Mike Grau is President of Axiom Financial Strategies Group. As a Certified Financial Planner, he works with both individuals and organizations. He also holds the Retirement Income Certified Professional (RICP®), giving him the knowledge to look deeper at income-building options as they relate to clients’ retirement plans. We spoke to Mike about a book he highly recommends to clients and their families.
Q: How did you come upon this book, The Psychology of Money?
A: It was sent to me by one of the money managers we use, Chris Davis, from Davis Funds out of NYC. In the introduction, the writer says he paid his grandkids $75 each to read the book, and I totally buy into that. It outlines concepts that everyone from high school age and above will find useful. We don’t do a good job of educating our kids on personal finances, especially when it comes to investing and building wealth. This can really help them understand the psychology of money and the fact that building wealth is not so much an aspect of how much knowledge you have, but rather it’s all about your behavior with money.
Q: What is an example of how behavior affects the creation of wealth?
A: The author talks about a car mechanic who swept floors at night for 25 years and ended up leaving $8 million to charity versus a Harvard-educated Wall Street guy who ended up broke from the 2008 crash. It was all due to their behavior with money. It also talks about the ability to not only accumulate wealth but how to retain wealth.
Q: What are some important lessons for the typical or average investor?
A: Each chapter can be read on its own. They tell different stories and address different components of creating wealth. For example, one chapter deals with the power of compounding, which has been the key to Warren Buffett’s success. In the chapter on luck, you learn about how things we have no control over can be part of the creation of wealth. Take the case of Bill Gates. It was a pure stroke of luck that he attended a high school where he and classmate Paul Allen had access to one of the earliest computers. Without that good fortune, we may never have had a Microsoft.
Q: Would you say it’s an easy read for most people?
A: Absolutely. One thing I love about this book is how easy the concepts are to grasp. You don’t have to be in the financial world. The language is easy to understand. It’s written for the layman and doesn’t use financial jargon or stress investment strategies.
Q: The person we are in high school is not always the person we become later in life. How does one plan for that?
A: Try to have a plan for everything in the sense that you always have a margin of safety. So many people are chasing money for the sake of having money and being rich, because that’s their definition of success. The author’s definition of success is getting to do what you what to do, when you want to do it, with whom you want to do it and for as long as you want to do it. It’s about the freedom of your time, which is what money affords us. These are life lessons as much as they are money lessons.
Q: So would you say this book puts money in perspective as a tool for happiness, not the end goal?
A: Yes. Housel says the two most important things we have in life, whether we want to deal with them or not are our health and our money. They will still affect our lives, regardless. One simple message is that no matter what you have, spend less. Don’t go into debt for things that won’t provide you a return in the future. That’s the behavior aspect he stresses.
Q: What are the biggest obstacles to accumulating wealth?
A: Greed and fear. There’s an ego factor as well. Many people are living very close to the edge because it’s all debt, but they think it shows people how successful they are. Fear comes into play because it disrupts the compounding of money. The reason the bulk of Buffett’s money was earned after age 50 is because he had been continuously investing since age 10. The fear of markets going down leads you to take money out, thus interrupting the compounding.
Q: When it comes to behavior and money, isn’t there a certain amount of personal responsibility involved?
A: Absolutely. One great example is about the singer/songwriter Rihanna. She once sued her financial manager because she went broke. His response was: I didn’t think I needed to tell her that if you have a 100 million dollars and you buy a 100 million dollars’ worth of stuff, then you’re not going to have the 100 million dollars anymore.