Behind the scenes: 3 case studies about money that will make you laugh, cry, & vomit

I’m fortunate to hear a lot of interesting (and very personal) money stories, most of which cause me to either burst into a radiant smile or threaten immediate suicide.
Today, I want to pull back the curtain to tell you about 3 people I’ve heard from in the last few days.

• A 32-year-old woman who just discovered she’s been paying unnecessary fees to her financial “advisor” for the last 13 years
• A 40-something female surgeon who makes $500,000/year but isn’t sure what to do with her money
• A 24-year-old guy who negotiated $200 back with one phone call

At the bottom of each profile, I’ve added a “lessons learned” section.

#1: “Am I really allowed to ask what his commission is?”

Over the weekend, I was out for drinks with some friends and ended up sitting next to this girl who, once she heard what I do, started asking money questions. It turns out that she was very interested in investing, and had actually just bought a condo in San Francisco (with a $500 monthly HOA fee). You probably already know my thoughts on real estate as an investment, so I just kept quiet.
But then she mentioned that she’d also been investing in life insurance, and I started choking on my drink. Why does a 32-year-old with no dependents need life insurance, much less as an “investment”? But it gets worse. I found out she’d “locked up the money”…for the last 13 years. I almost had to stop myself from shaving down my tortilla chips to the fine point of a shiv and stabbing myself in the throat.
I tried to play it cool but she asked me, point-blank, “What do you think? Don’t sugar-coat it.” So I told her that her “advisor” was probably making a fat commission off her, and there’s virtually no reason for someone in her financial situation to be investing in life insurance. (I didn’t mention the condo — not much she could do about that now.)
She was receptive. And she was concerned that she was being taken advantage of. “I only call my advisor once a year,” she said. “And I’ve gotten my entire family into life insurance since that’s what he recommended to me.”
So I told her to go ask her broker what his commissions are — how he makes money — and why he chose life insurance for her. Maybe there was a legitimate reason, although I doubted it. She looked at me and said, “Am I really allowed to ask what his commission is?” Don’t you guys find that interesting? “Of course,” I said. “He works for you, and he’s probably making money off your money. You have the right to know.” She said, “Oh, okay. Because if someone asked me what my profit margins were, I wouldn’t tell them.”
Good point. But if you’re using a commission-based advisor (which you shouldn’t), you have the right to know. And you have the right to put your money in a more appropriate investment than life insurance for a young woman, larded up with unnecessary fees.
Lessons learned

• Don’t dismiss this girl as stupid. She actually got engaged with her money, which is more than most people do. Unfortunately, she didn’t do her research and probably got taken advantage of by an unscrupulous advisor. Ironically, even though she got sub-optimal returns (and made a questionable real-estate “investment”), she’s better off than the vast majority of people in this country who never pay attention to their finances at all. She can get this back on track. And she’s already shown the initiative to take action
• Her investment probably did fine — it just could have done better without the fees. Costs matter
• Evaluate your investments and major expenditures each month. Chances are you’re getting ripped off somewhere. I have a super-detailed script on calls to make once/year as one of my Scrooge Strategy tips

#2: “Well, I made $500,000 last year…”

I was in Lake Tahoe a few weeks ago kayaking with a group (yes, some bloggers leave their room) and a woman came up next to me on the water. She had heard me speak and had no idea what to do with her money. She really caught my attention with this exchange.

Her: “The thing is, I earned a LOT of money last year, but it’s just sitting in the bank.
Me: “How much are we talking about, ballpark?”
Her: “I earned $500,000 last year. And I have $200,000 just sitting in a bank account.”
Me: (Stops rowing)

It’s totally fascinating to meet a woman who’s supremely alpha in one area but has no idea what to do in another. She was in her 40s, single, and a surgeon. She was considering buying a house (”for the tax deduction”…one of the few times this might actually make sense) but also because she didn’t know anything else about investing.
We started talking about other business stuff and a few minutes later she asked me, “What’s your consulting rate?” I told her and, without blinking, she said, “Can you just take care of my money? I can pay you.” Now, I charge a ridiculous amount for consulting, so the fact that she didn’t even FLINCH when I told her my rate was really surprising — and tempting.
But no, I told her. “I don’t do portfolio management. I rarely say this, but you should really talk to a financial advisor. You can find a good, fee-only advisor at http://www.napfa.org/ or I can recommend one by email.”
Why did I recommend a financial advisor for her and not the earlier woman? Because in my book, I mention there are only a few categories of people who generally should use financial advisors in the 20-35 year-old range (typically people who are earning a tremendous amount, need more sophisticated money-management strategies, and are too busy to do this on their own.) Not only does this woman fit the description by being busy and very successful, she’s older and likely won’t do anything without someone helping her.
I’m thrilled to tell you that she’s started to take control of her money. But the lessons learned with this woman are very interesting.
Lessons learned

• A high income solves most financial problems. People don’t like to hear this because they like to judge people’s financial behavior, but it’s true. Yes, she’s in her 40s. Yes, she missed the prime time of her life to invest and compound her growth. But at $500,000 per year, she can catch up quickly and have a very good quality of life
• Paying for value is a sign of successful people. She caught me off guard when she offered to hire me as a consultant, but when I was thinking about it later, it didn’t surprise me. Most of the successful people I know are willing to pay for value. They pay for training courses and understand that you can’t out-frugal your way to being rich — you sometimes have to spend money to earn money. Compare this philosophy to people who believe there’s only a limited amount of money (and they have to protect theirs) or people who expect everything to be free. Though she hadn’t started investing, the fact that she’s she’s dominated her career and is willing to pay a significant amount of money to handle her money — and she falls into a category of really busy professionals who could benefit from a fee-based advisor — means can quickly ramp up on the financial side

#3: “I was charged with $200 in overdraft fees”

David Howe, 24, emailed me from D.C.

“I made a mistake in my checking account, I thought I had transferred money to cover pending transactions but I didn’t “confirm” the transfer. I was charged with $200 in overdraft fees.
I called the bank using your template, and I think there were 3 consecutive lines you suggested in your book.
After the first line she credited me $70.
After the second line she credited me $105. I repeated the second line again almost verbatim and she credit me $120.
Then I used the third line, $150, the third again $200.
The funniest part was she responded to every line almost in the exact way you said she would in the book!! I just found it comical (and I’m very glad to have the $200 back!) Maybe I’ll use it to open a Roth IRA…”

Lessons learned

• My negotiation tips are fucking awesome. I literally have hundreds and hundreds of people who have negotiated significant amounts back from banks (here are just a few). If you don’t have my book, buy it now — there is a lot of completely new stuff you’ve never seen in there. Order I Will Teach You To Be Rich (includes negotiation scripts and a 6-week plan to dominate your finances)
• David knew to negotiate like an Indian — meaning he recognized that he has more control in his relationships with companies. While many people simply sit back and take it, he called them and got $200 back within a few minutes. Once you do this with one company, you realize how much power you have to do it with many companies.

Hope you guys enjoyed these profiles. I’m always hearing interesting money stories, so if you like these, I’ll try to share more of them.