Perry Glasser

Hold Your Wallet Close!

In Finance, Personal Finance on September 21, 2008 at 8:06 pm

This one will be simple.

Some fool of a wizard is going to approach you someday and explain he has a new financial product made just for you, one that will simplify your life by combining in one wonderful account the answer to all your worries and financial concerns. He will explain to you that if you make part of your life insurance account also a savings account, there will come a day when you will be rich–whether you are dead or alive! He will explain to you that he has a unique mutual fund that will change its goals as you age and–if needed–it will also make you breakfast when it magically transforms into long-term care or cash value–whichever you want!

He will tell you anything he thinks you need to hear to make you buy this wondrous product, and he will tell you that if you pass up this amazing opportunity, you will regret it soon, your spouse will leave you, your children despise you, and your neighbors will snicker at you behind your back.

Smile and keep your money in your wallet. 

A moment’s reflection will tell you that whomever is managing this amazing asset vehicle is not doing so out of charitable benevolence, but expects to make money doing so.  That’s all right: even wizards have to eat, but ask yourself if the wizard can expect you to believe that he will earn his fees by supplying services no one has ever done in quite the same way before, and for less.

Naaaaaahhh…

4 Functions

Despite what alleged experts and inancial Wizards may tell you, there are only 4 financial functions available to all of us. Responsible, working citizens have to engage in them all. They are:

  • Saving
  • Investing
  • Spending
  • Insuring

Call it SISI or call it ISIS–we can use whatever acronym we like.

Saving

If you are not saving, tighten your belt, do with less, or change jobs to earn more while maintaining a steady level of consumption. We all need to save, and none of us is trapped. Change is the only way to accrue enough money to perform the other financial functions.

Like it or not, all of us are creatures of the economy.

Resist defining goods and services as “needs.” Our entire culture beats on your mind moment after moment to persuade you that you need things you do not. You need food, shelter and clothing for yourself and the people to whom you are responsible, but after that every dime you spend is discretionary.

Every last dime.

Pay yourself first. If you are like most of us, you periodically sit down to tackle the bills. When you do, whatever vehicle you have created to hold your savings–a bank account, a money market fund–write that check first. Better yet, have money flowing to that account without your ever touching it. Arrange that through the payroll office of your employer. 

Have a goal. If you are saving toward a specific purpose, such as the down payment on a house or a college education for your kids, it is better to have a bad plan than no plan. The cliche has it right: if you don’t know where you are going, any path will take you there.

Investing

You work hard: shouldn’t your money work, too?

Money can make money, and placing your money into investment vehicles with prospects for long-term or short-term growth simply means that as an investor you are buying all or part of an asset that you expect will be worth more in the future. If you have no expectation of that being true–why are you buying it?

The best investments you can make are permanet assets that cannot be taken from you. Some of these are so compelling that borrowing money to obtain these assets is smart. Education, for example, will enhance your earning power over a lifetime. So borrow money to go to college.

Spending

Spending is not recreation. We do not shop for fun. Take your kids to the zoo or the mall, and save the mall for another day.

Spending money is not patriotic. Despite what Georgie and the Gang tell you, we do not spend money as a patriotic act to support the economy. We ARE the economy.

Buy goods and services at the least price you can find. Don’t sneer at the obviousness of this advice unless you have NEVER made a purchase under the delusion that more expensive MUST be better.

NEVER borrow money to spend it on consumer items. Consumer items are…well, stuff you consume. After you’ce eaten the last of the ice-cream, it is gone. But if you borrowed to buy the ice-cream, the debt remains. After you’ve watched the TV for a few years, it is worthless. Use you credit card as a matter of convenience, but if plastic is seductive  and irresistable to you, leave it home.

Borrow to purchase durable assets that will bring you a return…education, a house, a car of you need it to get to work. If you find yourself buying stuff to make yourself feel better, buy a dog. It will always love you. Or maybe it is time to invest in a shrink.

Insure

Insure against disaster. A disaster is anything that interrupts a revenue flow or destroys a durable, big-ticket asset. You need to insure your life if your earnings support others, such as your children. If you have no children…why would you need life insurance? Unless your kid is Shirley Temple, why would you insure a kid’s life? What revenue flow does a life insurance policy on a child replace if the child should die?  You need to insure your auto so you can continue to go to work if it is wrecked. You need to insure your home against fire and flood.

Buy the least expensive insurance you can that does the job.

And now the point…

 

NEVER MIX ANY TWO OF THESE FUNCTIONS!

 

If you do, the lsmooth-tongued demon wizard will laugh all the way to the bank, hurrying to deposit what was once your money.

Pure plays are always less expensive–there is far less managerial activity.

Look, if the insurance guy and the mutual find guy and the credit card guy and the broker all need their piece, it may look like a wash if you write just one check and let them split it up, but you also now have a new cost center–the coordinator guy.

Couldn’t that be you? Pocketing that coordination fee….

Take responsibility for your financial life. Coordinate the four functions yourself. Learn what you need to know.

Read dollar$.

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  1. […] we make better sheep, willing to pay for what we think is arcane, complicated advice–which it is not. Illness and old age are terrifying enough, but in America we add the terror of being broke. In a […]

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