#146: Lessons From The Psychology of Money
What if I told you that understanding the psychology of money could help you make better marketing decisions, and even improve your business finances? Sound intriguing? This post dives deep into the lessons we can learn about our relationship with money - and how to apply them to our lives.
Lesson 1: People are more likely to spend money when they feel good about themselves
Money doesn't buy happiness, but it certainly makes money spent on shopping sprees and luxury items more likely when people feel good about themselves. This isn't some secret money-saving revelation though, according to Morgan Housel, author of The Psychology of Money, feeling good encourages us "to take risks and try new things...things that cost money". It's easier to let go of our money guilt when we have a positive outlook on life because we can rationalize our purchases, especially those with a limited time offer! So don’t forget to reward yourself with the occasional splurge—you just may end up thanking yourself later.
Lesson 2: People are more likely to save money when they feel anxious or stressed
Financial marketing campaigns often imply that feeling anxious or stressed will lead to irrational decisions with money, but in reality it can actually make people more likely to save. These negative emotions can help bring clarity and focus to our financial situation, taking away the impulse towards frivolous splurging and instead creating a sense of caution which results in monetary security. So when marketing to those who feel less than financially secure, it may be beneficial to tap into their underlying emotions rather than attempt to push a product or service on them without consideration.
Lesson 3: The way people think about money can impact their spending habits
We all have spending habits that are embedded into our subconscious - and when it comes to money, the way we think of it can make or break those spending patterns. In fact, research has shown that an individual's attitude on spending is closely tied to their thinking about money in general. Those with positive attitudes tend to be more restrained in spending while those with negative views are often more reckless with their finances
It’s no surprise, then, that striving for a better relationship with money can also help people manage spending habits in a more responsible way. After all, being mindful of spending isn't just about sticking to a budget - it's about positively reinforcing good spending practices!
Lesson 4: 5 ways money can be a source of conflict in relationships
1. Unequal income levels: When a couple has different incomes, this can lead to tension and resentment in the relationship. This is especially true when one partner feels like they are carrying more of the financial burden than the other.
2. Different spending habits: If one partner likes to save money while the other prefers to spend it, this can create tension in the relationship.
3. Debt: Debt can be a major source of conflict in relationships because it puts one partner at an unfair advantage if their debt is paid off before the other’s.
4. Money secrets: Keeping financial secrets from your partner can lead to distrust and feelings of betrayal.
5. Gambling/gaming: If one partner is addicted to gambling or gaming, it can lead to financial ruin and strain the relationship.
Listen to the Show:
Laura 00:00
As an entrepreneur who has seen extreme highs and the lowest of lows in the last 20 years, most, if not all of my most stressful moments have been rooted in the topic of money. I remember when I was in my late 20s, I was at a Vistage meeting, which is a local CEO network of seven figure and eight figure business owners. And there was a moving company owner. And he had said, he was a veteran. And he had said that during the Gulf invasion, jumping out of planes was actually less stressful than what he was currently experiencing and not being able to make payroll. Now, I don't know if he was exaggerating or not, and certainly no knock on how difficult it would be to be a war veteran. But that always stuck with me, as it was strangely reassuring that we all experienced that financial stress. And I currently today have the strongest business I've ever had financially. And that's mainly because I spent the first 15 years of being an entrepreneur, honestly, just trying to figure out the money part. And money is a hot topic right now. The stock market is about to go on sale, inflation is increasing, there's talks of layoffs at this time of recording. And I wanted to share with you my biggest lessons learned from my most favorite book called The Psychology of Money. The book is not what you think it's much more about psychology than it is about money. In fact, when my husband first recommended it to me, I was like, maybe you know, I'm reading this other book on an Enneagram. But I ended up picking it up and it was mind blowingly good. And what might surprise you is that most of what's suggested in the book and what has truly become my opinions are really different than what's typically found in the online marketing space or what's even considered mainstream. This book is so powerful that it is required reading for people who are currently in my consulting mastermind that I call the abundant consultant mastermind. And it's a book that I actually read twice in a row, because it was that good the first time I was just absorbing it and the second time I was taking notes. So I want to share with you my biggest lessons learned from The Psychology of Money.
Laura 02:27
Welcome to the Next Level Leap podcast. I'm your host, Laura Meyer top growth strategist to some of the country's fastest growing brands, and mentor to consultants. My signature leap methodology has changed the way 1000s of companies look at growth strategy, and this podcast shares, best practices, and inspirational interviews to help you make that next level leap in your business. Stick around and join me as I share the journey of how we as founders can multiply our income impact and influence by landing on the other side of our next big leap. Let's go.
Laura 03:07
The first concept that I'd like to share with you from the book The Psychology of Money is this idea of enough. In fact, right after I assigned this book to our mastermind students, I started out our first sessions together asking them, when do they know that they have enough? When
do you know that you have enough money? And when do you feel like you don't have enough and the responses came back. And they aware similarly validating to one another as they shared when they felt like they didn't have enough and they did have enough. And many people felt like I have to take this extra project because I don't have enough. Or I need to I can't afford that thing that I want for my family, the horseback riding lessons because it's not enough, or I don't have enough save for emergencies. I feel like I do have enough when I can buy what I want to buy, I can sign up my children for that sports lesson without thinking twice about it. Or I can go to Target without stressing about the bill. It was really interesting to see how enough and not enough showed up in the daily lives of the people in our mastermind. And what's so fascinating about this idea of enough is that it's relative. In fact, in the book, it shared a story about Bernie Madoff that many of you might not know. I know I did it. Prior to being a fraudster Madoff was a market maker. And that's a job that matches buyers and sellers of stocks and he was remarkably good at it.
Laura 04:35
So here's how the Wall Street Journal described made offs market making firm in 1992. He had built a highly profitable securities firm, which is Bernie Madoff Investment Services, which siphons off a huge volume of stock trades away from the big board. The 740 million average daily volume of trades executed electronically by the Madoff firm off the exchange equal to 9% of the New York exchange's stock trades. Mr. Madoff's firm executed trades so quickly and cheaply that it actually pays other brokerage firms a penny a share to execute their customers orders. A former staffer said the market making arm of made offs businesses made between 25 and 50 million per year. Bernie Madoff's legitimate non fraudulent business was by any measure a huge success. It made him hugely and legitimately wealthy, and yet the fraud.
Laura 05:37
It made me think about why would we risk what we have for something that we could have in the future. Of course, that's like the main pillar of entrepreneurship right is risk what you currently have to get something even bigger or more dream bigger. But what's really interesting about this book in the psychology of money is that when we do that, one of the most important things that we don't do along with it, is move the goalpost.
Laura 06:12
The hardest financial skill, particularly for those of us who are big visionary entrepreneurs, is getting that goalposts to stop moving, but it's one of the most important, I will say, for the first 15 years as an entrepreneur that goalpost moved constantly, I'd hit one milestone, I wouldn't even take the time to celebrate before I was on to the next one. If expectations rise with results, there's no logic in striving for more, because you'll feel the same after putting in extra effort. Let that sink in for a minute. For as entrepreneurs that feels really close to home. modern capitalism is a pro at two things, generating wealth and generating envy. Perhaps they
go hand in hand, wanting to surpass your peers can be the fuel of hard work. But life isn't any fun. Without the sense of enough. Happiness, as it said, is just results minus expectations. So that brought me back to the concept of enough and the concept of social comparison. When we are on Instagram, and we're scrolling, the ceiling of social comparison is so high that we can virtually never reach it. And as a result, we're constantly looking at a moving goalpost, which in return is going to make us take risks that maybe don't make a ton of sense. Or it creates this sense of unhappiness, even if we've just hit our biggest milestone. It's a battle that can never be won.
Laura 07:55
And the only way to win is to know what's enough, know what you would be happy with. And except that you might have enough, even if it's less than those around you. And this idea of knowing what's enough. And knowing what we're striving towards in the future, even though it's beyond what's enough for us for a sense of purpose or mission or impact. All of those are tremendously admirable reasons. But what I want to encourage anybody who's listening is to not strive towards that next place, at the expense of what's not worth risking. So there are many things never worth risking that I've learned in the psychology of money, no matter what the potential gain. There seems like there's a worst possible takeaway from the experience that we learn by watching others like Bernie Madoff. And what I can imagine is the comforting self justifications of somebody who's really desperate and wants what they had back but knows that it was gone. Things that are not worth pushing past your definition of enough your reputation, which is invaluable. Your freedom, your independence, your family and friends, being loved by people who want to love you, happiness. And your best shot at keeping these things in place and not risking your most non renewable resource, which is your time is knowing when it's time to stop taking risks that might harm them. Knowing when you have enough.
Laura 09:28
Bill Gates once said, success is a lousy teacher and reduces smart people into thinking that they can't lose. The second concept that I took away from The Psychology of Money is this idea of luck and risk. It's this idea that when we're entrepreneurs, we're inherently optimistic we have to be but we don't want to be we don't want to get to a point where we'll believe anything. Peter Lynch said that we can be terrific in business and get it right six out of 10 times. And risk is a piece of the game when we are entrepreneurs. But as I've learned over the years, this is something that I have tried to mitigate in terms of the risk versus Lux paradigm that I think I just underestimated in the first decade of being an entrepreneur. The truth is, most of what I touched current turned to gold for the first 10 or 15 years that I was an entrepreneur. And I really thought that it was me. I know that sounds funny. But I've met people who have had the same experience, you've probably met them to, maybe they've been an entrepreneur for three or four years, and they've had a good run. And they think that everything that they experience
is a result of their actions. But the truth is, is that luck is a big part of it being in the right place at the right time. It's risky to create a brand new market, right, but it's lucky to hit that market at the right time. When people are up for something new, five years before or five years after you could bring the same concept to market. And people wouldn't get it because they didn't they've never seen it before. They don't know what you're talking about.
Laura 11:20
The way to mitigate risk is to be diversified. That's the very best way. And it's interesting because in the coaching and consulting space, you'll hear people say have one funnel, or one offer until you get to a million in revenue. In fact, I've even heard those same words fly out of my mouth once or twice just regurgitating what the Guru's were saying, when I was first building my own thought leadership on this topic. But now, diversification is the name of the game. Because if you think about risk from a standpoint of stock market, if you had $100,000, to put in the stock market, would you buy one stock? Of course not. And the idea that you need to have a diversified portfolio, because you're out of control of the company, you're not in the driver's seat, it's all up to, you know, whoever's making the decisions, and the leadership team, or the economic environment is valid. But also, as entrepreneurs and business owners, it's important for us to understand that, that diversification also applies to our own luck in business. I once partnered with somebody who had a great run, she kind of moved along slowly in the beginning, and then hit gold with a program. The way in which she grew so quickly was remarkable. Everybody wanted to be part of it. But when that trend stopped working, she fought so hard to get it back without recognizing you know what, that was probably just a little bit of luck. It wasn't entirely me. And it wasn't entirely the market, it was the combination of the two. So now I've got to readjust my expectations of myself and the people around me, based on the fact that now I'm just back in the sea of everybody else who's trying to do the same thing I am. And watching her fight that battle was fascinating, because I think what happens is that we have a good run, we can think that it's all us a little bit more ego than probably we would experience if we also had some tough losses along the way as well. So when I think about risk, and I think about what risk means. Risk, to me means one lead source risk to me means one offer risk means narrowly putting your focus and all of your chips on one bet. There's also another element to risk that I've experienced as entrepreneur, which is the idea of creating a market. I mentioned that previously, versus optimizing an existing market.
Laura 13:52
I as a creator used to be a market leader, or market creator, I love this idea of blue ocean strategy. And I only want it to swim in blue oceans, which is valid. But creating something from scratch that nobody's ever heard of is only one way to use a blue ocean strategy in business. But creating something from scratch, both trying to educate the market on why they need it, and then sell them on the solution is a long road. I spent the first 15 years building that path. And honestly some of my clients who have incredible businesses did the same through our
first market and they invented the category. And to a certain extent, their timing was probably lucky because now they have a bunch of smaller competitors that are on their heels, but they get to be the leader. That's partial luck. And I think that is to be admired, but not always to be replicated. The thing about being in the industry that I'm in right now, like consulting is that it's a mature industry. That's not like nobody's ever heard of consulting.
Laura 14:56
Business owners and executives and leaders have been hiring consults for a really long time for generations. And so putting my own spin on consulting with a certification program and a methodology, and my own brand, and my approach and delivery mechanisms is taking an existing market and just putting a twist on it. That makes it more feminine and differentiated. And experienced creators. They know that a lot of success is just timing, market readiness, and the importance of staying flexible, because if we're flexible, we can find ourselves diversified.
Laura 15:38
A third and final big takeaway from the book, the psychology of money by Morgan Housel is the correlation between money and happiness. Now, this is an age old discussion. But his perspective on what makes us happy when it comes to money, and what subtracts from our happiness was fascinating and was pretty much parallel with my experience in entrepreneurship. The first is this idea of planning for surprises, and creating contingencies. There's a healthy paranoia that many of us who have been through the wringer financially have. And when we have that healthy paranoia, and that frugality, we can have some room for error. And in my previous business, the one where I experienced great losses, I can share that there was no room for error, I hadn't really considered that when I was building the business. Because of the high overhead costs and the high barrier to entry to getting into the sector and industry that I was in. There was not a lot of room for things to go wrong. And because I'm a very optimistic visionary type of entrepreneur, I didn't really think to consider what could go wrong, I didn't really even occur to me that it wouldn't be successful. And it's tough because as entrepreneurs, we want to have a healthy balance. We need that big vision and mission to pull us forward and inspire us keep us going on those hard days. But when I learned from experience and also was reinforced with this book is a barbell personality, optimistic about the future, but paranoid about what could prevent you from getting to the future, is vital and having a healthy relationship with money.
Laura 17:16
Optimism is usually defined as a belief that things will go well. But that's incomplete. Sensible optimism is a belief that odds are in your favor. And over time, things will balance out to a good outcome, even if what happens between is filled with misery. And here's the fact that we know about entrepreneurship is that it will be filled with misery, you can be optimistic that the long
term growth trajectory is up into the right but equally sure that the road between now and then is filled with landmines and it will always be those two things are not mutually exclusive. So I'll share here's what happiness means for me that I have a large margin for error. I'm planning for surprises, if things don't go as well, as expected, we're still okay. The second is room to create. I am by nature, an artist and a creator. And when I don't have that space, I don't have that freedom or flexibility in my calendar, I start to feel a little flat, a little gray, maybe you know what that means for you. For me, it's all about creating happiness, for me is time with family, I want a business with minimal fires. My last business before being a consultant and working remotely had a tremendous amount of fires and retail, there would be Sunday afternoons where things would go wrong. Managers didn't show how to go home sick you're running in. And I just felt this total loss of control. Having a strong sense of controlling my own life is a more dependable predictor of my own positive feelings about my work and well being than any other objective that I've considered when choosing my next entrepreneurial venture. For me, this is more than a salary, it's more than a house, it's more than the prestige of my work. It's more than my Instagram following. It's this control of being able to do what I want, for who I want for the people that mean the most to me, with the broadest lifestyle variable that I can accomplish and being an entrepreneur. And happiness for me is letting go of sunk costs. Anchoring decisions to past efforts is something that I did often as an entrepreneur, and those past efforts can often not be refunded. Third devil in a world where people and things and economies and markets change over time, they make our future selves prisoner to our past, and it's a terrible way to make decisions. It's the equivalent of a stranger making major life decisions for you. When I can let go of sunk costs, I can say, You know what, I did that for a period of time I tried it. I am not dragging that with me moving forward because it's no longer working for me is one of the biggest points of satisfaction that I've experienced in my relationship with money.
Laura 19:54
So, with these principles in mind, there's so many things to look forward to as an entrepreneur. Because when you adopt these principles, you can be okay with a lot of things going wrong, you can even still be wrong half the time, and do tremendously well. Because most often a small minority of things account for the majority of outcomes, it's part of what I help my clients with when I'm consulting with them is to identify what those small minority of things are. So in conclusion of this book, and this was a fascinating conversation within our mastermind, we all came to the conclusion that what the world needs most is less ego and more wealth, wealth, creation and wealth building from the outside actually often looks pretty boring. But saving money and creating that margin for error. And operating from a psychological state of wealth creation versus any other goal is the gap between your ego and your income. It's the wealth you don't see and the wealth that you haven't accumulate yet. So the wealth that's created by suppressing what you could buy today, or really looking at an opportunity from risk reward instead of being like, Oh, this sounds fancy, I'm all in.
Laura 21:16
Because no matter how much you earn, as an entrepreneur, you'll never build wealth. Unless you can put a limit on how much fun you can have with your money right now, today. And for many of us entrepreneurs, this is something that we're constantly working on. It's something that we're constantly building towards. And like I said, it's fascinating how much this advice is actually an opposition of what you typically hear on the Instagram feed. So if this has been fascinating for you, I highly recommend that you check out the book The Psychology of money, it's a fantastic read. And also, if you're interested in becoming part of my abundant consultant mastermind, which is specifically for consultants, who are currently serving clients and growing and scaling their consulting company, just shoot me a message on any of your favorite platforms. I'd love to hear from you. I really appreciate you being here. If you get this book, let me know. Let me know in the comments to the reviews how you liked it, and I'll see you soon.
Laura 22:15
Make sure to visit our website, yournextlevelleap.com where you can subscribe to the show and Apple podcasts stitcher or RSS, so you never miss a show. And while you're at it, if you found value in what you heard today, we would love a rating on Apple podcast. Or if you simply tell a friend about the show that would help us out too. Thank you so much for listening!
The Next Level Leap podcast dives into the mindset and strategies of scaling your company to the million dollar mark and beyond. Each week, we follow the journeys of innovators, disruptors, experts and leaders - sharing behind the scenes stories of their most challenging moments and greatest lessons learned-all while building their multi-million dollar empires.