Creative Commons License photo credit: hans s

“Fools and their money are soon parted.”

This phrase makes me nervous every time I look at it. Somewhere buried deep in my psyche a little gremlin cackles these words out over and over again. While I may not be the smartest person in the world, I like to think of myself as being moderately smart. I have my fair share of sheepskin. I have a long string of academic honors trailing along behind me like tin cans behind a newlyweds’ car. Maybe because of my brains I’ve always been afraid of being called a fool.

Here’s my definition of a fool: someone who does something stupid. Er, yes, Steve. Very original. The subtle distinction is that it’s someone who DOES something stupid rather than just IS or THINKS stupid. That probably sounds pretty harsh, but basically what I’m saying is that even smart people can be fools, and less-than-smart people can avoid being fools.

Let me be harsh. I am fairly sure you are a fool in some sense. I am, too. I have done stupid things. I may have known they were stupid, but I did them anyway. Let me give you a few examples.

  1. Flush with cash after leaving Russia in the mid-90s, I kept $30,000 in cash in my checking account for about 5 years because it made my Manhattan single days footloose and fancy-free. Remember the late 90s? Think dropping some of that money into a decent index fund might have been worth it?
  2. I bought a car and financed it when I had enough cash to pay for it outright. I paid interest just for the kicks, apparently.  That, incidentally, was the first and only time I ever paid interest for anything other than my mortgage interest.
  3. I didn’t carefully review my car insurance and found out – after two years – that I had been paying for “rental car lending insurance” – if I had to take my car in for repairs and needed a rental car, up to $50 a day was covered.  With two cars and an abundance of public transportation available, this may not have been insurance I needed, eh?
  4. I sneered at people paying $600,000 for a two bedroom in Manhattan when I moved there and probably could have scraped together the money to buy one. Now the same places probably are worth $2 million.

That’s just a sampler. The common characteristic of most foolish actions is that the fool fails to take into consideration the long-term consequences of their action… or inaction. You might be foolish today for one of these reasons:

  1. You are still adding to your debt.  C’mon, all the cool kids are doing it…
  2. You are saving but not investing because you “don’t have enough knowledge to invest”.  Last time I looked there are about 20,000,000 books that could help you correct this problem.
  3. You are waiting for the real estate market to ‘cool’ or ‘get hot’ but you don’t know enough about real estate to know when that is.
  4. You are counting on your job to exist forever.  My acquaintances at various big banks’ corporate headquarters here in the New York area thought their jobs were safe.
  5. You aren’t accumulating new skills.  I’m not just talking about book knowledge, either.
  6. You are buying stuff you don’t need.  For 10,000 years of human history people got by without owning more than two pairs of shoes at a time, for example.
  7. You have allowed yourself to get complacent about where you are in life.

I could add another dozen items to the list not related to finance: you don’t exercise, you are rushing into bad relationships, you are keeping bad influences in your life, and so on.

I try not to do foolish things, but I think about foolish things all the time. Sometimes it is actually a good thing to have foolish thoughts, but it’s more important to learn how to identify them as foolish before I’m parted from my money. The only way I know to avoid being foolish – learning. If you are worried about being parted from your money, the only way to avoid it is to keep educating yourself about money – keep reading, keep discussing, keep watching what successful people do.

It’s a tall order, because we’re all busy with life and jobs and family and the whole business of being a person on this planet, but you have to do it. Otherwise you’re just going to stay where you are or fall further behind. Nobody gets ahead without continuously learning throughout life.