Fans have just celebrated Star Wars Day, commemorating the franchise with social media posts, cosplays, parties, and binge-watching the original films and various spinoffs. While I’m not as big a fan as others, it’s clear that Star Wars is a big part of pop culture and it got me thinking about what the movies can potentially teach us about personal finance. This article discusses six key finance lessons from the characters and stories from a galaxy far, far away.
1. Consistency Is Key
In Empire Strikes Back, while training Luke in the ways of the Jedi in the planet Dagobah, Yoda delivered perhaps his most famous line: “Do or do not. There is no try.” You should also apply this to your finances.
For example, while it’s quite easy to create a budget (there are a number of methods you can use), the hardest part is sticking to it. Be disciplined. Avoid unnecessary expenses and impulse buying, which can only derail your financial plans. Practice tracking your expenses and build your habits.
You can also apply this to savings. Always save before you spend. Sock away a percentage of your monthly income toward your emergency fund, retirement accounts, or other savings. Only spend after you are sure these elements are taken care of. Consider this a payment to your future self so that you can feel good about not spending the money now. And don’t forget allocating money for debt repayment. If you payoff your debts as soon as you can, you will free more funds for your other goals. To simplify things, consider setting up automatic transfers from your checking account to your savings.
Consistent, you must be. Do or do not. There is no try.
2. Pay Your Debts
Don’t wait for a bounty to be set on your head and become a decoration in Jabba the Hutt’s palace, as happened with Han Solo frozen in carbonite in Return of the Jedi. While in the end, Han was able to escape Jabba with the help of Luke, Leia, Chewbacca, Lando, and the droids, it is best to settle your debts to avoid any inconvenience.
Pay your debts in full before the deadline to prevent interest accumulation. If you have recurring obligations, prioritize paying those with the highest interest rates first so you can save on interest payments in the long run. This is called the avalanche method. Another strategy is to pay the smallest amount first, then moving on to the next biggest and so on. While it cannot save you much on interest payments, the snowball method is a structured approach that can give you a sense fulfillment and progress.
You may also consider debt consolidation, where you take out a new loan or line of credit to payoff multiple existing debts. You essentially combine your old debts into a single, larger one to simplify payments while potentially getting better terms. If you still can’t get a grip of your debt obligations, consult a financial advisor or counselor to explore other options like forbearance or bankruptcy.
3. Get Insurance
The expression “I have a bad feeling about this” is an iconic line from Star Wars. According to ScreenRant, characters have used it at least 36 times across the films and TV series to signal a concern or worry. It’s unclear if there are insurance policies in the galaxy far, far away, but on Earth, you can lessen your worries and allay your “bad feelings” in any situation if you have insurance coverage.
Insurance provides crucial financial protection against unexpected costs, like medical bills, car repairs, home damage, or even death. It gives you and your loved ones peace of mind knowing that whatever happens, you are covered. Depending on the type and terms, various insurance policies can help safeguard your assets, provide liability coverage, and even facilitate savings and investments.
You may not find yourself trapped in a garbage compactor or attacking the Death Star anytime soon, but life on Earth is unpredictable enough as to make insurance a must.
4. Take Calculated Risks But Don’t Gamble
In The Phantom Menace, Qui-Gon Jinn bets Watto on Anakin’s freedom during the Boonta Eve pod race. When Anakin won and was subsequently freed, Watto rues the bet, saying he was swindled. Qui-Gon makes a very important remark here: “Whenever you gamble, my friend, eventually you lose.”
This can be instructive whenever you make investment decisions. It can be said that investing is inherently a gamble. It involves risks and no investment is 100% guaranteed to make a return. But you should always consider your time horizon, financial goals and situation, and risk tolerance.
There are ways to reduce your risk when investing. Diversification is one. Never put all your eggs in one basket. Invest in different asset classes so you are able to withstand market volatility. You can also use dollar-cost averaging, where you invest a fixed amount regularly, allowing you buy more shares when prices are low and fewer when they are high. And while there are investors who successfully time the market, evidence suggests that it’s best to have a long-term time horizon. Instead of gambling with your investments, remember this: “Time in the market is better than timing the market.”
5. Mind The Details
Don’t repeat the Empire’s mistake on the first Death Star. They trusted too much that it was such a formidable weapon, capable of destroying planets in one go, that they overlooked it’s vulnerability through the thermal exhaust port.
This is a very important lesson in personal finance: Read and understand the fine print whenever you enter into any financial agreement, be it investments, loans, partnership agreements, subscription services, or insurance policies. Look for hidden fees, variable interest rates, exit penalties, minimum balance requirements, deductibles, or cancellation fees. If you have questions, don’t hesitate to ask.
If the agreement has a lot of jargon, work with a trusted financial advisor or professionals. Do your due diligence because there might be a Galen Erso who deliberately inserted a vulnerability into your financial agreements.
6. Seek Expert Advice
Luke had Yoda. Anakin had Obi Wan. Darth Vader had Palpatine. Rey had Luke (sort of). If these characters had masters they can consult on how to use the Force, so can you with your finances. You don’t have to do everything on your own.
For example, if you need help with investing, you can consult a registered investment advisor. If you want assistance with your taxes, you can work with a CPA or a tax attorney. If you want to create a financial plan, seek a CFP. Depending on your needs and skills, there is a financial advisor for you. These professionals can help you with your finances based on your specific situation and goals.
Remember, if you think it’s time to consult a financial advisor, check their backgrounds first. You can use SEC’s Investment Adviser Public Disclosure website or FINRA’s BrokerCheck to verify their credentials, qualifications, and past disciplinary actions. You may also contact your state’s securities regulator.
Final Thoughts
Apart from its entertaining plot and memorable characters, Star Wars offers valuable lessons in personal finance. From paying your debts to seeking expert advice, these insights can help you achieve financial security. May the right financial habits (and the Force) be with you.
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