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Of all the financial personality types I use (Spending Monkey, Saving Sheep etc.) it is with the Dragon that certain people identify most strongly. They would literally buy a tshirt saying “I’m a Dragon” and wear it proudly.
We’re not talking about the dragon from Game of Thrones, who eats sheep and destroys armies in a wall of flame. This is the dragon of The Hobbit, who loves to curl up on a big pile of cash, gold, precious things and property.
What Dragons love
Dragons love zeros in the bank and they love anything valuable they can touch and feel. That includes property. The building may be close to collapse and have useless tenants and agents (I’m not bitter, honest) but you can see the bricks. They are not going to disappear.
This tangibility gives Dragons comfort. The large bank balance protects them against future uncertainty, while allowing for a fun lifestyle today.
What Dragons hate
Dragons cannot stand the stock market (let’s not even mention Bitcoin). Where does the money go? Where is the share certificate? The mysterious numbers in your account go up and down. The papers are full of bravado one day and then full of investing horror stories the next.
Stocks are not tangible at all – they feel like they would just slip through your claws. To the risk-averse Dragon, the stock market is for gamblers, a high-stakes game where your money can disappear at a roll of the dice. You think: better to avoid stocks and stick to what you know.
Many (though certainly not all) Dragons are female. They crave safety, stability and predictability for their money, especially if it is linked to their children’s future.
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Dragons get damaged by inflation. It is eating away at their cash pile even as they sit on it. The cost of rent, education, food, travel etc. varies a lot over time but, across everything, prices increase steadily about 2-3% per year.
If you have $100,000 in the bank earning no interest, then you are wasting $3,000 per year. In the UAE, that can comfortably buy you a return flight to Europe. 3% per year adds up to about 20% over 10 years. So your child’s education fund sitting in the bank has lost 20% in value after 10 years. And that assumes education costs increase in line with average inflation – sadly, they usually increase much faster.
Dragons are also missing out on the potential gains their money would have made if they had taken a sensible risk and invested their money properly over the long term.
Compare $100,000 growing at 7% per year vs growing at 1% per year – over 30 years the difference is huge. Keep the money in a savings account earning 1% and you would be $626,000 poorer than you could have been after 30 years. In retirement, that really makes a difference to your lifestyle, your children and your charities.
What to do?
Step 1 is admitting that you’re a Dragon. Then you can do something about it and wean yourself off Dragon-like tendencies.
You have to deal with two main issues: you have too much cash and you are avoiding the stock market (or in bad cases anything other than cash).
Your cash addiction should be tackled first:
1) Add up all your cash and the interest it is earning in the bank (or under the bed). Compare this amount to the 3% that inflation is eroding the cash by each year – are you wasting a lot?
2) Establish financial discipline and management by tracking your net worth, income and expenses. This is what will give you control over your money and resilience against future shocks, rather than having a pile of cash languishing in the bank. As you start to run a tight financial ship, you can reduce your excess cash.
3) Build a cash buffer of 3-6 months’ total expenses and save for any major expenses looming in 1-5 years’ time, e.g. a house deposit, university fees etc. Beyond that, any extra cash you have needs to be put to work and not sit around in your account. Remember, every dollar must have a purpose and work hard! Otherwise you will be working hard instead.
Then it’s time to start investing everything else you have:
1) Understand the drawbacks to gold (no income, slow growth in value over the long-term) and property (endless costs, hassles, changing regulations, concentration of money in one asset and difficulty selling quickly). Then at least you are investing with your eyes open.
2) Educate yourself about sensible long-term investing in the stock market. Net of fees, it generates more wealth over the long-term than anything else (with a lot less hassle). Over any 20-year period, the global stock market has never ended lower than it started. Today’s cheap, diversified ETFs mean it’s never been easier to invest in your future.
If you are nervous, read Unshakeable by Tony Robbins and Millionaire Expat by Andrew Hallam. If you hate reading or you want to apply what you’ve learnt, you can always come to one of my workshops. It doesn’t matter what you do… but you must take action for your future!
3) By the way, taking action also means getting out of any terrible long-term savings plans or whole life insurance plans you might have found yourself in. If you are regularly investing in one of these plans, or have stopped paying in, you must check what it is invested in (US or Russia?!), the total fees you are paying and how it has grown over time. Almost inevitably, it’s not going to look good. Don’t wait, fix it now.
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