6 useful financial planning hacks from Morgan Housel

I’ve long been a big fan of the financial journalist and author, Morgan Housel. In a recent newsletter, I wrote about his seminal book, The Psychology of Money, and highlighted some key takeaways and financial lessons you can learn from it.

In a recent article, Housel recommended some personal finance hacks and shortcuts that, while not being particularly exciting, are worth following…

1. Don’t spend money to fuel your ego

From the moment one Neanderthal man realised that his neighbour’s cave was bigger than his, mankind has constantly had an understandable impulse to keep up with others. It’s often referred to, colloquially, as “keeping up with the Jones’s”.

This often manifests itself in overt demonstrations of your wealth and success, usually through excessive spending on luxury or prestige items.

I’ve written a lot about why your personal benchmarks are far more important than any perceived external ones and why continually moving your goalposts can be bad for your wealth.

Housel describes excessive spending of this kind as being all about “ego and social climbing”. He also points out, quite rightly, that your ego matters less than your future wealth and happiness.

An underrated, yet rewarding, personal attribute is to not worry about what others think and, instead, to focus on your own future prosperity.

2. Work to live, and to earn enough to give you the life you want

Since the job you do will often define you and can take up a third of your life, your career choice is clearly important.

Housel points out that while it’s easy to tell someone to find a career that allows you to follow your passion, that isn’t always possible. This means that often there has to be a compromise – where your career isn’t your passion but earns a good income, it can be preferable to the alternative.

Yet doing something you hate isn’t a long-term option to a happy life.

You may feel able to deal with it, but if it’s creating resentment, causing stress, and making you – and by extension the rest of your family – unhappy, then should you really be doing it?

The other side of the coin is to do something you love, but that doesn’t pay the bills, which could create financial burdens and stress that might easily dwarf any enjoyment about a job you love.

Finding the balance of a job you merely like that pays a decent income – provided you live within your means – can be a highly effective compromise.

Read more on this issue: Why evaluating your wealth is about more than just money

3. Find someone financially compatible as your life partner

In two related articles – why you should plan your finances with your partner, and some problems you’ll face if you don’t – I outlined the importance of planning your financial future with your spouse or partner.

Housel’s hack on this subject covers similar ground.

He stresses the importance of ensuring that your spouse or partner’s financial objectives are aligned with yours and that financial decisions are made by both of you.

If both of you aren’t fully aware of your financial position and longer-term objectives, minor issues can easily escalate to where they can cause serious harm.

4. Look to avoid problems before they occur

Like his business partner, Warren Buffett, Charlie Munger came out with a stream of highly memorable quotes about financial planning in general and investing in particular.

I highlighted five of these relating to your investment strategy in an article earlier this year, soon after Munger sadly passed away.

Housel picks up on another Charlie Munger quote “Nobody survives open-heart surgery better than the guy who didn’t need the procedure in the first place” as the driver for his next simple financial life hack.

He stresses that planning ahead is everything, and in another memorable phrase points out that “the best way to get out of debt is not to get into debt in the first place!”

Avoiding mistakes is probably more important to your long-term wealth than the decisions you actually make, and doing nothing is sometimes the best thing you can do.

5. Appreciate that if something appears too good to be true, it is

I’ve written about this in terms of being the golden rule to protecting yourself from financial scams. But the idea of something appearing to be too good to be true can apply just as easily to legitimate financial offers you may see online and in the financial press.

On the face of it, many financial offers can be appealing, but you often don’t have to scratch much below the surface to realise that they are fictitious shortcuts to investment success.

A promise of huge investment gains, for example, will often come with an element of risk that you wouldn’t normally be prepared to accept.

Two of the most effective investment tips I would recommend are:

• Ensure you invest for the long term
• Reinvest dividends to allow the power of compounding to drive your wealth.

Some might say these are quite boring, but they can also be highly effective.

6. Make the most of low-cost options and day-to-day spending hacks

Housel’s final hack is pro-active and something you can do every day.

It ties in with point one about ego and status and suggests that there’s nothing wrong with using a low-cost, cheaper option.

He points out that there are a lot of public services available, such as sports centres and educational facilities, that while not being as luxurious as their private equivalents, are just as effective in providing you with what you are looking for, and – crucially – can be vastly cheaper.

Furthermore, some simple changes to your lifestyle can save you money on a regular basis. From how you shop, where you eat, and how and where you go on holiday, there are countless ways to save money.

Get in touch

If you’d like to talk through your own financial planning arrangements, then please get in touch.

You can call me on 07769 156 250.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Equity investments do not afford the same capital security as deposit accounts.