At first glance, South Park‘s Randy Marsh does not seem to have the makings of someone with financial savvy. Neither his job as a geologist nor his irrational tendency to over-react suggest we should trust his judgment with money at stake. And yet, there is something this man can teach us about personal finance. For all of his sporadic obsessions and fad chasing, Randy Marsh exhibits a sincere desire to discover and (just as important) act on good ideas and principles. More of these are explained below.
Just do it
“There’s no time for your immaturity Stanley, do it!”
Many of the causes and crusades Randy commits himself to are foolish. But boy, does he commit to them, and fast! Once he gets it into his head that something (anything!) must be done to assure safety, prosperity, or prestige, Randy wastes no time getting started. In this last thought we find a bonafide gem of money management wisdom, which is simply this: all the personal finance knowledge in the world is worthless unless you act on it. In his excellent book I Will Teach You to be Rich, Ramit Sethi advocates “the 85% solution.” That is, taking the imperfect (but sufficient) steps you know rather than endlessly delaying action because you don’t know everything.
In other words, once you know that financial independence comes from sustained investment and savings, start investing and saving. You will prosper far more by simply investing $100 (or however much) per month in a plain old boring index fund than by perpetually trying to figure out what the “best” stocks are – and investing nothing in the meantime. Ditto for retirement savings. Open an IRA (preferably of the Roth variety, in which your money grows and can be withdrawn tax-free) and contribute to it every month. What matters is not whether that is the 100% best and most optimal strategy, but that you are doing it. You can always make adjustments later. And while your friends engage in fruitless debates about interest rates and ETFs, you will be the one actually making headway.
Manage your risks
Stan: “Dad, I don’t want to put my head in the sand.”
Randy: “It’s the best way Stanley, did you eat your Fruit-Roll Up?”
Randy: “Okay make sure your snorkle is working and get your head in the hole.”
Investing is full of risks. What often determines how prosperous and secure we are is how we manage these risks. Unfortunately for South Park fans, this comical exchange from the “Family Guy” episode illustrates exactly the wrong approach to risk management. Burying your head in the sand is just as ineffectual and wrong-headed in response to investing risks as it was in dealing with terrorists. The correct approach is to confront risks, understand their implications for your own wallet and insulate yourself as best you can.
For example: the Enron fiasco illustrated the risks of investing in only one or two things. In effect, Enron’s former employees “stuck their heads in sand” by putting their eggs in that one basket and hoping for the best. They had no hedge against the risk of the whole company failing – which it ultimately did. A far better approach is to diversify your investments across a broad swathe of index funds, mutual funds, foreign currencies, and other vehicles. This way, hiccups or slowdowns in one area wont decimate your entire portfolio.
Stan: “How come Wal-Mart can afford to sell everything so cheap?”
Randy: “Well son, it’s simple economics…I don’t understand it all.”
People don’t always grasp the underlying reasons (volume purchasing, economies of scale, distribution efficiency) why certain stores always have lower prices. Fortunately, you don’t need to understand any of it to reap huge savings. All you need to do is comparison shop before making major purchases. It doesn’t have to be time-consuming or difficult; in many cases, simply Googling a few different retailers to check their prices will be net you significant savings the next time you buy furniture, appliances, cars, or any other major purchase. Not understanding simple economics didn’t stop Randy from saving at Wal-Mart, and it shouldn’t stop you from comparison shopping.
Develop Financial Priorities
“I was shopping at Wal-Mart all night. I was standing in the checkout line…they had these little stickers filled with glitter! They were only ninety-nine cents for fifteen of them, I couldn’t resist! Do you want one?!”
Randy’s giddiness at Wal-Mart exemplifies a trait many of us possess: mindless, impulsive spending. Don’t worry, we’re not telling you to never make spontaneous purchases (life would be awfully boring if we only saved and paid bills). The key is to establish priorities that you satisfy first. It is often the lack of such priorities – rather than the spending itself – that gets people into trouble.
In the end, your priorities will determine and depend on your financial goals. Most people would do well to put retirement, investing, and general savings on their list, and decide how much money they can contribute toward them each week or month. Most experts suggest having 3-6 months in living expenses at all times. Any planned major purchases (such as a new car or house) can be planned and saved for month to month as well. No matter the priorities you choose, the important thing is that you attend to them before letting your wallet run wild on impulse spending.
“Do you have any concept of money at all?!”
A common criticism of our schools and colleges is the lack of personal finance education offered to young students. This is blamed for the lack of financial savvy among adults young and old. But this doesn’t let you off the hook – just because the ins and outs of money management weren’t spoon fed to you in class doesn’t mean you can’t learn them on your own.
Use Good Judgment
“These are not ‘space cops’, there is no ‘space jail’, and ‘space cash’ is only worth what you as a planet decided it was worth.”
Randy again demonstrates the opposite of sound judgment in the episode titled “Pinewood Derby “. When visited by aliens, Randy and the other citizens of South Park were tricked into thinking that a massive hoard of “space cash” stored on board the alien’s ship was a real and valuable currency. Their naivety wound up costing Earth a membership in the ‘Federation of Planets’ and sealing them off from the entire universe. While your choices aren’t likely to determine Earth’s interstellar future, you can still take a big hit if you aren’t aware of scam artists and ripoffs. Countless Americans have poured untold millions of dollars into Ponzi schemes, pyramid schemes or dodgy multi-level marketing programs. These typically promise huge rewards for persuading others to sign up. They typically fail, little is done to stop people from promises of “getting rich quick”. In general, anything promising lots of money in a short time with little work is a scam.
Be Truthful About Taxes and Income
“Stan you have to learn to lie properly someday, it might as well be today.”
Despite Randy’s exhortations to lie, the one situation when this always comes back to haunt you is tax time. Many who neglect to file tax returns don’t hear anything from the IRS for months or even years after. They then erroneously conclude that they got away with shafting Uncle Sam and all is well. But this is rarely true. According to the book Standing Up to the IRS, this only happens because the IRS database is perpetually 12-24 months behind. Non-filers have not “gotten away with” anything, and an eventual phone call from the IRS is therefore inevitable. It’s best to simply pay all taxes owed and file all returns on time. It’s never fun, but the alternative is much worse: fines that sap your savings, time wasted with federal agents, or in the worst case, prison. Surely fulfilling your civic duty is not as terrible as this.
The core of Randy Marsh’s approach to personal finance is to be active. You could also take away from this article that it is better to manage risks and educate yourself instead of sticking your head in the sand. Search for the lowest price instead of buying from the first store you visit. Let consciously chosen priorities, rather than whims, drive your spending. Don’t fall for hyped-up scams. Be honest in your dealings.