This book helped me understand, accept, and start repairing my relationship with money (and luxury shopping).

takeaway #1: wealth is what you don’t see

“Wealth is the nice cars not purchased. The diamonds not bought. The watches not worn, the clothes foregone and the first-class upgrade declined… Wealth is an option not yet taken to buy something later. Its value lies in offering you options, flexibility, and growth to one day purchase more stuff than you could right now.” [excerpt from Chapter 9 of The Psychology of Money]

First, let me just say: Woah. Mind blown. Not just because it’s true, but it is so straightforward and commonsensical. In a way, it is pointing out the obvious – we spend money on stuff, and once we do, we part with the money and are left with the stuff. So by not buying that stuff, we keep the money, and it remains our wealth.

That said, nowadays the phrase “investment piece” seems to roll off the tongue of every label lover, fashion influencer, and luxury marketer. Seemingly innocuous, this usage in a way transforms the way people think about expensive purchases. Instead of a clear outlay of funds, an “investment piece” sounds like a place to store and even grow our wealth. I think this is quite unfortunate and misleading. Luxury purchases are not an investment, in the financial, everyday, or casual sense of the word. Much like a car, the moment a luxury item leaves the boutique, it likely loses most of its monetary value (if it can be resold at all). Yet we’d never call a car an investment. Words matter – by calling something an investment, we’re less likely or incentivized to be scrupulous about the expense. For me anyway.

Many people will be quick to point to certain luxury handbags that have a stellar reputation when it comes to their resale value or investment value. If you’re one of the lucky people (or your parent is) who bought an Hermes Birkin or Kelly decades ago, you might be very pleased with how much “return” you’d get if you sell it today. (Though I would venture to guess that few people thought of it as an investment at the time of purchase.) Most other luxury purses have not enjoyed nearly as lucky a journey though.

I don’t buy a fancy bag with the purpose of reselling it. I’d rather leave that to the professional resellers. I want to wear it, enjoy it. Which I would not be able to much if I were to think of it as an investment, knowing that any scuff or scratch would lower its resale value (and the return on my “investment”). If it has some resale value after I’ve used it, great, that would help reduce the cost per wear. A lower expected cost per wear may justify a purchase, but it still would not make the purchase an investment in the first place. 

I never thought of luxury purchases as an investment. I wish I could say it’s because I was educated or enlightened, but the truth is that I just didn’t have an investment mindset or invest in anything for that matter (see more in takeaway #3). For a while, the only thing standing between me and a luxury purchase was affordability. If I had the money to pay for something I like, that was it. But Housel’s blunt delivery of the truth was like a wakeup call that pushed me to think much deeper. That is when I realized that luxury purchases are a commitment for me.

I have a limited amount of “fun money” to spend. The decision to buy an expensive item involves directing a significant portion of that budget to one thing (though this is just the beginning). I have a limited number of spots in my wardrobe and limited time to utilize my possessions (there are only seven days in a week, after all). While this is true for any new item, the more things I have, the less air time each item will get. That means the cost per wear will be higher – much higher for a luxury piece. I’d also have to make room for the item in my already-overstuffed closet, whether that means crowding the rest of my things or having to let go of some.

Before making that kind of commitment, it stands to reason that we want to be intentional and pretty sure about it.    

takeaway #2: know why we want that luxury item

“… spending beyond a pretty low level of materialism is mostly a reflection of ego approaching income, a way to spend money to show people that you have (or had) money… one of the most powerful ways to increase your savings isn’t to raise your income. It’s to raise your humility. When you define savings as the gap between your ego and your income you realize why many people with decent income save so little… People with enduring personal finance success – not necessarily those with high incomes – tend to have a propensity not to give a damn what others think about them.” [excerpt from Chapter 10 of The Psychology of Money]

I can honestly say that I’ve never bought or worn labels to show off any wealth or success I might have. If anything, I try not to be ostentatious or obnoxious in my enjoyment of luxury purchases. In a way, wearing something luxurious that no one (or almost no one) but me knows is expensive almost makes it even more gratifying. When I buy a luxury item, it’s  because I like the design, the quality, and how it looks or feels on me. So I passed this one with flying colors. Next, please! Not so fast. Even though I don’t seem to fit the exact profile of what Housel believes to be most luxury shoppers, we can take it one step further. If not to flex, then why?  

When I think about my purchases that end up unused, the biggest denominator is that they are too fancy, too pretty, or too occasion-specific for my lifestyle. I enjoy dressing up for a night out or a special occasion as much as the next fashion-loving girl, but the reality is that I simply didn’t have many chances to do so. So why did I buy them? I bought them because I craved living the life of someone perceived as stylish, fashionable, put together (outfit-wise anyway). Maybe someone who has many extravagant events to attend. Those are the magazine editors, influencers, fashion models, and random people photographed outside of runway shows who always look ever so effortlessly chic.

And buying the stuff they’re wearing or something similar would get me closer, right? But no – buying and wearing something expensive does not change our profession (obviously!), enhance our taste, or transform our lifestyle. The cool girls look cool in those jeans because of their confidence, their sense of style, their understanding of their body proportions, their hair and makeup, even the airbrush and photoshopping. Just not the jeans.

So now when I’m tempted by a luxury item, I ask myself: Do I want this because I genuinely appreciate the item itself and the investment value it would bring to my life, or was I influenced (and am trying to buy my way to being more like the influencer)? Even if it’s the former, I try to be honest with ourselves. There is no doubt that Hermès makes handbags with exceptional quality. Quality that will last a lifetime and is even worthy of a family heirloom. I can admire and enjoy an Hermès bag any day of the week, but at some point, how many “lifetime” bags do you really need in a lifetime?  

takeaway #3: save the right way

“In investing you must identify the price of success – volatility and loss amid the long backdrop of growth – and be willing to pay for it… [the author’s] investing strategy… relies on a high savings rate, patience, and optimism that the global economy will create value over the next several decades.” [excerpt from Chapters 17 and 19 of The Psychology of Money]

Another eye opener. Growing up in a culture where women aren’t necessarily expected to take charge of their own finances, I somehow got to my age without any investment. I understood saving was important; although I wasn’t doing much of that thanks to my little shopping habit. But I thought saving meant leaving money in a savings account. That seemed intuitive and safe. Of course, now I know that due to inflation, maybe it was more secure than taping that money under my mattress, but it wasn’t “safe” in the sense of maintaining its buying power. 

I had heard about the stock market, index funds, and government bonds, but never really bothered to learn what those instruments are. I also hated risks, which I used as sort of an excuse to not invest or learn about investing. The Psychology of Money taught me to be okay with reasonable risk and avoid disastrous risk. The key is seeing that reasonable risk and the inevitable fluctuations in the market as a fee or a price worth paying to get a nice return in the long run, and not as a fine or penalty we should avoid. This simple reframing provided me with a brand new system of thinking about, processing, and living with investment risks. 

I’m still learning to internalize and adjust to this new way of looking at risk. Every now and then I can’t help to check the stock market and would cringe if it is down that day. But I’m glad I’ve started my investing journey with a real plan for retirement. I just have to remind myself to think the Housel way.

xo