There are two possible errors to make when it comes to money: saving too much, or not saving enough.
Saving too much money leads to a sense of nostalgic regret from a rocking chair in front of a crackling fire with a dog at your feet and a snifter of brandy by your side. Not saving enough money leads to pushing a shopping cart holding all your possessions down a wintry street and sleeping in doorways. Since the contingency of being old, sick, defenseless and poor is too horrible even to imagine, everything dictates we err on the side of oversaving today.
More do’s and don’ts:
Don’t bank on a big future payoff. This is standard practice in Hollywood. Some big payoff is coming in the future when you become a star that will magically solve all your problems and can be used to underwrite an opulent lifestyle. We do not deserve more than we have right now. The big life-changing payoff rarely comes.
Do have a reserve fund. In the event of job loss, you’ll need enough cash to tide the family unit over until you’re employed again. When you lose your job, within two weeks the transmission will fall out of your car and your house will need a new roof. Your cash reserve should be enough to cover such contingencies: When you’re laid off it will likely be in the middle of an economic downturn and you won’t want to sell your stocks when they’re beaten down.
As a rule, put between three months’ to one year’s worth of living expenses in your reserve fund. We rarely hear people complaining about too much cash on hand when trouble arises.
Do pay your taxes. Unbelievably, some people like to play games with their taxes, shaving a little here, forgetting about that income there, overstating deductions, and so on. This is suicidal. The taxing authorities have the kind of limitless power over you that Stalin would have envied. If you want to invite years of needless misery into your life, play cutesy with your tax returns.
Don’t think you can cleverly avoid paying taxes by moving money to an offshore account. Here is a secret: There is no such thing as secrets. This is as true in your financial life as it is in your sex life. For most people, the only benefit to such an account would be if they were to decide to the leave this country permanently. This is not worth planning for unless you are an organized crime kingpin.
Excerpted with permission of the publisher John Wiley & Sons, Inc., from The Little Book of Bulletproof Investing by Ben Stein and Phil DeMuth. Copyright © 2010 by Ben Stein and Phil DeMuth.
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