build your financial horcrux

In J. K. Rowling’s Harry Potter books a Horcrux is described as a “receptacle in which a Dark wizard has hidden a part of his soul for the purposes of attaining immortality.” With part of a wizard’s soul stored away like this, as long as the Horcrux is intact the wizard will remain alive, and therefore is immortal. Even if the wizard’s body is “killed”, part of his soul will remain preserved inside the Horcrux. In other words, an evil wizard squirrels away bits of his soul in various trinkets so he can’t be killed totally. Nice trick.

Here is my personal finance Horcrux: keep your “financial soul” hidden away in several Horcruxes, so that you can never be completely “killed.” A good example of this was the recent collapse of NetBank. Individuals (and companies) who kept their money in NetBank had their deposits insured up to a limit of $100,000 by the FDIC. While I doubt many people kept more than $100,000 in NetBank, I am sure there were a few. By keeping too much of their monetary “soul” in one Horcrux, they are exposed unnecessarily to risk.

Another example of this would to be to diversify your investments. Make sure that you don’t have too much stashed away in one Horcrux. Make sure you don’t have too much stashed in one stock – or make sure you don’t have too much put away in US stocks versus overseas stocks, bonds, etc. If you have every single investment in your account invested in US equities, your “financial soul” is at risk of being snuffed faster than you can say “Hufflepuff.”

I have written elsewhere about simplifying and consolidating your accounts but I would never advise carrying this to its penultimate conclusion – a single institution holding all of your financial life. It is possible. I could consolidate every single bit of money in my life in Bank of America for example: cash, securities, IRAs, mortgage and credit cards. The only thing I could not easily consolidate would be my 401(k).

So if you have plans to conquer the world, and you’re trying to avoid meddling wizards seeking to overthrow you, make sure you have your (financial) Horcruxes safely stashed away!

Photo credit: by Jersey JJ

11 Replies to “build your financial horcrux”

  1. What I *thought* this post was going to be about was constructing financial horcruxes as ultra-conservative, protected sources of money that can “bring you back to life” in the event of a catastrophe.

    E.g. Say you have a family member gets sick and hospital bills bankrupt the family (not fun). Your horcruxes might be a retirement account (which is protected ala OJ) or your house (if you live in Florida), and there’d be enough cash in the “horcruxes” to either cover your cost of living while you recover or give you enough “seed money” to start building your finances back up. I have no idea what would serve this function up here in Canada (pretty sad that I can think of two US examples and I don’t even live there).

    Obviously the ROI of these investments isn’t the priority, instead its an insurance policy to have a source of a little cash in case things go horribly wrong.

  2. Mr. Cheap, I can’t argue that your take wouldn’t have made good sense, too. That’s actually an excellent way to look at it… you did an excellent analysis of a US financial problem with a British novel 🙂

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