In Spending Your Way to Wealth: Setting Your Compass Course to Steer in the Direction of True Wealth, Paul Heys separates the myths and truisms about investing from the facts and practical strategies to help you learn how to save, spend, and invest wisely. . Not since the Great Depression has such knowledge been so necessary as we continue to face the financial turmoil caused by the recent coronavirus pandemic.
Heys served as Vice President at Smith Barney, where he amassed 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 manner. That experience has paid off in making Spending Your Way to Wealth an easy-to-follow guide that any would-be investor can benefit from. Learning to invest correctly requires some thought and, as Heys reveals in these pages, a great ability to stay calm when the markets may not be working out the way you want them to.
Heys starts by meeting readers where they are. She explains that the actions people probably want to take when investing are normal, and explores the psychology behind why we make those decisions. As he shows, there is nothing wrong with being normal, but we want to get to “normal plus” by learning to restrain ourselves to avoid the consequences that normal behavior might cause. He uses the metaphor of Ulysses and the sirens to describe our own need for restraint. Ulysses had his men tie him to the mast of the ship as they passed the Sirens so they could listen to his beautiful music but resist the urge to join them, which would have resulted in his destruction. Similarly, we must tie ourselves to the mast when investing and refrain from making short-term decisions that are detrimental to our long-term goals.
Before talking about investments, Heys asks us to look at how we spend our money and how it reflects that we are normal. I particularly appreciated your introduction of the concept of “spill”. Spilling is when we spend money beyond what we need to spend. For example, the generic brand of spaghetti sauce may meet our needs. The expensive brand is more than we need. The difference between the price of the generic brand and the brand name is money that we waste, money that was spent that did not need to be spent and that could have been saved and invested. However, as 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 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 they enjoy less expensive wine more.
One of the biggest ways we waste money is with our credit cards, which allow us to buy things we don’t need or can’t afford. Heys offers advice on how to manage our credit cards and we definitely need help because only 35 percent of people pay off their credit cards each month. The rest spend their money making only minimum payments and therefore paying high interest rates that can make even buying generic brand spaghetti sauce, when charged to a credit card, several times more expensive than if We bought the brand. Heys goes on to discuss the difference between price and value and how understanding it can teach us how to avoid spillovers. He also advocates keeping a monthly diary to keep track of how much we’re spilling. Most importantly, she makes us aware of how a little 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 over a lifetime, and if that money were invested over forty years, up to $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 the style we’re used to in retirement and seeing every penny.
Hey then goes on to give investment advice. It’s more detailed than I can cover here, but explores investment behavior vs. investor behavior, demystifies risk, and discusses platitudes like “Don’t invest more than you can afford to lose.” He advocates long-term investing in an index fund, advised directly by Warren Buffett. He also reminds us that everything is relative, so we shouldn’t let others determine the value of an investment; It’s not about price, but about its ability to meet our current and future needs. We don’t have to chase a high-risk investment that could give us a 25% return if a lower-risk investment that will give us a 10% return will meet our retirement needs. I find this advice comforting.
Above all, I appreciated in these last few chapters on investing the return to the idea that we should hold back, tie ourselves to the mast when we invest. We can learn that moderation by turning down the noise. We don’t have to follow the stock market every day; we can stop listening to all the pundits on television; we don’t even need to look at our daily, weekly or monthly statements. Quarterly is enough, and then we can adjust if necessary. The main point is to trust that the market always goes up over time, and if we are in it for the long term, we will benefit from staying the course.
All in all, Spending Your Way to Wealth is the only book I know of that so completely exposes 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 in the stock market. I just need to find a trusted financial advisor to help me find the right funds for me. So 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 direct 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 all high school students as a graduation gift to start them off on the right track. Really, anyone interested in investing—and that really should be everyone, since we’ll all have to retire one day—will benefit from reading this book no matter how new or experienced an investor they are. In addition, Heys provides valuable information on his website, including an investment calculator to help you track what he spends compared to what it would be worth in the long run if he invested it. Check it out.