Author: Nick Prigitano
Star Wars. What an incredible franchise. Its movies have captivated audiences for decades, including financial advisors. Believe it or not, we do find some time between staring at spreadsheets and reading up on the latest change to the tax code to catch up on the important pieces of pop-culture. While we won't get into the debate about which films are the best, (but if you don't think 4,5, and 6 are, you're just wrong), we can all agree that Star Wars is an incredibly entertaining, and fascinating universe. We can all enjoy these movies, but as financial advisors, we see things through a different lens, and Star Wars is no exception. Without further ado, we would like to present to you four financial lessons we can learn from Star Wars.
1: Diversify Your Investments
We all remember the dreaded Death Star. A terrifying piece of machinery capable of literally erasing planets from the face of existence. Darth Vader put all of the Imperial's resources into creating this invincible monstrosity. You could even say he put all his eggs in one basket. After all, why wouldn't he? How could the battered rebels ever stand a chance against the impenetrable Death Star!?
The lesson the Death Star teaches us is to always diversify your investments. We generally recommend avoiding individual stocks all together because of the significant risk holding just one, or a handful of investments brings. Spread out the risk and instead invest in well-diversified mutual funds or exchange-traded funds that are composed of hundreds of individual companies. A diversified fund will span among all sectors of the economy, and operate all over the world. This way your investments won't get destroyed, like the Death Star, if one company goes belly-up, or one sector of the economy doesn't perform as well.
The rebels didn't send out one X-Wing to face the Death Star. They sent many, and sure enough, one got through and destroyed it. They diversified their investments and it paid off in a big way. Do yourself a favor, and make sure your investments are well-diversified. Don't let your portfolio blow-up like the Death Star.
2: Get Yourself a Guide
Would Luke Skywalker have really been Luke Skywalker without Yoda? Yoda helped Luke realize his full potential. He had all the power he needed inside of him but required a little assistance getting it to flourish. We all need a little help sometimes, and with something as important as your finances (or fighting the Imperial Army) some good advice goes a long way.
Hiring the right financial advisor can help you make leaps and bounds toward realizing your goals. Like Luke, most people have almost everything they need to become financially stable (a salary, access to insurance, growth potential, etc.) Where people tend to trip up is not knowing how to put all the pieces together.
The financial world is filled with jargon that is difficult to understand. There are also many parts of your financial life to juggle (investments, estate planning, tax planning, asset protection, etc.) which can be difficult. While you could go try and manage your financial plan on your own, a good financial advisor can filter out all the noise and help you focus on achieving what goals are important to you.
A word of caution, however, not all financial advisors are the same. Many people are filled with skepticism of financial advisors because of the bad press the industry sometimes gets. How can you tell if you're working with your Yoda and not the Sith Palpatine in disguise? While it's not always easy to tell, a good place to start is looking for a fee-only advisor. Fee-only advisors are held to a fiduciary standard, meaning, they are obligated to put your interests first. They also aren't compensated by commissions or any products or services they recommend.
3: Dealing With Debt Can Be Dangerous
Holding too much debt can be a nasty business. Especially in the wild-west like world of the Star Wars universe. Just ask Han Solo what it's like evading bounty hunters because of his debt due to Jabba. While debt can be used as a tool, it can also lead to disaster.
While most creditors aren't going to be as ruthless as Jabba (and if you are dealing with someone like that, you should probably seek police protection), having too much debt is a bad thing. When you're saddled with debt it may feel like you're drowning and you're treading water just to stay afloat. The best medicine is prevention, so you don't get in that situation, to begin with.
If you're already drowning in debt, all hope is not lost. Now's the time to focus on putting all of your excess cash flow towards your payments. Cutting costs wherever possible will go a long way. As you eliminate more and more payments you'll soon find that there is more breathing room in your budget. When all your money isn't going toward debt, that's when you can begin saving and growing your wealth.
4: There's No "I" in "Team"
It's been said that teamwork makes the dream work. In the history of cinema, there are few better examples of a team than the rebel forces in Star Wars. It's impossible to forget characters like Han, Chewy, Princess Leia, Luke, and many others. They all have different personalities, and often butt heads, but when faced with nearly insurmountable odds they always found a way to work together. They never forgot their overall goal of defeating the Imperial Army.
In life, there is probably no closer relationship than between spouses. While spouses won't always agree on everything, it's vital that you're both on the same page when dealing with your big financial goals. Being a strong team will make tackling even you're most difficult goals possible. Talking about money is generally a taboo in our society. It's not uncommon for even spouses to keep their finances separate. However, as financial advisors, we've seen the most success with couples who have talked about their overall goals and are working as a united unit to achieve them. Trying to tackle your goals separately, or if you're pursuing different ones altogether, usually doesn't lead to success.
There are many financial lessons to be learned from Star Wars. We hope that you keep these in mind when pursuing your financial goals. You don't need the Force to become financially secure. You just need a good plan, some discipline, and maybe a guide along the way to make your dreams a reality.