5 Personal Finance Lessons From “The Hobbit”

by Paul Michael on 30 January 2014 0 comments
Photo: timsackton

It's hard not to be inspired by stories and characters in "The Hobbit" and "The Lord of the Rings." The books and movies may contain fantastic realms and amazing creatures, but they are also grounded in reality, especially when it comes to Bilbo Baggins. Of all the characters in Middle Earth, he's the one most of us can relate to. He's flawed, charming, fearful, anxious, funny, and very human. And we can learn a lot from him and the world he inhabits. Here are five financial lessons we can take from "The Hobbit." (See also: Personal Finance Lessons From "Parks and Recreation")

1. You Need The Right Tools to Get Out of Trouble

In Bilbo's case, trouble was a huge spider trying to literally suck the life out of both himself and the dwarves. He solved the problem with his sword, Sting, and of course the One Ring (to rule them all). But when it comes to finances, your trouble is more than likely some kind of debt. Whether it's credit card debt, massive car payments, mortgage trouble, or a loan, you need good tools slay that financial burden.

Your best bet is to find a great budgeting tool. My personal favorite is You Need a Budget. It is usually priced at $60, but check the daily deal at Steam, and it can sometimes be downloaded for less than $15. A software tool like this helps you with debt strategies, saving plans, and much more. With the right tools, you can defeat almost all of your financial troubles. (See also: 8 Mint Tools for Managing Your Money)

2. Escaping Your Comfort Zone Can Bring Rewards

Bilbo did not exactly jump headfirst into his adventure with the dwarves. In fact, it was only the insistence of Gandalf that got him to leave his comfy home in the Shire. And although he has many life-threatening encounters, he also goes on some incredible journeys and finds great wealth and power with the One Ring.

This same risk-reward outlook is true in the financial world, too. If you're investing money in a retirement plan like a 401k, and you won't be retiring for 30-40 years, you do not want to be in a safe, comfortable plan. Aggressive, riskier portfolio allocations weighted toward stocks will bring greater rewards over time. Yes, they can also bring greater losses, but you have plenty of time to ride those out. (See also: Getting Started in the Stock Market With Index Funds)

3. Gold Will Always Be Valuable

The dragon Smaug ransacked the town of Dale and captured Lonely Mountain for one reason — gold. Not just a little gold, but a massive mountain of gold. And after he captured it, he sat on it. Literally. During that time, the gold grew and grew in value. And the same is true in our world.

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Yes, the price of gold rises and falls, and currently it's a lot lower than it was in the summer of 2011 (when it hit an all time high). But gold is gold. It's a precious metal, and it's finite. The last estimate was around 171,300 tonnes, which is enough to fill 2.5 Olympic sized swimming pools. When anything that is both useful and desirable is finite, it will always be valuable. So, the next time you see one of those ads offering "cash for gold," don't take the first offer you get. Shop around, get appraisals, and always check the current price of gold. (See also: Sell Gold Without Getting Ripped Off)

4. Don't Live a Champagne Lifestyle on a Beer Budget

In the case of the Hobbit, that beer would probably be a nice pint of Barliman's Best, which is served at the famous Prancing Pony Inn. And it's Bilbo Baggins who would plump for a cheap mug of beer and a simple meal instead of anything fancy and beyond his means.

However, Bilbo is in fact the richest Hobbit who ever inhabited the Shire. He owns the priceless One Ring, and a precious Mithril Shirt (which he later gives to Frodo). The two items make him quite the wealthy Hobbit, but instead of giving them up for riches, he chooses to live a humble life. We can all learn from this. Don't spend a raise as soon as you get it. Don't throw debt onto credit cards, and only pay the minimum. Don't live way beyond your means. Start by paying yourself back, every payday, with 10%–20% going into savings. (See also: How to Be Frugal Without Giving Up Your Social Life)

5. Greed Will Ultimately Be Your Undoing

A Stoorish Hobbit called Smeagol became the twisted and deformed Gollum, all because of his greed and obsession for the One Ring. Smaug, the powerful dragon, horded his stolen gold and was eventually killed over it. The Sackville-Bagginses, cousins to Bilbo, were consumed with greed. They were obnoxious, condescending, and hated by almost everyone.

Greed will not serve you well. It is one thing to save and be good with money. It is quite another to go out of your way to be a Scrooge-like character, spreading misery and sucking cheer from every room you enter. You will get far more from life if share your good fortune with family and friends. And that may not just mean money, either. Simply sharing meals, inviting friends over for coffee, or simply giving your old clothes and unwanted belongings to charity can bring you so much joy in return. Be a giver and do not go down the path of Smaug and Smeagol.

Any personal finance lessons from The Hobbit that I've missed? Don't be greedy — please share them in comments!

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