There’s an old fable called “The Miser and his Gold” that has an important financial lesson for us to learn. But to make it more interesting (and updated with 21st century language), we’re changing it to “The Tightwad and his Stack of Benjamins.” It goes something like this…
Once upon a time, there was a tightwad who used to hide his stack of Benjamins at the foot of a tree in his garden. Every week he’d go and dig it up and gloat over his riches. After gloating for a while, he’d bury his stack of Benjamins back in the dirt.
A robber noticed this, snuck over during the night, dug up the stack of Benjamins and ran off with the tightwad’s wealth.
A few days later when the tightwad came to gloat over his stack of Benjamins, he found nothing but an empty hole. He screamed so loudly that the neighbors came to see what was wrong. He told them how he used to come visit his stack of Benjamins and enjoy looking at it.
“Did you ever take any of it out to go buy things with it?” one of them asked.
“No,” he said. “I only came to look at it.”
“Well, come over here and look at the hole where it used to be,” one of his neighbors told him. “It will do you just as much good.”
The moral of the story? Wealth unused might as well not exist. Having money for the sake of having money is a pretty useless activity. Money is only useful to the extent that we put it to use. It’s called currency for a reason. The root word there is current. That means it should be moving, not stagnant.
In helping people construct their retirement plans, I come across a lot of examples of money that doesn’t have a current. Here’s just a couple of cases…
1) Money in the Bank
There’s no disputing that everybody needs an emergency fund. It’s also a good idea to have money in the bank that’s earmarked for a certain purpose—like maybe a new car that you’ll be buying in a few months or the family vacation you’ll be taking later this year.
If you own a lot of rental property, it might make sense to have a bigger-than-average emergency fund to cover those months where you have a tenant vacancy or a lot of repairs that you have to do.
But at some point, too much money in the bank is a detriment. Even if you’re earning an interest rate of 1% (which is actually relatively generous in today’s interest rate environment), you’re actually losing money. Inflation hums along at a rate of about 3%. That means you’re losing 2% in buying power every year with that money that’s sitting in the bank collecting dust.
2) Unused Inheritance
Inheritances can be tricky. Some people get an inheritance and can’t sit on it for even a year before they’ve blown through it.
For other people, an inheritance comes with a lot of emotions attached to it. Sometimes I’ll hear statements like this…
“This is the money dad spent his entire life cultivating. I don’t want to do anything different with it because he’d be mad at me if I lost it.”
Or...
”My parents were always good with money and I’m not, so I’m just going to leave it alone and not make any changes to how they invested it.”
And so the money sits there with no real direction or mission. Usually, statements like this are just a different way of saying, “My parents are gone and this money is the only part of them I have left so if I just leave it sitting here, it will be like my parents are still around.”
Understandable. And I’m not saying that you have to go out and make sweeping changes to your dad’s portfolio right after you stop by the funeral home and write the check for his burial. But too often, I see people afraid to do anything at all with their inheritance, for years and years, because of all the emotions tied up in it.
Two things for you to consider if you’re in that boat:
First of all, if your parents did well enough financially to leave you any sort of substantial inheritance, they probably didn’t do it by ignoring their money and hoping things worked out for the best. They probably worked really hard, saved very intentionally, and invested intelligently to build their wealth. So sticking your head in the sand and trying to avoid the emotions connected to this money isn’t really an approach that’s in harmony with their philosophy.
Secondly, if they wanted to pass money on to you (instead of spending it all themselves), they probably didn’t do it hoping that this money would be a burden that carries a lot of emotional baggage for you. They probably wanted it to positively impact your life. So…take the necessary steps to figure out how to best make that happen.
Or just go dig a hole in your backyard and stare at it every day. Whichever works best for you.