In Spending Your Way to Wealth: Setting the Compass Heading in the Direction of True Wealth, Paul Heys separates myths and untruisms about investing from facts and practical strategies to help you learn how to save, spend. and invest wisely. Since the Great Depression, such knowledge has not been as necessary as we continue to grapple with the financial turmoil caused by the recent coronavirus pandemic.
Heys served as Vice President at Smith Barney, where he accumulated a wealth of investment knowledge. He has also been a flight instructor who learned to teach others how to do complicated, sometimes tedious things, in a thoughtful and calm way. That experience has paid off in making Spending Your Way to Wealth an easy-to-follow guide that any prospective investor can benefit from. Learning how to invest properly requires a bit of thought and, as Heys reveals in these pages, a great ability to stay calm when the markets may not be doing what you want them to be.
Heys begins by knowing the readers where they are. Explain that the actions people probably want to take when investing are normal, and explore the psychology behind why we make those decisions. As he shows, there is nothing wrong with being normal, but we want to get to the “plus normal” by learning to restrict ourselves to prevent the consequences that normal behavior could cause. Use the metaphor of Ulysses and the sirens to describe our own need for restraint. Odysseus had his men tie him to the ship’s mast as they passed the Sirens so that he could hear their beautiful music but resist the temptation to join them, which would have resulted in his destruction. Similarly, we must tie ourselves to the mast when investing, refraining from instinctive short-term decisions that will be detrimental to our long-term goals.
Before talking about investing, Heys asks us to see how we spend our money and how it reflects that we are normal. I particularly appreciated your introduction to the concept of “pouring out.” Spilling is when we spend money beyond what we need to spend. For example, the generic brand of spaghetti sauce can meet our needs. The expensive brand is more than we need. The difference between the price of the generic brand and the name brand is the money we spill, money spent that did not need to be spent and that could have been saved and invested. However, because it is normal for us to think that the brand is better, we are willing to spend money on it. We also tend to do things like assume that a more expensive bottle of wine is superior to a less expensive one, although Heys reveals that studies show that people, when not told the price, may find that they enjoy less expensive wine more.
One of the most important ways we waste money is with our credit cards, which allow us to buy things that we do not need or cannot afford. Heys offers advice on managing our credit cards, and we definitely need help because only 35 percent of people cancel their credit cards each month. The rest waste their money making only minimal payments and therefore paying high interest rates that can make even buying the generic brand of spaghetti sauce, when charged to a credit card, several times more expensive than if we buy the brand. Heys goes on to discuss the difference between price and value and how understanding it can teach us to avoid spills. He also advocates keeping a monthly journal to become aware of how much we spill. Most importantly, it makes us aware of how a small spill can be detrimental to our future. For example, if we leave a light on for twenty-four hours that does not need to be on, it will cost us 14 cents. Over time, that will add up to $ 77,680 in a lifetime, and if that money was invested over forty years, $ 367,895. Who couldn’t use an extra third of a million dollars? So why do we throw it away leaving the lights on? Turning off that light can mean the difference between living in the style we’re used to in retirement and taking care of every penny.
Heys then goes on to give investment advice. It’s more detailed than I can cover here, but it explores investment behavior vs. investor behavior, demystifies risk and observes untruisms such as “Don’t invest more than you can afford to lose.” He advocates long-term investing in an index fund, advised directly by Warren Buffett. It also reminds us that everything is relative, so we should not allow others to determine the value of an investment; It’s not about the price, but about its ability to meet our current and future needs. We don’t have to pursue a high-risk investment that could provide us with a 25% return if a lower-risk investment that will provide a 10% return meets our retirement needs. I find this advice comforting.
Above all, I appreciated in these later chapters on investing the return to the idea that we should restrict ourselves, tie ourselves to the mast when investing. We can learn that moderation by lowering the noise. We don’t have to follow the stock market every day; we can stop listening to all the television experts; We don’t even need to look at our statements on a daily, weekly or monthly basis. Quarterly is enough, and then we can adjust if necessary. The main point is to trust that the market over time is always going up, and if we are in it for the long term, we will benefit by staying the course.
Altogether, Spending Your Way to Wealth is the only book I know of that so completely reveals many of the myths and misconceptions many of us have about investing. I was relieved after reading the book because I realized that what I had to do was much simpler than many might think. I don’t have to become an expert on the stock market. I just need to find a trusted financial advisor to help me find the right funds for me. Then I have to regularly contribute to those funds and sit back and let them grow without trying to micromanage them. The message of this book is simple and more relevant than any other financial advice book I have read, and I have read many of them.
Why aren’t these things taught in our schools so we can all start saving early? Spending Your Way to Wealth would be the perfect book to give every high school student as a graduation gift to get them started on the right path. Actually, anyone interested in investing, and that should be everyone, as we will have to retire one day, will benefit from reading this book, no matter how new or experienced you are as an investor. Additionally, Heys provides valuable information on her website, including an investment calculator to help you track what you spend compared to what it would be worth in the long run if you invested it. Check it out.