A man called Sam

Once there was a maxresdefaultman called Sam. Sam has done well, he had carefully saved 40 cents of every dollar he had earned. He married well, had a lovely family and his colleagues were always grateful to have him in the office.

One day Sam turned 45 and started to think about retiring. Because of his excellent savings habit Sam was ready to enjoy some of his big stack of money build up in his retirement account. He drove himself to work, made a hot cup of coffee and sat down to log into his financial provider. OH NO – WHERE HAD HIS MONEY GONE. He has expecting $500,000 but there was only $420,000 in his account. had there been a stock market crash? Had he been robbed?

No, the weasels had got it.

What’s a weasel?

Back in 2002 I came across a quote from Scott Adams, the creator Dilbert. Adams talked about how every dollar you have attracts five or so weasels who want to take it from you. Weasel’s are people who see your income as something they that belongs to them, and then start scheming to get it.

This was a profound piece wisdom that has stayed with me ever since. It’s just so true, let’s look at some examples:

  • You have $1,000 to invest – yay!! – instantly five weasels disguised as blue chip financial institutions will appear in your life (usually through advertising) with their ‘low fee’ investment option. If you buy a weasel’s managed fund that ‘always beats the market’ you might be paying what seems like a low 2.5% fee. Plus a small load fee of 3% for every $100 you deposit. That means the weasely fund needs to beat the market by 2% EVERY SINGLE YEAR for you to make more money than you would if you used the cheapest investment option (ie an index fund). That’s not going to happen and you are throwing your money away to subside your fund manager’s lifestyle. See Jim Collin’s Stock Series for lots more detail and quality thinking on this.
  • You decide you want to sell your house. Well it’s very easy to find someone who will help with that, for only a modest 5% fee of the WHOLE SALE PRICE!!, and that’s before you pay the lawyer, and your bank charges its loan repayment fee, and the estate agent’s marketing costs which they’ve added on top.
  • You open a bank account. Your bank celebrates and enters a future revenue stream of fees and charges into their financial statements.
  • You sign up for a credit card – this causes even more joy. Firstly the website that you clicked through gets a wonderful commission, then the credit card company starts thinking how they much of your future income they can get their hands on through fees and interest. In a small way you now work for them.

Weasellness also pops up in ways you are not expecting it. You might just be browsing around the web. Then you hear about the latest IGadget from Apple that such and such a famous person has been seen using. Next you are checking your email and notice one from Google about a YouTube post with a review of that gadget. Then you see a newspaper article about how gadgets are changing the way we communicate and relate with each other. You find yourself thinking that ‘I don’t want to be left behind’, or ‘if everyone else has one why shouldn’t I’, or ‘there is no way I would ever buy that’. As soon as it is in your mind you are much much closer to a future sale and some your income will soon belong to someone else. You might not buy that IGadget, but you are very likely to buy something just like it over the next 12 months.

Here’s an example – have you heard about Peer to Peer Lending?

At time of writing this is really common in the Personal Finance space to read about peer to peer lending. There’s an outfit in the US called Lending Club and they must pay really good affiliate commission rates because suddenly there is a rash of posts on the personal finance blogs about them, and how much you can make by investing through small personal loans.

Just to be clear – these posts are not dishonest, nearly everyone blogging is transparent in that they make income through affiliate links. Monetising your blog is definitely not a bad thing; people should be rewarded for the work it takes to write up and share their ideas. Nor is peer to peer lending a bad thing. It’s likely the way lending in our society works will be revolutionized by services that link individual borrowers to pools of investors. As soon as people can finance mortgages through peer to peer channels the banking sector is in a whole lot of trouble and consumers will win with lower rates.

But you need to be aware that these posts are as much advertising as they are offering advice, and you need to consider if this is influencing your choices and behaviour. No matter how sceptical you are you get worn down by reading the same thing again and again, you find yourself thinking about it, evaluating it and then giving it a small try … and that’s how you are hooked – be it peer to peer lending, smoking, cars, clothes or gadgets.

Jim Collins has put this better than I ever could:

There is a huge marketing effort designed to keep people spending and in debt slavery. We are relentlessly bombarded with messages telling us that we need this, we must have that and if you don’t have the money, no problem. That’s what credit cards and payday loans are for. This is not an evil conspiracy at work. It is simply business. But it is deadly to your wealth.

Avoiding weasels

To avoid weasels in my financial life I do this:

  1. Be very happy with what I have. At 40 years old I own everything I need. I don’t need the latest TV, car, gadget, etc.
  2. Never buy a financial product without first researching the other options in the market. Make sure you have looked at the offerings of at least six providers. Choose the one with the lowest fees.
  3. Socialise with people who have a similar approach to life – not those who like to always consume and spend.
  4. Compare myself to people who have less, not people who have more.
  5. Rely on nature for entertainment, rather than media or time at the mall. Don’t go to shops except for essential purchases and spend time building things not buying things.
  6. Remove as many advertising channels from my life as possible. This means having no TV (actually we have a TV but only watch downloaded content on it). Why would we let 20 minutes of ads per hour into our lives? When I watch broadcast TV now (at friends houses) it’s really striking how loud the ads yell for attention. It’s like having a salesperson in the corner of the room yelling at the top of their lungs.

    This also means being careful what websites I visit. For me it’s easy to get addicted to news channels and magazine sites. When I’m keeping up with the technology news I’m usually about a month away from buying something pointless that I’ll regret.

    For the same reason I don’t carry around coffee cards or buyer’s club memberships. These act as an unconscious prompt to buy a coffee. And since I’ve been reminded that I’m thirsty, why not buy it from them and get one coffee free.

Imagine living for a week never seeing one ad. Imagine if all of your future income belonged to you, and none of it to weasels.

Further reading:

Contentment and simplicity

There is now a huge wealth of content online about being happy with what you have. If you haven’t already read Mr Money Mustache’s blog I really recommend it. Mr Money Mustache sums up in very practical ways how much more rewarding life is if you embrace scarcity and a life of contentment rather than always striving for more.

Peer to Peer lending

Miles Dividend MD has an excellent post on peer to peer lending here: http://www.milesdividendmd.com/sacred-cows/

Scott Adams on personal finance

Scott Adams wrote a book around personal finance called Dilbert and the Way of the Weasel: A Guide to Outwitting Your Boss, Your Coworkers, and the Other Pants-Wearing Ferrets in Your Life (Amazon link, or try your local library). It’s a 308 page book based around Adams’ one page plan for financial advice, which is:

  1. Make a will
  2. Pay off your credit cards
  3. Get term life insurance if you have a family to support
  4. Fund your 401k to the maximum
  5. Fund your IRA to the maximum
  6. Buy a house if you want to live in a house and can afford it
  7. Put six months worth of expenses in a money-market account
  8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement. The best book on this is John Bogle’s The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Amazon link, or try your local library).
  9. If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio

In the New Zealand context this would read:

  1. Make a will
  2. Pay off your credit cards (and don’t get new ones!)
  3. Get term life insurance if you have a family to support
  4. Fund your KiwiSaver to the maximum that your employer matches. Use a low cost KiwiSaver provider like Simplicity or SuperLife.
  5. Fund your IRA to the maximum (there are no IRA accounts in NZ)
  6. Buy a house if you want to live in a house and can afford it
  7. Put six months worth of expenses in a money-market account
  8. Take whatever money is left over and invest 70% in a stock index fund which has very low fees and 30% in a bond fund or bank term deposits, and never touch it until retirement. Currently to access low cost index funds in NZ you need to find a provider who acts as front end to Vanguard’s offerings. Right now that is SmartShares or SuperLife.
  9. If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio.

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