Money, Mind, and Meaning

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• True wealth encompasses psychological and emotional well-being, not just financial success.
• Your financial decisions should align with your values and life purpose for greater fulfillment.
• Simple strategies like automating savings and setting meaningful goals can significantly impact your financial well-being.

When we talk about wealth, most of us fixate on the tangible: growing our investment portfolios, increasing our income, and acquiring material possessions. We might diligently track our net worth and celebrate every market upswing, but what if this narrow focus is precisely what's preventing us from experiencing true wealth?

"There's this massive disconnect where there is simultaneously so much financial abundance, and yet this deep impoverishment at the spiritual, existential, psychological level," says Dr. Daniel Crosby.

Daniel is a New York Times bestselling author and behavioral finance expert. As Chief Behavioral Officer at Orion Advisor Solutions, he develops technology designed to help people make sounder financial decisions. What sets Daniel apart is his unique background, which combines financial expertise with a PhD in clinical psychology. This gives him a rare understanding of the complex interplay between our minds and our money.

In his latest book, The Soul of Wealth, Daniel explores the paradox of wealth, arguing that true wealth encompasses far more than just monetary assets. It's about aligning your financial decisions with your values, purpose, and overall well-being.

"People need a framework for making sense of the world," Daniel says, and in this blog post, we'll explore the framework he proposes for cultivating true wealth — one that goes beyond the balance sheet and into the very heart of what it means to live a rich and fulfilling life.

The disconnect between money and happiness

Daniel has spent years observing people's relationships with money, and a recurring theme in his work is the surprising disconnect between financial success and genuine happiness.

He's encountered countless individuals who, from the outside looking in, seem to have it all — the impressive job title, the comfortable home, the enviable investment portfolio — yet they remain profoundly unhappy. "My job puts me in orbit of some financially successful people," Daniel explains. "And many of them are supremely happy, but many of them are not."

Rates of loneliness and depression are climbing, and many people, despite having more than previous generations, feel "less rich than their grandparents." This seeming paradox suggests that our focus on material wealth might be misplaced.

The behavioral investor

Traditional financial advice often misses the mark. It tends to focus on spreadsheets and algorithms, overlooking a crucial factor: human psychology. We're not always rational actors when it comes to money. "Everything we do in markets is psychologically difficult," Daniel explains.

"We are wired for immediacy, we are wired for current pleasure, we are wired for certainty," says Daniel. These tendencies often clash with long-term investing, which requires patience, as well as a tolerance for uncertainty and delayed gratification.

Our early experiences with money also play a significant role. Daniel shares his story of starting to invest just before the 2008 financial crisis. This experience shaped his perspective on markets and risk, highlighting how formative early experiences can be. The principle of "primacy," he explains, underscores the lasting impact of our initial encounters with a particular concept or phenomenon.

This psychological baggage can lead to suboptimal financial decisions. We might be overly cautious, clinging to low-yield investments out of fear, or we might be reckless, chasing high-risk bets in the hope of a quick win.

These same ingrained tendencies, however, can be harnessed for good. Humans are naturally resistant to change, often sticking with the default option. This "laziness and status quo bias," as Daniel calls it, can be leveraged through automation. Just as we "set and forget" recurring subscriptions, we can automate savings and investments, making it a painless and consistent process. Understanding these biases — both their potential pitfalls and advantages — is crucial for making sound financial choices.

Mastering the mental game

One of the biggest challenges in investing is managing our emotions, particularly our fears. "What's the biggest downside for you?" he asks. "Is it fear of missing out, or is it fear of regret?"

Recognizing which fear dominates our thinking can help us make sound investment choices. Are we holding onto declining investments because we fear the regret of selling at a loss? Or are we chasing the latest market trends, driven by the fear of missing out on potential gains?

Another psychological hurdle is the tension between what Daniel calls "spreadsheet optimal" versus "behaviorally optimal." Sometimes, the mathematically correct choice, according to spreadsheets and financial models, might not be the best choice for our emotional well-being.

He explains that while lump-sum investing is often statistically the best approach, gradually entering the market (dollar-cost averaging) can be "behaviorally optimal." This is especially true for those new to investing or those with a strong aversion to risk.

Similarly, paying off a low-interest mortgage might not make the most financial sense on paper, but it can provide invaluable peace of mind. "While it is not on average spreadsheet optimal," Daniel notes, "[it] could be behaviorally optimal."

Building a Wealthy Mindset

How we think about money matters just as much as how much money we have. Daniel introduces the concept of "mental accounting," explaining how we tend to categorize and treat money differently depending on its source or intended purpose.

A bonus, for example, might be treated as "fun money" to be spent freely, while money earned through hard work might be viewed as more precious and deserving of careful saving. This mental compartmentalization, while seemingly illogical, has a profound impact on our financial decisions.

Daniel emphasizes the importance of giving your money a "why." He cites research showing that named accounts — for example, "Kevin's Retirement Fund" versus a generic "Account #12345" — tend to accumulate 15% more wealth. This is because a specific name connects the money to a tangible goal.

Daniel recommends creating a vivid mental picture of what we want to achieve with our money to significantly boost our motivation and commitment. He uses the example of Olympic swimmer Michael Phelps, who meticulously visualized every detail of his races before competing. This same principle, Daniel argues, can be applied to our financial goals.

Ultimately, Daniel believes that finding meaning and purpose in life is essential for true wealth. He breaks this down into three key elements: "believing, belonging and becoming." Having a strong belief system, a sense of connection with others and a clear vision for personal growth are not just important for our overall well-being but also for our financial health.

The Role of the Advisor

Many people underestimate the value of a good financial advisor. Their role extends far beyond simply managing investments. "There's a lot of data on people who work with financial advisors having higher levels of aggregate happiness, sleeping better at night, being less likely to get divorced," he explains.

Advisors can bring a sense of calm and objectivity to our often emotional relationship with money. They can facilitate better communication about finances, particularly within couples, where differing views on money can often lead to conflict. They also help us prepare for the unexpected, ensuring we have adequate safety nets in place for emergencies.

Perhaps most importantly, advisors protect us from our own worst impulses. "They're encouraging them to take an appropriate amount of risk," Daniel notes, "and they're saving them from investing in their son-in-law's business." He illustrates this point with a sobering anecdote: "I had lunch with a friend yesterday who lost millions, plural, in meme coins. If he had had a financial advisor, that would not have happened."

The Importance of Values-Based Investing

Values-based investing, often referred to as ESG (Environmental, Social, and Governance) or SRI (Socially Responsible Investing), has gained significant traction in recent years. Daniel admits that he has little faith that these types of investments will have “change the world impact" but believes in their potential to positively influence investor behavior.

He suggests that aligning investments with personal values can foster a deeper sense of purpose and commitment. This can be particularly helpful during times of market volatility.  When our investments reflect our values, we're less likely to make impulsive decisions driven by fear or panic. This psychological benefit can contribute to greater long-term investment success.

The True Measure of Wealth

True wealth isn't measured solely by the size of our portfolios but by the richness of our lives. It's about aligning our financial decisions with our deepest values, pursuing goals that give our lives meaning, and cultivating a sense of belonging and purpose.

By focusing on the "soul of wealth," we can move beyond the endless pursuit of more and create a life that is both financially secure and deeply fulfilling.

Building a solid financial foundation is essential, but it's only a means to an end. The ultimate goal is to use our resources to create a life that we truly love — rich in experiences, relationships, and personal growth.

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This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up to our Newsletter or Subscribe on your preferred podcast platform so that you don’t miss out on future episodes.