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9-3/4 Personal Finance Lessons Harry Potter Must Learn This Fall

For many Americans, the world of personal finance is a magical, mystical place, similar to the world of Harry Potter. You can read about it, and you can even participate in some way, but it’s not something you think of as tangible and “real.” Many view finances the same way. Clearly, you earn and spend money, but the way it works too often proves elusive. Financial freedom seems like a magical destination, and many are convinced they will never get ahead.

However, it is encouraging to note that Harry Potter didn’t just wave his wand one day and transform into a successful wizard; he attended lessons. You, too, can learn about money, and master its workings. Here are 9-3/4 personal finance lessons to help you on your way to financial freedom:

1. Money is a Tool

Your money isn’t good or evil. It’s a tool. It can be used to help you live the life you want, or it can be squandered. In some cases, money can even become a prison. If you focus too much on money, and make it an end itself, you can become trapped in the cycle. And, of course, if you spend too much money, it is possible to fall victim to the debt cycle. It’s important, though, to stop attributing human characteristics to money. View it as a tool, and you can use it to accomplish your goals — including using money to make more money.

3/4 Lesson: Credit Cards are Tools, Too

Remember that credit cards are tools as well. It’s easy to vilify credit cards and insist that they are evil. They aren’t. When used wisely, credit cards can be great personal finance tools that can result in free stuff, cash back and a great credit score that can lead to better loan terms and lower insurance premiums. Incorporate credit cards into a financial plan, pay them off each month, and reap the benefits.

2. Credit Isn’t “Your” Money

Realize that credit isn’t “your” money. It’s more like leprechaun gold. It seems solid enough, but it’s ephemeral. Any loan that you get is borrowed money. You are using someone else’s money and you must pay it back — with interest. If you use debt to buy something, it isn’t really “yours” until the obligation is discharged. This is especially true when you use secured loans to buy homes and cars. When the debt is secured, the lender can take it back as long as you still owe money.

3. Paying Interest: Money Straight into Someone Else’s Pocket

Anytime you pay interest, you directly benefit someone else — for nothing in return. You pay for the privilege of borrowing money, nothing more. The allure of instance gratification fades the longer it takes to repay your debt. Like Lord Voldemort, interest you owe is without pity or remorse. You pay up…or else.

4. You, Too, Can Earn Interest

Instead of paying interest, you can earn it. How you feel about interest largely depends on how it affects you. Those who earn interest love it. Avenues exist for earning interest, including investing and P2P lending. With the right planning money can work for you. House elves move silently, taking care of what the household, and earned interest can work the same way, building up your wealth almost without you noticing.

5. You Need Financial Priorities

While a budget, or spending plan is important, it’s basically useless if you don’t base it on your financial priorities. Take the time to figure out what you value, and determine your goals. Honestly evaluate your values, and create a financial plan that reflects what’s most important to you. Make sure you take care of the most important things first. If you should be hunting Horcruxes, don’t get distracted by Hallows. Focus on the most important money goals first.

6. There’s Only So Much You Can Cut

Sure, you can pinch pennies like crazy. But there’s only so much you can cut. Consider your priorities, and realize that, if all you do is focus on reducing your spending, chances are that you won’t reach your goals. Cut the least important expenses from your life, so your spending more closely reflects your values, then go out and make more money.

7. Look for Ways to Earn More

You can always earn more money. Always. Work a part-time job. Start a side hustle. In today’s technology-connected world, opportunities abound for home businesses and side ventures, whether you sell crafts online or monetize a web site. Not too long ago, I heard Ramit Sethi basically say to turn off the TV and earn more. According to the American Time Use Survey, the average American watches 2.7 hours of TV each day. You might be surprised at how much time you have to start a side hustle when you re-evaluate your time use.

8. Your Partner Needs to Be Board

If you have a life partner, he or she needs to be on board. Even if you agree to disagree, and even if you have different money personalities, you can work out a system that works for both of you. Look for common financial ground and common money goals. Talk about money with your partner, and work toward some things together. It’s easier to stay on track when you have help.

9. Financial Education is Key

Rather than mindlessly earn and spend, learn about how money works. There are a number of educational resources that can help you learn more about investing, saving, wise borrowing, and more. Study up! Use these “spells” to help you gain the knowledge and insight you need to master the magical world of money.

What are your favorite personal finance lessons for Harry Potter — or anyone else?

Image source: Steff via Wikimedia Commons

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