By Amanda Morrall (email)
Some of you might know I'm writing a book. It's a layman's guide to personal finance. It's the anti-thesis of the how to-get-rich quick genre of books. My thesis is that in addition to being mindful, smart, and sensible with your money, you need build up your inner bank account.
What does that mean? Lots of things but it starts with taking stock of your non-financial assets, what you really want out of life and how you can make a difference. My thinking is that it's not going to do you much good having a million bucks in the bank, if the means by which you achieved it makes you miserable, sick, divorced, or perhaps morally bankrupt.
A more holistic approach to personal finance takes into account the bigger picture. Finding a job you enjoy, or at least find rewarding; balancing the emotional with the financial; cultivating relationships and communities which enhance your sense of well-being; and curbing consumer urges and splurges that are really just a substitute for emotional voids or unhappiness in your life.
My intention was/is to write and slow release parts of the book as it gets written. My hope also is to include some case studies, or lessons learnt from our readers.
Here's an excerpt below. If you care to send me a 300 word max account of any encounters you have had with a financial vampire, I would be pleased to use them in the book for the benefit of helping others to avoid similarly bad experiences.
If you want to interfere with the process of flow, here’s a good way to do it. Get yourself into debt. Load up the credit cards, spend without consideration of consequences (or the killer high interest rates attached to this form of borrowing) and drip-feed the debt forever, and ever, and ever. This is a sure fire way to wreak havoc on your balance sheet and also mess with your flow because you’ll be permanently indebted to the bank, finance company or another financial vampire that will suck you dry of your money, creativity and inner peace.
Financial vampires are sneaky for a number of reasons. For one, many of them are well disguised. You won’t necessarily know a financial vampire just from looking at one because they’re masquerading as someone that will help you. Heck, they might even be wearing a smile or sleeping in your bed.
Another thing that makes financial vampires sneaky is you never really know what they’re up to until it’s too late. While legally, they are obliged to be honest with you (at least the one’s operating in an official capacity) they won’t actually tell you how sharp their fangs are, they’ll only bare them so they can say you were warned.
Thirdly, financial vampires are extremely crafty. Because you are their meal ticket, they won’t cause you any immediate harm. Instead, they’ll keep you in their clutches for as long as possible. If they’re really good, you won’t even feel the sting until they’ve bled you dry because they’ve done a number on your head and conned you into thinking you need them.
So how can you protect yourself from a financial vampire? Unfortunately there is no silver bullet. The best defence is a good offence and in the case of your money, it’s avoiding these toxic relationships at all costs.
As you’ll have gathered, I don’t like debt. I get the difference between “good debt" and "bad debt” but I don’t buy it. I think debt and good should get a divorce. Still I appreciate that in the modern world it is pretty hard to avoid financial vampires altogether.
The key to managing these relationships is knowledge and that’s knowing everything there is to know about the financial vampire, and also their peers, so you can play them off against one another to minimise the sting of borrowing and terminate the relationship at your earliest convenience.
Here’s a few financial vampires you’ll want to be aware of:
Avoid these guys at all costs. Borrowing against your paycheck might sound like a good idea if you risk getting kicked out because you’re late on rent but if you lose 20% or more of it as a result this is just plain dumb. If you can’t make it until payday, you need to get tough about your spending habits and also get into the habit of budgeting. It’s a bit painful at first, well mostly just time consuming, but once you know how much need for the essentials and how much is coming in exactly, you’ll be able to plan accordingly. Borrowing at a high interest rate will only set you further back on the path to financial freedom and seriously get in the way of your flow.
These guys will pretend to be your friend. You might actually believe it because chances are you need a financial lifeline and no one else is prepared to throw you one. It’s a bit like making a pact with the devil. You’ll get what you want but you’ll pay dearly for it. What’s not always readily apparent to those who end up borrowing from a finance company is the true cost of doing so. In addition to the monthly borrowing costs at crazy interest rates, you’ll get hosed with a number of other charges. One off fees, penalties for late-payments, and interest that compounds out of control if you fail to repay the loan in the prescribed time. At a loan shark summit I attended, I overheard one finance company executive talking at length about what a great favour he did for a frequent flyer re victim. This “customer” had about five loans with the finance company but wanted desperately to finance a trip home (far away) for a funeral. The financial vampire made possible the trip and patted himself on the back for making his victim happy but essentially he’d stuck his fangs in even deeper to ensure this guy would be a permanent source of food. I don’t doubt there are some nice financial vampires out there but don’t for a second fool yourself into thinking they are your friend.
These guys have an air of respectability about them but don’t be deceived by their designer clothing and impressive dens, they’re still financial vampires. The only difference is they’re richer and more influential than most. They’re also voracious feeders. Because they are so ubiquitous, they’re virtually impossible to avoid. The only real protection against the banking vampire is to study its habits and fine print, keep a close watch on what its rival gets up to, and fly in its face to keep them more honest than they otherwise would be telling them you’ve been surveying the landscape. Given what can prove to be a very long relationship, you need to stay alert. Pay attention to how much the banking vampire is sucking up in account fees and credit cards if they have them, how much interest they’re paying you for the privilege of keeping your money in their vaults, and also the depth of the bite on the arterial vein if you have a mortgage with them. You might think you need the bank more than it needs you because you are at their mercy as a borrower. While it’s true they wield power as a creditor that doesn’t mean you are powerless. If you want to test this assertion, inform your bank that you are considering leaving them for another and watch the blood drain from the vampire’s face. At their moment of weakness, present your demands and strike a deal.
Insurers are another vampire to be aware of. Like the banking vampire, they’re pretty much impossible to avoid if you drive a car, bike or own a boat, if you own a house, rent a house and want health care coverage beyond the minimum. Insurers prey on fear made worse by statistics. As no one wants to imagine the worst case scenario, which the Christchurch earthquakes drove home are possible, we pay, and pay and pay. In most cases, paying is a pleasure compared to the grim alternatives that play out in our nightmares. As the option of going without is not an option many want or can afford to entertain, insurers are another financial vampire that we are forced to live with. As such, financial vigilance is of the utmost importance now more so than ever in the wake of the Christchurch earthquake. A sharp rise in reinsurance costs post-quake has seen New Zealand insurers raise their rates between an average of 20-50%. This is all the more reason to take note of what this financial vampire is up to and of course the terms and conditions.
With all due respect to the profession, (one of my dear friends is a fund manager) fund managers are as much a part of the vampire club as the others. Year after year, regardless of whether they make or lose your money, they’ll take a percentage of your investment. During the decade leading up to the global financial crisis, no one took much note of how much. Now that fund managers are struggling to make an after-tax, after fee return for their clients, investors are finally taking note. So you should. Fees do count. That's particularly the case if you are in a long-term saving investment such as KiwiSaver. The fees over 45 years of investing will bite into your nestegg by a not insignificant amount.
Financially lecherous partners
Okay, they’re not listed on the Financial Services Provider Registry but the free spending, credit card loving, bill neglecting boyfriend or girlfriend is bad for your flow. I know but you love them! Fair enough but will you love them when you are 45 and have no savings and are being drained by all manner of financial vampires whose clutches you’re forced into as a result. I doubt it. What you don’t know about your partner’s financial habits may not kill you but it could potentially destroy your credit record (at the very least impair it), steal your joie de vivre, drain your savings, and throw you off course as you try to find your path. Communication is one way to deal with it but changing engrained habits can be challenging at best. Before you partner up with another financially make sure you have the talk.
Other financial vampires to be aware of include realtors, lawyers, brokers, and even health care outfits if you pay on a monthly basis but never use them.
Have you been bitten by a financial vampire? Tell me your story in 300 words or less for inclusion in my book. Email me directly at email@example.com Anonymity is guaranteed. You can even pick your own pseudonym.