The Art of Manliness - #321： How to Think About Money

00:00:00.000 brett mckay here and welcome to another edition of the art of manliness podcast well personal

00:00:18.420 finance can seem intimidating but the reality it's pretty basic you'll save more than you spend

00:00:23.340 find ways to earn more invest for the long run and protect your assets but if personal finance

00:00:27.440 is so easy why do so many people screw it up well my guest today has spent his career exploring this

00:00:32.180 topic his name is jonathan clements he's been the wall street journal's personal finance columnist

00:00:36.100 for several years and during his writing career he's also published several popular personal finance

00:00:39.900 books including the little book of main street money and in his latest book how to think about

00:00:44.020 money jonathan distills decades of personal finance experience to the punchy insightful and action

00:00:48.460 oriented advice well today on the show jonathan i discuss the most common money mistakes people make

00:00:52.700 and psychological biases that causes us to make these mistakes and then he shares research-backed

00:00:56.800 advice on how money can buy you happiness and also misery too depends on how you use it he then

00:01:01.900 delves in the brass tack tips on how to save for retirement no matter how old you are how to overcome 0.93

00:01:05.720 your psychological biases so you don't make stupid money mistakes and why focusing on not losing money

00:01:10.120 will help you save more money in the long run lots of actionable advice to enhance your finances in 0.97

00:01:14.580 this episode after it's over check out the show notes at awem.is slash clements that's c-l-e-m-e-n-t-s

00:01:20.600 jonathan clements welcome to the show thanks for having me on brett so you wrote a book that i just

00:01:30.680 read really enjoyed how to think about money before we get to the the content of your book

00:01:35.340 what makes you an expert on you know telling people how they should think about money what

00:01:40.460 what's your what's your background i've spent 32 years kicking around wall street most of that

00:01:45.420 time as a financial journalist i spent almost 20 years the wall street journal where i was the

00:01:50.720 newspaper's personal finance columnist i was at city group for six years as director of financial

00:01:56.900 education for the u.s wealth management business i've written a bunch of books but maybe more than

00:02:02.660 anything else i've had the chance not only to talk to thousands of everyday investors but i've also

00:02:08.940 spoken to many of the smartest people on wall street and that's been my education i've had the great

00:02:13.720 opportunity to learn from others so in your time writing talking researching about money i'm sure

00:02:20.780 you've seen that a lot of people are confused about it right that's why there's so many books about it

00:02:25.020 so many magazine articles about it why do you think people are so confused about money you're absolutely

00:02:31.340 right i mean managing money is simple you spend less than you earn you save that money for the future

00:02:36.760 you put into a diversified portfolio you keep costs low you worry about taxes you give it time

00:02:43.020 and good things will happen and yet as simple as this is we sure don't find it easy people mess up

00:02:50.080 again and again and when i think about it there are really a whole bunch of different things that kick

00:02:56.200 in but probably the biggest problem is our own hardwired instincts we are prone to self-destruct

00:03:05.220 when it comes to managing money when you think about the brain there are two parts of the brain there's

00:03:10.160 the instinctual part and then there's the more contemplative or rational part and much of the time

00:03:16.920 what we do is driven by the instinctual part of our brain and in many of many situations that's great

00:03:24.020 you know if you're in the street and the car's coming towards you your instincts will tell you to get

00:03:28.220 out of the way and that's why you survive but when you go to the shopping mall your instincts say

00:03:34.320 if you buy x y and z you're going to be so much happier so you buy x y and z you go home you're not

00:03:42.320 all that much happier but you have this huge credit card bill and suddenly you've got financial problems

00:03:47.220 our instincts to spend now and not save for the future our instincts to be overly self-confident

00:03:55.940 when we invest these instincts tend to derail our financial future and besides the the those are

00:04:03.560 there any other psychological biases that we're sort of hardwired to that also derail our financial

00:04:08.360 future there are all kinds of hardwired instincts that hurt us i think the big three though are you know

00:04:15.040 one our tendency to consume right now and not save for the future uh two we tend to be overly

00:04:22.060 self-confident we we all think that we're better than average driver smarter than most better looking

00:04:28.920 and smarter than most when it comes to investing and third we tend to have um an instinct known as

00:04:37.200 loss aversion when the markets go down we feel this sense of panic like our entire lives are going to

00:04:43.960 be ripped away from us and for certain people that can cause them to panic and sell the worst possible

00:04:50.320 time when you think about these instincts you probably wonder like why do we have them well

00:04:55.740 they come from our hunter-gatherer ancestors these are the instincts that helped our nomadic ancestors

00:05:01.300 survive in the primitive world and they were enormously useful you know our hunter-gatherer ancestors

00:05:09.180 were able to survive and reproduce because they were terrified of losing they were supremely

00:05:15.680 self-confident they thought that they could actually get ahead and maybe most important they were hardwired

00:05:21.780 to consume whenever they could because tomorrow there might be no food consuming everything in sight was

00:05:28.720 actually a great survival strategy 20 or 30 000 years ago it's just not a great survival strategy today

00:05:35.580 well so then how do we rewire our brain for financial success if these things are hardwired to us is there

00:05:41.440 something we can do actions we can take so that we are more rational about our finances probably the

00:05:46.640 most important thing to do is to hit the pause button so remember a lot of the reasons we go astray

00:05:52.900 is because of our instincts it's instinct to consume whenever we can this instinct that you know we are

00:05:58.560 smarter than average this instinct to panic when the market goes down but if we can hit the pause button

00:06:04.600 and let the rational part of our brain kick in and look at the situation then there's a greater chance

00:06:10.740 of success so if you see something that you want to buy and it's hugely expensive but you're thinking

00:06:17.920 wow my life is going to be so much better if i buy this maybe you hit the pause button wait a week or two

00:06:23.280 before you make the purchase you can start to contemplate whether this is really going to be as life

00:06:27.580 transforming as you imagine and maybe just maybe you'll discover that it's not going to be all that

00:06:33.680 life transforming and you'll save yourself from a huge financial mistake what about overcoming that

00:06:38.260 tendency to sell when the market is crashing that's a tough one uh the best defense is to make sure that

00:06:46.860 you have the right portfolio to begin with you know when you talk to a financial advisor they talk about

00:06:51.540 knowing what your risk tolerance is the problem is our risk tolerance changes over time we all know this

00:06:58.060 you know when the market's going up we all feel brave and confident and we're sure that you know we can

00:07:03.320 take a lot of risk and it's all going to be fine but then as soon as the market turns down we become

00:07:08.200 scaredy cats and we're inclined to panic and sell so one of the things that i talk about in my book is

00:07:14.800 trying to get a sense of the market's underlying value to have some sense that when you trade stocks

00:07:22.280 you're not just trading pieces of paper or trading numbers on our account statement what you're doing is

00:07:28.500 investing in real companies with fundamental value now that fundamental value is hard to assess even

00:07:34.940 professional investors have a tough time figuring out what any individual company is worth but there

00:07:40.380 are a couple different tricks that you can use for instance one of the things that i tell people is

00:07:44.000 to think about the stock market in the same way that you think about going to the shopping mall

00:07:48.920 when you go to the shopping mall and prices have dropped you're excited that's the time when you want to

00:07:55.700 buy well guess what when prices drop in the stock market it's exactly the same thing if the market

00:08:01.280 is down 20 from its all-time high you should be more enthusiastic not less so another trick that i

00:08:08.640 talk to people about is thinking about the stock market as a line rising steadily into the future

00:08:15.840 and my best guess is the market's going to gain about six percent a year in the decades ahead if we have

00:08:22.440 a year when the stock market is doing better than that six percent you want to be a little bit more

00:08:26.620 cautious because there's a good chance that prices are going to come down from current levels on the

00:08:31.660 other hand if we have a bad year and we're below that six percent trend line that means that actually

00:08:36.280 things are looking more attractive and you should be more enthusiastic about buying stocks

00:08:41.440 speaking of investment strategies what's your take for investment strategies for like the average person

00:08:46.440 who doesn't have a lot of time to do the research to figure out value of a company

00:08:50.600 do you recommend like passive investing with index funds right i'm a huge huge fan of indexing when

00:08:58.020 you think about investing you know a lot of us imagine that we can succeed where other people fail

00:09:04.980 when i think about investing i think about being put into the lineup for a professional basketball team

00:09:12.480 or finding myself on the other side of the court from serena williams or pulling my old bike out of

00:09:18.740 the garage and joining the starting line at the tour de france in other words when i invest i know that

00:09:25.720 i am competing against some of the brightest and smartest people in the world today 98 or 99 percent

00:09:35.460 of the trading in the stock market is done by professional investors these people devote their entire lives

00:09:42.640 to trying to find stocks that are undervalued if there are bargains to be had they don't hang around

00:09:48.180 for very long the chances that i you know joe investor sitting at home doing a little bit of

00:09:54.600 research on the internet is going to find bargain stocks when these other folks haven't they are just so

00:10:02.120 small as to be not even worth considering so rather than trying to beat the market i advise people to try

00:10:08.120 and match the market at the lowest possible cost and the way you do that is with index funds you could buy

00:10:14.200 an index fund that tracks the u.s stock market an index fund that tracks foreign markets and an index fund

00:10:20.300 that tracks the bond market you take those three funds you put them together and you can have a world

00:10:26.320 class broadly diversified portfolio that will do better than 80 or 90 percent of the investors out

00:10:33.720 there and you can do it at a tiny cost i mean today you could buy that portfolio and match the broad

00:10:40.540 market and you pay an expense ratio of 0.1 percent so what does that 0.1 percent mean that means that

00:10:48.120 for every hundred dollars you invest you're only paying something like 10 cents a year in investment

00:10:54.600 costs right and those investment costs can really eat up your gains so like even if you go with an

00:11:02.000 actively managed fund that has stellar gains like you're often paying expenses out the wazoo that actually

00:11:08.000 cuts down on how much money you actually make no doubt about it earlier i was talking about how

00:11:13.540 you know the long-run return on the stock market might be six percent a year if you go and you buy

00:11:17.880 the typical actively managed fund that fund may have annual expenses over one percent a year it might rack

00:11:24.880 up another one percent in trading costs that's two percent a year so essentially you're lining up

00:11:31.680 for this race against other investors but instead of you know being at the starting line you're 20 yards

00:11:38.520 back because you know they you you are being dragged down by this two percent in a market that's only

00:11:45.220 deliver six you've already given away a third of your return so unless you pick funds that perform

00:11:49.700 exceptionally well you're going to end up as a loser and moreover the key way that people pick

00:11:57.900 funds they think are going to do well in the future are by looking for funds that have done well in the

00:12:02.860 past and reams of research tell us that that is a losing proposition imagine that you go back and you

00:12:13.340 buy the best performing funds the funds that are in the top 25 percent over the past five years

00:12:19.760 studies show that if you pick the top 25 percent of funds in any particular category for the past five

00:12:27.240 years over the next five years less than a quarter of those top performing funds will remain among the

00:12:35.020 top 25 percent in other words you can you actually hurt your chances of being a winner by picking one of

00:12:40.800 those top performers very interesting well on the topic of investing so we're going to lean towards

00:12:46.520 passive investing with index funds how should your strategy change say if you're in your 20s and 30s

00:12:53.320 what should your retirement or your investing strategy for retirement be and then how should

00:12:58.080 that change as you enter your 40s and your 50s when i talk to college kids or folks who are just out of

00:13:05.160 school you know and often these kids will have credit card debt you know typically they'll have

00:13:10.920 something like 30 000 of college debt what i say to them is they are rich and of course that always

00:13:17.920 gets me a few puzzled looks but they are indeed rich because they have this enormously valuable asset

00:13:24.500 which is their human capital their income earning ability if you graduated college you know estimates are

00:13:32.560 that you know the typical college graduate will have lifetime earnings figured in today's dollars

00:13:38.740 of something like 2.4 million dollars if you're a high school graduate numbers more like 1.4 million

00:13:45.280 dollars you go to professional schools you become a lawyer you get an mba it's over 4 million dollars

00:13:50.240 ahead of you is this enormously valuable stream of paychecks and collecting those paychecks is sort of

00:13:58.180 like collecting interest from a bond you get steady income month after month year after year and as

00:14:05.700 anybody who's done any sort of rudimentary study of investing knows that you have a large position in

00:14:11.080 bonds the way you diversify it is to invest in stocks so when you're young and you have this

00:14:16.740 enormously valuable asset this bond-like stream of income that's going to be coming at you for the next

00:14:21.960 40 years the smart thing to do is to invest heavily in stocks to diversify that but as you approach

00:14:28.320 retirement as you get older and you know that your paycheck is going to go away then you want to start

00:14:34.080 shifting your investment portfolio towards bonds while still keeping a significant portion in stocks

00:14:40.220 so what does that look like well maybe if you're in your 20s you have 90 of your portfolio in stocks

00:14:46.180 and maybe 10 in bonds as you head towards your mid 60s and retirement maybe it's more like 50 50 between

00:14:53.060 stocks and bonds gotcha i do know that like vanguard has funds that are like target date retirement funds

00:14:59.460 so like they'll make those shifts for you as you age right so when you're when you're young it's

00:15:05.100 gonna be primarily a stock index and then when you get into your 40s and 50s it'll start shifting more

00:15:11.260 towards bonds and a target date fund is a great investment i actually recently argued that you know

00:15:18.400 we could all make our lives a whole lot simpler and we'd probably be a whole lot more successful as

00:15:24.420 investors if we simply gave up trying to pick individual stocks gave up trying to pick all

00:15:30.060 these different mutual funds instead bought a single mutual fund you could for instance you know go to

00:15:35.200 vanguard group and buy one of their target date retirement funds you get a globally diversified

00:15:39.880 portfolio in a single package and in the case of those vanguard funds the annual expenses that you're

00:15:45.440 paying are typically something like 0.15 percent or less each year that's like 15 cents for every

00:15:52.580 hundred dollars you've got invested if you have a 401k plan they may not necessarily have that

00:15:58.220 vanguard fund in there but a lot of 401k plans these days have those target date retirement funds

00:16:03.500 if one of those funds is in there it's very likely your best choice so you also talk about for

00:16:10.240 individuals who are getting close to retirement to think about annuities i know there's a lot of

00:16:14.740 podcast listeners who are at that age maybe they're in their late 50s 60s and they're kind of getting to

00:16:19.400 that point where they're thinking about retirement can you walk us through what an annuity is and why

00:16:23.360 that might be an option that they might consider this is tricky terrain brett because the word

00:16:29.120 annuity covers a whole slew of different investment products and most of them most of them you want

00:16:34.940 to avoid at all costs so for instance there's things called variable annuities and things called

00:16:39.820 equity index annuities and i do not recommend them so straight out don't buy an equity index annuity

00:16:46.700 don't buy a variable annuity but there is a very simple product called an immediate fixed annuity

00:16:54.000 and with an immediate fixed annuity all you do is you send off 25 50 100 000 to an insurance company

00:17:02.220 and thereafter the insurance company will cut you a check every month for the rest of your life no

00:17:09.120 matter how long you live this is a very efficient way of squeezing income out of your retirement

00:17:16.120 savings now the best annuity available the best annuity available is actually social security

00:17:22.000 if you are heading towards retirement and you're thinking about social security and you want a

00:17:27.480 maximum lifetime income from social security most people are going to want to delay social security

00:17:33.460 until age 70 especially if you're married and you're the couple's main breadwinner because

00:17:39.280 when you die your social security benefit will continue for your spouse assuming you know he or

00:17:48.780 she lives on after you so by having that delaying social security and having that larger benefit you

00:17:54.660 help not only yourself but also your spouse but if that is not enough lifetime income for you

00:18:01.860 another way to supplement that is to buy one of these immediate fixed annuities

00:18:06.580 and so for that one type of annuity i'm a huge fan another big point you make in the book is that

00:18:13.380 people really need to start thinking more about living longer when they're planning for retirement

00:18:18.760 because thanks to technology and all these advances people you know retirement was like you retire at 65

00:18:23.960 and the idea is you might be live another 10 years after that right um but now people are living well

00:18:30.660 into their 90s and you could possibly even have a second career even after you retire so with that

00:18:36.460 in mind uh knowing that we're going to live longer how should that change people's approach to

00:18:43.300 retirement first of all let's just back up a little bit brett because people get very confused about

00:18:46.980 life expectancy so there are a bunch of different life expectancy numbers and you know i hear you know

00:18:53.300 readers quote these numbers to me and they often get it wrong so when we think about life expectancy

00:18:59.100 as of retirement you know you don't want to be thinking about life expectancy as of birth you

00:19:04.300 know when people who are reaching 65 today were born you know the life expectancy was somewhere in

00:19:09.520 their 70s but once you reach age 65 the average life expectancy rises because all those because all

00:19:18.400 those unfortunate people who died before they reach retirement are dropping off the statistics so if

00:19:23.520 you're age 65 and you're a man the life expectancy tables suggest that you'll live until 84 85 if you're

00:19:31.100 a woman on average you'll live until age 87 but again those are the averages those include all the people

00:19:37.480 who smoke drink too much and never exercise if you're somebody who's paying attention to their personal

00:19:43.780 finances i would bet good money that you're probably also paying attention to what you're eating you know

00:19:50.080 you probably don't smoke you probably don't drink too much you know you probably exercise with some

00:19:55.960 regularity if you're among that group your life expectancy is going to be considerably longer there's

00:20:01.900 a very good chance that you will live until your early 90s these days so think about that you're

00:20:07.120 retiring at age 65 your life expectancy might be your early 90s and that's on average and of course that

00:20:14.800 around that average there's a spread so maybe you'll be one of those who lives until their late 90s

00:20:19.760 maybe even lives to 100 so suddenly at age 65 you're looking at 30 or 35 year life expectancy

00:20:27.380 so what's that tell you well one having that lifetime stream of income from social security and perhaps

00:20:32.560 immediate fixed annuity is super valuable but two is you still have plenty of time to invest in the

00:20:37.920 stock market you shouldn't be reaching retirement at age 65 and saying hey it's almost all over sell the

00:20:43.880 stocks put it all in bonds and i'll just live off the interest that ain't gonna work over a 30 or 35 year

00:20:49.080 life expectancy your standard living is going to be destroyed by inflation so what you want to do is

00:20:55.140 to continue to keep some of your money in stocks so you have a shot at earning long-run healthy

00:21:01.120 inflation beating gains gotcha and if you're young knowing that you're going to live a long time that's

00:21:07.000 probably all the more reason to start investing as soon as you can it's a craziness that we have here i

00:21:12.260 when you think about it you're you're 25 you might live to 95 you have a 70 year life expectancy

00:21:20.040 a 70 year time horizon why in the world would you care what happens in the stock market tomorrow

00:21:27.760 it simply is immaterial why would you be worried whether the stock market is high or low when you

00:21:34.840 invest your 100 this month it doesn't matter we really need to find some way to drag our attention

00:21:43.720 away from these short-term market movements and look at the long term one of the things that i mention

00:21:50.180 in my book is that you know you hear see these stories periodically some old geezer dies in his 90s

00:21:59.100 and everybody thought that you know he was just some you know local guy lower middle class and it

00:22:05.380 turns out he's got millions and millions of dollars and he leaves it all to the local animal shelter or

00:22:09.480 the library or the church or whatever it is and people are like he must have been an investment genius

00:22:13.640 no he wasn't an investment genius he just happened to live a phenomenally long time he got invested in

00:22:20.380 the stock market and just let the money ride and if you do that you're going to end up rich

00:22:25.540 you have good savings habits a long time horizon and a willingness to invest in a diversified portfolio

00:22:32.300 of stocks very good things will happen so one of the more interesting sections of the book that i

00:22:37.640 found just fascinating was this idea your exploration of money and happiness because we often told that

00:22:43.920 money can't buy happiness or we're told that all the time yeah money can't buy you happiness but you

00:22:47.540 argue that's not necessarily true that money can buy us happiness if you use it right so how can money

00:22:54.760 bring us happiness and not misery so first of all let's think think about why money doesn't buy us

00:23:00.800 happiness there's this phenomenon amongst psychologists called hedonic treadmill or hedonic adaptation and

00:23:08.640 the notion is this you know we imagine that if we get that next promotion or that next pay raise we buy

00:23:14.600 the bigger house or the fancy new car it's all going to be better and sure enough when we get the pay raise

00:23:22.940 we take delivery of the new car we are indeed thrilled but you know within a month or two the paycheck is

00:23:31.080 just another paycheck we've forgotten all about the increase that we got and we're accustomed to the new

00:23:37.840 money pretty soon you know the car is just another way to get around town and in fact can go from being a

00:23:44.560 source of happiness to source of unhappiness as we get it scratched we have a fender bender the darn thing

00:23:50.340 won't start in the morning that's the process of hedonic adaptation so how can we get away from that

00:23:57.760 process and squeeze more happiness out of the dollars that we have well there are a variety of strategies

00:24:04.380 out there one of the most important is to think about spending your money on experiences rather than

00:24:13.660 possessions think about experiences when you have an experience not only do you get to anticipate it

00:24:20.320 you get you know say you're going to go on vacation uh in six months you get six months to dream about

00:24:27.660 how great that vacation is going to be so there's that valuable period of anticipation then you get to

00:24:33.820 go on the vacation hopefully that'll be fun but even after the vacation is over you still have all those

00:24:40.000 fond memories you can put photographs up around the house you look at them you remember how fun it was

00:24:46.040 to go hiking or go to paris whatever it is you did and so you squeeze even more happiness out of that

00:24:53.280 vacation by contrast if you buy the new car as i mentioned what what do you get in the future well

00:25:00.860 you get used to the new car you get it scratched up it breaks down and you have all the hassles associated

00:25:08.060 with it so we tend to get more happiness from experiences rather than things uh another insight

00:25:16.060 from happiness research is that we tend to be happier if we have a robust network of friends

00:25:22.560 and family in fact not only do friends and family provide a big boost to happiness but they can also

00:25:30.440 help us to live longer one study found that having a robust network of friends and family

00:25:35.880 gave a boost to longevity equal in impact to that of not smoking

00:25:41.880 so friends and family not only helps happiness but it also helps our health and this is actually

00:25:48.800 one additional reason why experiences tend to deliver more happiness than possessions

00:25:53.160 with experiences we tend to enjoy them with other people so when we go for that hike or we go on

00:26:00.240 vacation or we go to the theater we go to the concert we tend to do with other people so not only do we

00:26:05.760 get to anticipate it with our companions but also we get to reminisce about it afterwards about you know

00:26:12.460 how fun the hike was how fun it was to go to the concert whatever it is yeah the other interesting

00:26:18.920 insight that you talk about that i think you highlight from daniel gilbert's research uh was

00:26:24.920 instead of if you're gonna when you're spying stuff instead of like buying big things like a vacation

00:26:31.260 home or a brand new car uh because as you said you you'll adapt to that quickly um you're better

00:26:38.340 off just spending like on little things that improve your day like it'd be like a candy bar

00:26:44.440 right i mean something as simple as that because it um and you do that more frequently you're more

00:26:49.100 likely to experience happiness over a long run yeah the notion is this i mean if you go out and you

00:26:53.520 spend take your example you buy a vacation home for two hundred thousand dollars

00:26:58.520 the boost your happiness is not going to be proportional to the amount of dollars you spend

00:27:03.320 so if instead of spending two hundred thousand dollars on the vacation home you spent a hundred dollars

00:27:11.700 you know with some frequency going out to dinner with your spouse or partner you're probably going to get

00:27:19.280 a whole lot more happiness out of those those restaurant meals than you are out of the vacation home

00:27:26.520 another important way to squeeze greater happiness out of your dollars is to try to design your life for

00:27:36.120 yourself where you get to spend your days doing what you love and this is this is really important

00:27:42.820 we tend to early in our adult life we tend to go into the workforce and we have some career in mind

00:27:51.460 and we may be attracted to it because you know it's going to be high pain or it fits with whatever

00:27:58.440 we studied at college you know we think it's going to be a good career but pretty quickly

00:28:03.980 we tend to tire whatever it is and the reason is this our orientation through life tends to change

00:28:13.520 but we're in our 20s and even into our 30s we tend to be very focused on extrinsic rewards and what i mean by

00:28:20.920 that is you know we want to prove ourselves in the work world we want to get those promotions we want

00:28:25.860 to get those pay raises you know we want to end up as ceo that's really strikes us as being significant

00:28:32.120 but we may not end up as ceo but we get those promotions we get those pay raises and we discover

00:28:39.320 that actually our life isn't a whole lot better in fact we may be no happier than we were when we

00:28:45.240 were penniless undergraduates at college this starts to sink in and people's orientation shifts they

00:28:53.540 become less concerned with those extrinsic rewards and they become more intrinsically motivated they

00:28:59.980 become more motivated to spend their days devoted to activities that they think are important

00:29:04.560 they find challenging that they're passionate about and this point tends to hit during our 40s this is 0.99

00:29:14.680 the classic midlife crisis and suddenly we realize we spent 20 years this stupid corporate job you know 0.97

00:29:20.900 we got made plenty of money we got promotions but it just didn't mount to a hill of beans and now we want 0.98

00:29:25.560 to do what we want to do what we love and spending our days doing what we love can be a huge huge source of

00:29:34.000 happiness there's a notion in the psychology literature called flow it was developed by a psychology professor

00:29:41.640 called Mihaly Csikszentmihalyi and we've all had these moments of flow where we get to become so engaged in

00:29:48.800 activity that we lose all sense of time and the hours just whiz by and we look up and suddenly it's three

00:29:56.600 hours later and we don't know what happened when you are engaged in those moments of flow you are doing

00:30:03.580 stuff that you love and what you want is a life where you have those moments of flow frequently and

00:30:09.980 and it can come from all kinds of different things people can get them you know from exercising

00:30:15.060 from you know from cooking from helping others in my case you know i love to spend my days writing

00:30:24.020 i can spend a lot of time writing and i look up and realize it's the end of the work day

00:30:29.060 so as you get into your 40s and you burn out on that corporate job that you really didn't enjoy all that

00:30:36.500 much you should start to think about what it is about your days that you really enjoy and then you might

00:30:44.280 want to think about reconfiguring your life so that you can find a career where you have more of those

00:30:50.020 moments of flow often that might is going to mean taking a pay cut which is one of the reasons why

00:30:57.200 you want to get yourself in great financial shape as early in your adult life as possible if you start

00:31:02.620 saving for retirement as soon as you get into the workforce you're going to buy yourselves the

00:31:08.480 financial freedom to change careers later in life when you become burned out on your current career

00:31:13.680 and you are more motivated by stuff that you personally think is important i love that um

00:31:18.980 another point you make in your book was this idea of winning by not losing so i think a lot of times

00:31:25.900 when we think about financial success we think about earning more income or getting a better return on our

00:31:31.340 investment but you argue in the long run the way you win is by not losing your money so how do you go

00:31:38.460 about making sure you don't lose the money that you've worked really hard to earn when we think

00:31:44.640 about managing money we imagine we you know we have these goals we want to beat the market you know

00:31:49.960 we want to be the richest family in town you know we want to create this huge pile of wealth

00:31:58.640 wealth but that's not the goal the goal is to have enough money to lead the life that we want

00:32:07.760 we all get just one shot at making this financial journey from here through to retirement

00:32:15.600 and we cannot afford to get it wrong if you spend your life buying the financial equivalent of lottery

00:32:24.500 tickets eventually your luck is going to run out and you're going to fail at that journey you're going

00:32:32.540 to reach retirement and you're not going to have a money enough money to quit the workforce so what

00:32:38.060 you want to do is pursue strategies that have a high likelihood of success we've already talked

00:32:45.380 about one of those strategies which is buying index funds if you buy index funds

00:32:49.940 you know that if the market goes up over time and it's highly likely that it will that you will go

00:32:57.720 along for the ride if you decide to do something other than buy index funds you purchase actually

00:33:02.940 managed funds you dabble in individual stocks there's a good chance that you will not go along

00:33:09.060 for the ride and if you're really bad at it it could be that you'll fail totally and reach retirement

00:33:14.640 without the necessary money to call it quits so if you want to ensure that you make that journey

00:33:22.420 successfully indexing is one part of that strategy but another part is making sure that you have the

00:33:29.940 right insurance you want to have all the insurance that is necessary at the lowest possible cost so you

00:33:39.120 know when your kids are young you should have life insurance so that your family is okay if something

00:33:43.740 should happen to you you want to have disability insurance in case you have an accident and you

00:33:50.700 you're not able to work or you become ill and you're not able to work buying insurance can help you avoid

00:33:59.220 the big losses that can set you back financially and turn your life into a financial failure so thinking

00:34:05.440 less about making money and more about preventing big losses is the key to financial success i love that

00:34:13.320 well jonathan this has been a great conversation where can people go to learn more about your work

00:34:17.340 i run a website called humbledollar.com if you go there not only will you see regular blogs written

00:34:24.540 by me and others devoted to personal finance issues but also in the backbone of the site is a huge

00:34:32.320 financial guide devoted to every part of your financial life you find stuff on estate planning on saving

00:34:40.660 for retirement on investing on insurance paying for college borrowing money the whole gamut so if

00:34:46.460 you go there you can find more information than you would ever want fantastic well jonathan clements

00:34:50.820 thank you so much for your time it's been a pleasure well thank you my guest today was jonathan clements he's

00:34:54.520 the author of the book how to think about money you can find on amazon.com bookstores everywhere also

00:34:58.700 check out more of his writing at the humbledollar.com it's a blog where he updates it regularly with some

00:35:03.800 new content about personal finance also check out our show notes at aom.is slash clements where you find

00:35:08.540 links to resources we can delve deeper into this topic

00:35:10.560 well that wraps up another edition of the art of manliness podcast for more manly tips and advice

00:35:26.200 make sure to check out the art of manliness website at artofmanliness.com if you enjoy this

00:35:30.020 show i've gotten something out of it over the years i'd appreciate if you give us a review on

00:35:32.840 itunes or stitcher that helps us out a lot as always thank you for your continued support and until

00:35:36.820 next time this is brett mckay telling you to stay manly

The Art of Manliness - July 14, 2017

#321： How to Think About Money

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