How Your Personal Experiences Impact Money Decisions

"We use 0.00001% of our personal experience to explain 80% of the world." - Morgan Housel, author of Psychology of Money (highly recommend).


The year was 2007. I was working as an investment analyst at a regional bank. I lived in an apartment on the SW Portland Waterfront with some buddies from college. While I enjoyed the roommate lifestyle for a time, I was ready for privacy, quiet, and independence.


I remember a conversation I had with a neighbor like it was yesterday. I shared with him that I was thinking of buying a home.


"Don't you think you should wait? Housing prices right now are downright frothy!" - said my nameless neighbor (come to think of it, I don't why I was sharing this information. I had never really spoken to the guy before).


"I'm just ready to move on from the roommates. I'm a grown man."


I ended up buying a townhome just west of downtown Portland in the Cedar Hills neighborhood. It was an emerging area with bike paths, nature trails, and green space. The entrance to the community had a big billboard that read "Active Lifestyle" in big, bold letters.


Perfect. I was secretly proud of myself.


I went under contract in the spring of 2008. Shortly thereafter, the global economy was turned upside down; the biggest financial crisis since the Great Depression.


Keep in mind, I was working for a regional bank. There were many uncomfortable conversations about potential job cuts (I would find out later that the bank was on the verge of failure due to a heavy allocation to speculative commercial loans that went sour).


Financial markets were in a free fall.


I had just made the biggest financial commitment of my life. I soon became familiar with the term "upside-down mortgage," which previously wasn't in my vocabulary.


All of this happened in a span of ~3 months. My livelihood as an investment analyst was at risk. My employer was on the brink of insolvency. I owned an asset that was worth 100k less than the loan amount. What should have been a happy moment, buying my very first home, felt like a massive weight on my shoulders.


That experience shaped the way I view the world.


I'm extremely wary of real estate investments.


I'm amazed at how optimistic (bordering on delusional) real estate investors are on property values. It's like 2008 never happened.


I look at most investments, especially those outside of my core competency, with a skeptical eye. This isn't bad per se, but it could lead to passing on attractive opportunities.


I appreciate and respect the stock market. Things can change quickly. Humility and self-assessment are key to being a successful investor.


Debt can amplify returns, for better or worse.


Being a cog in the corporate machine can leave you vulnerable to job loss, especially for cyclical businesses.


Now let's flip my personal experience. Let's assume I bought my Cedar Hills townhome in 2010. I probably would have received a favorable mortgage rate. At the time, the Feds were handing out tax credits to home buyers. Since then, real estate prices in the Portland area have gone parabolic.


If I had bought my home in 2010, my attitude toward real estate investing would have been very different. I'd probably be optimistic, bordering on delusional, about the return prospects of real estate.


I can even make some general assumptions about my peer group based on our shared experiences. Consider those that started their working careers post 2005:


Low interest rates are normal


Lack of inflation is normal


Leveraging up to buy a home, investment property, business, etc. is normal


Rampant consumerism or living beyond one's means is normal


Switching jobs multiple times in a short period of time is normal



Someone who lived through the Great Depression, or the high inflation periods of the 70's & 80's, would be baffled by these "new normals."


Identifying how your narrow experiences affect your money disposition can help you determine if you're acting irrationally. After all, we tell ourselves stories based on our personal experiences to justify our actions. Having an honest self-assessment can help us make better money decisions.


What are your personal experiences that have shaped the way you think about money, investment, or risk?

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