FOMO [Fear of Missing Out] is one of the most dangerous financial reactions that exist,” you write. “Having no FOMO might be the most important financial skill.” How come?

HOUSEL: This is truer now than ever before because social media gives a window into everyone else’s life and increases your desire to keep up.

The danger, of course, is that the view you’re seeing is a fake performative view on social media.

If you’re going to only keep your goals and expectations anchored to other people, you’ll never win the race.

You should try to keep your aspirations and goals confined to yourself and a very small group of people around you. That’s super important.

THINKADVISOR: You write that “the only good advice is to minimize future regrets [and that] the best definition of risk is “the regret, or lack of it, that might come decades later.” Please elaborate.

HOUSEL: One of the big lifetime goals is to be able to look back at your life with minimal regrets.

It’s about how good I was in the past at recognizing preemptively my ability to understand what I’m going to regret in the future.

Real risk is about looking back on your life at the opportunities you missed. I ask myself pretty often, particularly when making big decisions: Will I regret that at some point in the future?

That’s different from how most people in finance define risk. They talk about loss and volatility of the market.

THINKADVISOR: That’s not risk?

HOUSEL: The stock market going down and then recovering isn’t a risk. That has never made sense to me. There’s no regret in that whatsoever.

Regret is what you’re likely to look back at in the future — whether a year or 50 years from now — and tell yourself, “I wish I had done that differently.”

THINKADVISOR: Why isn’t it good to put labels on yourself — for example, “I’m a value investor” “a tech investor,” “a saver”?

HOUSEL: Anytime you do that you’re assigning yourself a tribal identity. And that can really hijack your ability to think critically about a topic because the label becomes who you are.

If you say, “I’m a value investor,” you’re going to look at many opportunities with a sense of disdain, not understanding them.

THINKADVISOR: What’s so bad about labeling yourself “a saver”?

HOUSEL: A lot of people save their entire life, but when they get to retirement, because they have this identity of “I’m a saver,” they can’t bring themselves to spend the money they’ve saved because this is so disjointed from their personality and identify of “I’m a saver.”

Financial advisors will tell you this is one of the biggest problems they deal with: getting people who have saved enough for retirement to actually spend it in a safe, responsible manner.

Anytime you attach yourself to an identity, it’s almost like the money is controlling you, controlling your personality. You’re not using the money as a tool to live a better life.

THINKADVISOR: What was one thing that influenced you to write about spending money?

HOUSEL: This is interesting: There are literally tens of thousands of books about how to grow your wealth and so much commentary in the financial advisor community about it.

But I found virtually nothing written about how to spend it and the mindset of spending.

It’s, kind of, a hole in the financial advice universe.

THINKADVISOR: “The desire for more money and the things it can buy obscures what you actually want: Respect and admiration from other people,” you write. Please elaborate.

HOUSEL: At the core, that’s what everybody wants. It’s common for people to say, “I want a bigger house,” or “I want a nicer car.” But the universal thing that people want is respect and admiration from others.

THINKADVISOR: Is there a difference between being rich and being wealthy?

HOUSEL: Rich is when you have enough money to fund the lifestyle you want. Wealthy is when you have some level of independence over the money you have.

It can also mean independence in that you’re not terribly influenced by the expectations that are set by others.

There are a lot of people who are rich but have no independence. They are completely reliant on the expectations and decisions of other people.

Wealth without independence is a very unique form of poverty.

THINKADVISOR: “Your propensity to be jealous of what others have can increase as you become wealthier,” you say. Please explain.

HOUSEL: If you make $40,000 per year, you might be looking up to people that are making $50,000 or $70,000.

But if you make $1 million a year, you might be looking up to people who make $10 million, $20 million, $100 million.

So the lifestyle to which you anchor yourself to move up to can get much, much higher.

THINKADVISOR: If you’re an unhappy person, does having more money make you happy?

HOUSEL: Most of the evidence shows that no, it can’t. If you start out as a depressed, anxious, solemn person, earning more money is probably not going to do that much for you, according to research.

If you’re already in a bad marriage, are in poor health, dislike your job, it’s very unlikely that doubling your salary is going to make your life that much better.

But if you start out as a pretty happy, content person living in the moment, then earning more money can make you happier.