6 Things Harry Potter Taught All of Us Muggles About Money
Muggles who grew up eagerly awaiting their letters from Hogwarts have a reason to get excited this weekend: The eighth installment of the "Harry Potter" series will be released Sunday.
The latest chapter of the Potter saga, "Harry Potter and the Cursed Child," is a two-part play detailing Harry's life as an adult wizard with three kids. Nearly two decades after he famously defeated the evil Lord Voldemort, Harry finds himself as an overworked Ministry of Magic employee struggling to live down the past.
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Unfortunately, even in the magical universe, financial problems can't be instantly solved with the wave of a wand. While Harry and his friends learn to harness their wizarding powers, they also struggle with the challenges of spending, saving, and talking about money throughout the popular series.
Here are some personal finance lessons we can also learn from the wizarding world:
1. There's no such thing as free money.
In "Harry Potter and the Goblet of Fire," Harry and his friends attend the Quidditch World Cup, the championship match in the wizarding world's favorite airborne sport. The game—which pits the Bulgarian and Irish national teams against each another—features sideline entertainment in the form of magical creatures from the countries of each team.
At one point, leprechauns from Ireland toss the crowd handfuls of gold, which turns out to be "leprechaun gold" that disappears the next day. Harry's best friend, Ron Weasley, whose family struggles to make ends meet, is particularly disappointed to find that all the riches he'd collected vanished overnight.
Similarly, if an investment or financial opportunity seems like it's too good to be true, chances are it probably is. Try to tune out the noise around the Next Hot Thing. Your best bet for making consistent returns is to invest regularly over long periods of time, putting your money a diversified mix of low-cost funds and ETFs. (Check out the Money 50 list of mutual funds and ETFs if you're looking for sound investments that might be a good fit for you.)
2. Keep your money in a safe place.
Harry's vast fortune was stored in Gringotts, the wizard bank located in the heart of London. The bank is guarded by goblins, who are the gatekeepers to the underground vaults within, and protected by a series of magical spells. It's often described as "the safest place in the wizarding world."
While those of us dwelling in the Muggle World can't stash our money in Gringotts, there are other steps people can take to make sure their nest eggs remain secure. If you're looking to build up or preserve an emergency fund, for example, keep it in a place where you won't be tempted to spend it frivolously, perhaps in a bank other than the one where you do the rest of your banking. Set up an auto deposit to send a portion of each paycheck to savings. You also might want to look into high-yield savings accounts (like one offered by Goldman Sachs with 1.05% annual interest) that will allow you to augment your cash.
3. Find a way to get paid for doing what you love.
Harry's pals Fred and George Weasley are fans of playing pranks on their friends and family throughout the series. As teenagers, they experiment with creating various joke products like Wildfire Whiz-bangs and Portable Swamps. In their final year of school, Fred and George launch a mail-order business, building a loyal customer base while they're still saving up to afford their own premises. They're ultimately able to open their own shop in Diagon Alley —with help from a starter loan from Harry — and business is booming several months later when their family comes to visit them. We couldn't send Fred and George an owl, but here's some advice from other folks who have turned their passions into profits.
4. Monitor your money closely, even if you have plenty of it.
Harry has surprising financial insight for a teenager, particularly one who has a lot of Galleons in the bank. When he learns that he's well-off, he chooses to spend his inheritance judiciously. He visits Gringotts just several times per year and only takes out the gold he needs for school supplies and other necessities, conscious that it needs to last him at least through his seven years at Hogwarts.
Even though he's occasionally tempted by big-ticket items like a Firebolt broomstick, he resists the urge to splurge, knowing it's a want and not a need. When Harry does spend, it's usually on his friends, such as the loan to the Weasley twins or buying expensive souvenirs for Ron and Hermione at the Quidditch World Cup match.
5. Make a will.
Harry was lucky that his parents left him a sizable inheritance (which some Potter super fans have estimated to be as high as $1.2 million). However, he spent most of his childhood unaware that his parents had left him any money at all. Instead Harry spent the first 11 years of his life living in a cupboard underneath the stairs in his aunt and uncle's house, living off hand-me-downs and scraps. It wasn't until he learned that he had magical powers -- and visited the bank -- that he also found out he was provided for financially.
Even though Harry's parents died very young, at 21, it's important to note that it's never too early to write down your wishes for your assets. Your "will" could even be as simple as a short notarized document outlining your plans. Your foresight could save your family and friends a lot of trouble down the line.
6. Don't gamble more than you can afford to lose.
In "The Goblet of Fire," readers meet Ludo Bagman, the head of the Ministry of Magic's sporting department. They soon learn that Bagman, a former Quidditch star, now has a serious gambling problem. He places bets on everything from Quidditch matches to the dangerous Triwizard Tournament, and ultimately borrows from goblins to fund his speculation. When the goblins catch on to his nefarious ways, Bagman is forced to flee for his life.
When you're rolling the dice with money -- either at the casino or in the stock market -- remember no outcome is a sure thing. Before you set your wager, make sure your finances can handle the worst-case scenario. In the market, that means that risks you take with individual stocks should be capped at a few thousand dollars, if you can afford it. If you choose to take a chance on a larger investment, your gamble should represent no more than that 10% to 20% of your total portfolio that you can consider "explore money."