5 Practical Steps On How To Think About Money

The first paragraph in personal finance columnist Jonathan Clements’s book, How To Think About Money, sums it up rather precisely. It states, “There are those who think the goal of investing is to beat the market and amass as much wealth as possible (I used to be that guy), that street smarts and hard work ensure investment success, and that the road to happiness is paved with more of everything. And then there are those that get it.”

In a nutshell:

  • Few people will EVER beat the market
  • Saving diligently is the KEY to becoming wealthy
  • Money can’t BUY or squeeze more happiness
  • WE are our own worst enemy

If you want to learn more about Jonathan Clements, check out this recent interview:

How Do You Think About Money?

For most of us (myself included), we typically think about what money can buy. It’s funny how life is coming around to me full circle. I’m starting to see the same spending patterns with my kids as I used to have.

In grade school, money bought me baseball cards (I still have the entire 1987 edition of Fleer cards), soft drinks and M&M’s (my favorite candy still today!).

In high school, money paid for movies, gas and an occasional date.

In college, I spent money on:

  • food
  • clothing
  • gas
  • fishing and hunting gear

Oh, the good ole’ days. Spending money on ourselves without a care in the world.

Money spending patterns for the average person begin to change once we get older and start a family. Focus is not so much on ourselves but others. At least it should be anyway.

Food and shelter become the top priority. Also, we have to furnish the new home, right? Examples include:

  • pots/pans
  • TVs
  • grills
  • furniture
  • decorations
  • lawn equipment/tools

It seems the older we get, the more stuff there is to buy. And the more stuff we buy, the happier we should be, right? Well, not so fast. This is where that “thinking about money” phrase comes into play.

Want to learn the right way to think about money?


Let’s take a look at what Mr. Clements has to say about that.

Here’s the book’s highlights:

Step #1 Buy More Happiness

Do me a favor. Take a look around at all the stuff you have lying around your house. Go outside and look at the cars in your driveway.

Do all of those things REALLY make you happy? I’d be willing to bet more than likely not.

I love what Mr. Clements has to say about this:

We aren’t very good at figuring out what will make us happy.”

A decade ago, he began studying academic research on money and happiness and the results might leave you scratching your head.

Here are some of the highlights:
  • Money can buy happiness, but not nearly as much as we imagine.
  • We place too high a value on possessions (iphone anyone?) and NOT enough on experiences.
  • Spending money on others can deliver greater happiness than spending on ourselves.
  • Working hard toward our goals can bring great pleasure – but achieving them is often a letdown. (Amen)
  • Those that are married or who are surrounded by friends and family, tend to be happier.

Does money buy happiness?


Of all the puzzles surrounding happiness, the connection with money is perhaps the most perplexing.

Economist Richard Easterlin conducted research, now known as the Easterlin Paradox, in the early 70’s.

He wanted to know if people were:

  • Very happy
  • Pretty happy
  • Not too happy

Results: Even though the U.S. and other developed countries had grown wealthier over time, their reported level of happiness hadn’t climbed. Surprised?

Bottomline: In the U.S., we have twice as much to spend now than we did in the 70’s but our reported level of happiness is no higher and our satisfaction with our finances has declined.

Hedonic Treadmill

Why hasn’t the excess money poured into our pockets brought greater happiness? One reason is the hedonic treadmill or adaptation.

In a nutshell, we aspire to get that next promotion and, initially, we are excited when the promotion comes through. But all too quickly, we adapt to our improved circumstances, we take the new job for granted and soon we’re looking for a better one. In essence, it seems as if we are never satisfied.

Take the process of buying a new car. After purchasing “the car” you’ve been dreaming of for years, it seems that we become used to it quickly and aren’t quite as happy as we thought we’d be after purchasing it.

It doesn’t take too long before our level of happiness is back where it started before we bought it in the first place.


The process of striving for material improvements and then quickly adapting to them, makes it difficult to achieve permanent increases in our level of happiness.

$75,000 a year

In the U.S., it seems that day-to-day happiness rises along with income until you hit about $75,000 a year. After that, income doesn’t appear to matter much.

If I’d have heard this back in dental school, I wouldn’t have believed it.

Money can buy happiness! Look at all the rich doctors and their toys…they MUST be happy, right?

Fast forward to the present. Yes, I’m older (and hopefully a bit wiser then past self). And I must admit that I completely agree with the $75K statement.

For me at least, once basic needs are met (food, clothing, shelter), I don’t find I’m that much happier.

  • Going from driving a $500 truck on its last leg to a $20,000 truck = happiness
  • Going from driving a $20,000 truck to a $40,000 truck = not that much happier

The Doctor House


If buying stuff doesn’t make us happy, surely buying the “doctor house” will, right? Think again.

When my wife and I had settled in to our first home (still living in it today) and the practice picked up, thoughts of buying/building a “doctor home” was the topic of many conversations.

Thankfully, this was the same time that I began studying and seeking out financial advice for our future. You can learn a lot by reading but more by talking to others that you’re aspiring to be like.

It seemed like the same comments surfaced after talking to other doctors about their nice, large homes:

  • “Too much upkeep.”
  • “We’re never at home to enjoy it.”
  • “Taxes and insurance are killing us!’
  • ‘It seems like all I do is work to keep it clean.”

Thank God I listened to them!

Experiences vs Things

Mr. Clements’s research states something that I truly believe and live by now: “We are often happier when we spend our money on experiences rather than things.”


By far, our biggest splurges each year are on experiences. I’m the designated trip planner. For me, I get as much happiness anticipating family trips as I do going on them. Creating memories that last a lifetime brings more joy than stuff can.

As I tell my kids, “Guys, there’s always going to be other kids with bigger and better stuff than you have.” But they won’t necessarily have better experiences.

Forget the new flatscreen TV – take your family on a memorable vacation instead.

Spending the right way

Is there a way that we can buy ourselves happiness?

Here’s a few strategies:

  • We get greater happiness if we spend money on others rather than on ourselves
  • We will likely get more pleasure from frequent small purchases than occasional big ones (I look forward to my unsweet tea every morning 🙂
  • We get more pleasure if we delay purchases rather than buying stuff right away – that delay brings with it enjoyable anticipation.

Basic Needs

Psychology professors Edward Deci & Richard Ryan stated that we have three basic psychological needs. The need for:

  • Competence
  • Relatedness
  • Autonomy

In other words, we’re happier about our daily life if we are engaged in activities we’re good at (I still like to think I can shoot hoop and play a set or two of tennis fairly well.) – Competence

We are doing these things because we want to rather than because we’re being forced to. – Autonomy

We aren’t socially isolated from the world. – Relatedness

If we’re smart with money, we can use it to boost happiness in three ways:

1) Money can ease our financial worries and help us to achieve a greater sense of autonomy. More money may not make us happy – but NOT having it could make us unhappy. I don’t know about you, but if it came down to it, I’d rather have more money than not. We want to put ourselves in a position where money isn’t something that we regularly worry about. Once you seize control of your finances, you have MORE control over your life.

2) Having money can allow you to free up time and spend it doing what you love or want to do.

3) Money can make it possible to have special times with those we care about. Research suggests that a robust network of friends and family can be a HUGE source of happiness. This is one of the key contributors to happiness.

Step #2 Bet On A Long Life

This was one of my favorite sections in the book. After reading it, I realized that I should be thankful for the great and hopefully long life I have ahead of me instead of focusing so much on the present.

This section starts out by stating that most of us have a relatively good grasp on what needs to be done today and the rest of the week and hoping that the weekend comes sooner rather than later. But instead, it would make more sense to realize that we have a great long life ahead of us.

Life expectancy rates have and continue to climb each decade. Now that we’re living longer, we want to make sure that our money doesn’t run out but also, enjoy ourselves as we age.

Buying Freedom


Here’s an interesting twist on what many of us (myself included) have been taught. When Mr. Clements teaches finance to college students, he recommends doing the OPPOSITE of what most say.

Instead of studying and following their dreams, he suggests they focus on making and saving as much money as possible.

He also recommends picking a higher paying job initially (even if they don’t like it too much) which allows them to sock away serious sums of cash.

Remember, buying stuff doesn’t bring much happiness so those who adopt a frugal lifestyle in their 20’s and 30’s won’t be missing out on much. Starting to save in the younger years allows them to capitalize on compound interest.

Here’s his reasoning: If someone chooses their lifetime career after college, they’re more than likely going to do that one thing for forty years ( a long time to the same thing). Yes, the initial thrill of the new career starts off high, but by the time they reach their 40’s, the thrill may be gone.

In order to avoid that, take his advice and get into great financial shape early in adult life so later you experience far less money worries and (here’s the kicker), you’ll have the financial FREEDOM to change careers – to the one you REALLY love.

Not a bad idea.

Making a midlife career change, with all the risks involved, will be far easier if we have saved diligently since we entered the workforce. The more money initially invested and saved, the more options available.

A more enjoyable retirement

In my small neck of the woods, I know of at least 10 physicians that initially retired but are now back practicing again. Why does this trend happen more often than not?

One major mistake: Many folks spend decades of grinding it out to prepare financially for retirement, but they give little thought to what they’ll do with their free time.

There’s ONLY so much golf, tennis, travel and sitting around reading the newspaper one can do. As many retirees discover, endless leisure can quickly become endless boredom.

We all need a reason to get out of bed every morning. Even in retirement. We need a purpose. Going from being productive to suddenly unproductive doesn’t sit well with many retirees. Instead, retirement should be viewed as a continuation of our time in the workforce.

We still need fulfilling work. Here’s the difference. If you take Mr. Clements’s advice, save as much as you can early on, then once you reach retirement age, you can do what you really LOVE without worrying whether that work comes with a paycheck.

Reflecting back a few years ago when we became debt free, I realized that I’d be approaching financial independence sooner rather than later. Discussing debt-free living, saving and investing had always interested me so starting this blog to share my passion (without having to worry about making money) only made sense to do.

Social Security

We can’t end talking about living a long life without discussing Social Security benefits. Retirees can claim benefits as early as age 62 or as late as 70. Depending on what year you were born, delaying from 62 to 70 can result in an inflation-adjusted benefit that is either 76 or 77% larger.

Bottomline: If you’re a single individual in good health, or you’re married and were the family’s breadwinner, delaying Social Security benefits until age 70 should be a top financial priority.

Step #3 Rewire Your Brain

In this section of the book, Mr. Clements highlights 22 errors that stand in our way to improve money management.

I’m not going to list all 22, as this is a review. But, what I will do is point out the ones that I felt were most important.

1) We’re too focused on the short-term. Instead of saving and investing so that we can retire in 20 or 30 years, too many remain exclusively focused on the here and now.

2) We lack self-control. America’s miserably low savings rate partly stems from short-term focus. But it also reflects our lack of self-control.

3) We hate losing. This distaste for losing helps explain why investors have, historically, shied away from stocks, despite their great long-term gains.

4) We believe there’s safety in numbers. Purchasing investments that “everybody’s buying” can make investing seem less frightening. But often, it isn’t good for our investment returns. Much of this leads to buying overpriced investments simply because everybody else is doing it.

Step #4 Think Really Big

As doctors, we’re used to getting pitched by sales people:

  • Brokerage firms want us to trade with them.
  • Insurance agents want us to take out multiple policies.
  • Car dealers want us to lease a car.
  • Real estate agents want us to buy the “Doctor” house.
  • Banks want us to take out a mortgage (or two).
  • Life insurance agents tell us that term policies suck. We NEED cash-value life insurance.

We go through our careers with multiple expenses so we end up many times with little to nothing to save. On top of that, we all have financial dreams we’re aspiring to: Nice house, fancy cars, vacation home and college for the kids.

Unfortunately for most, we can’t afford to have it all. What should take priority?


Even though, chronologically, retirement comes last, we should always put it FIRST.

Our life’s GREATEST financial task: Amassing enough for a comfortable retirement

For some, it involves saving 10-15% of pretax income for 30-40 years or more.

Excuses, excuses

Sadly, retirement gets put on the back burner in large part because we’re so focused on immediate goals (buying the new iphone or BMW) and really bad at planning for the distant future.

I’ve done a handful of basic financial and practice management coaching on the side. It’s mind blowing the number of docs in their 60’s and 70’s that have saved NOTHING for retirement.

They all have basically the same excuses:

  • “I’m still paying down the 30-year mortgage”
  • “I had to pay for 3 weddings’
  • “We just finished putting our kids through private colleges

Unfortunately, for most of these docs, it’s too late. Trying to save enough for a comfortable retirement with so little time and money to start with is next to impossible.

Mr. Clements recommendation is to save and invest for retirement even while tackling these immediate goals. He also recommends playing around with many of the online calculators to help you figure out how much you need to save each year for retirement.

Step #5 To Win, Don’t Lose

If we want to add to our wealth, we should minimize subtractions.

Many times, when talking about financial success, it turns out that “getting rich” comes up as the #1 goal we’re going after.

Mr. Clements recommends something a bit different. He states that we should strive to have enough money to lead the life we want. Not a bad goal.

Now what I want and what you want are probably different. But I guarantee there’s a few commonalities:

  • Spend as much time as possible with friends and family (maybe not in-laws 🙂 )
  • Eat out whenever and wherever we want
  • Vacation as we please
  • Spend time pursuing activities we’re passionate about – possibly volunteering

And we want these things without constantly worrying about money.

How can we do this?

How can we retire with enough money to live the life we want? This final chapter of the book can help answer this question.

It teaches us that we are going to have to invest in stocks or stock based mutual funds in order to get sufficient gains which won’t lead us vulnerable to inflation. Investing ONLY in CDs or bank savings accounts are going to cut it.

But even as we strive to grow our net worth, we should also focus on minimizing subtractions. What subtractions? We’re talking about fending off not only high costs that can eat away our wealth, but also major threats that could derail our financial future.

Let’s discuss a few of these…

Losing slowly

There are two ways that our wealth dies. It can die:

  • Slowly
  • Quickly

The slow death is something that is talked about quite a bit. It’s mainly caused by investment costs and taxes.

A perfect example comes from Vanguard founder John Bogle. He states that if we regularly invest in a broad stock market index fund for 40 years, then we’d accumulate 65% more wealth than someone that invests in an actively managed stock fund.

Why? Mainly it’s due to its higher trading costs and management fees.

Bogle calculates that the annual cost of investing in an actively managed stock fund might amount to 2.27% a year which = $2.27 for every $100 invested.

By contrast, an index fund could cost just 0.06% a year or 6 cents per $100 invested.


Something else that we must consider. With an actively managed stock fund, investors tend to generate significantly larger annual tax bills vs index fund investors. This is mainly due to managers constantly buying and selling stocks in an effort to score market-beating gains.

Capital gains

Don’t forget about capital gains. All of that excess trading in actively managed funds tends to realize large capital gains annually on which taxable shareholders then have to pay taxes.

Meanwhile, most index funds generate little to no realized capital gains, because they don’t actively trade their portfolio.

Losing quickly

Now that we’ve learned how our wealth can die slowly, what about losing it quickly?

Here are a few nightmare scenarios from the book:

  1. We become disabled at work (which happens to many doctors.) We don’t have much in savings and haven’t gotten around to buy a disability policy.
  2. Our breadwinner spouse dies suddenly and don’t have a life insurance policy in place.
  3. We pour our savings into a handful of rental properties and trouble pops us: Trouble finding tenants, can’t make mortgage payments and end up in foreclosure.
  4. We don’t have health insurance and get diagnosed with cancer.

The final chapter ends with Mr. Clements’s portfolio recommendations which include investing in the stock and bond market utilizing index funds.

My Final Thoughts

I absolutely loved this book. I loved it so much that I’m now at over a 3,300 word count and still not finished!

Here’s the highlights that I feel impressed me the most:

1) We tend to get more happiness when we spend on experiences vs stuff.

2) Spend money to create special times with friends and family. Ex: Take your kids to a sports event and your spouse to a broadway play.

3) Save everything you can early on so we can quickly buy ourselves financial freedom in our 40’s and 50’s.

4) Don’t focus on dying early in retirement, instead, focus more about living longer than ever imagined. Remember to delay Social Security benefits to get a larger monthly check.

5) Keep fixed monthly costs low as possible on things such as mortgage, cars, utilities, groceries and insurance premiums.

6) NEVER try to beat the market. Instead, invest in low-cost index funds.

7) Chronologically, retirement might be our life’s final financial goal, but we should aim to put it FIRST.

And last but not least, remember, our life’s goal isn’t to get rich. Rather, it’s to have enough money to lead the life we want and hope for.

How do you think about money?

Comment below!