If you haven’t caught it yet, you’re late – Breaking Bad is one of the best things to be on television this decade. While the series ended last year, the story of Walter White – a high school chemistry teacher who turns to cooking meth to pay for his cancer treatment and provide for his family – has built a cult following. And the spin-off, Better Call Saul, is fast gaining ground.
The thing about these stories is they provide some solid financial lessons:
If you have not watched the series yet, reading this could ruin it for you. Check it out on Netflix or something first, and then come back.
(1) Be Picky With Middleman
One of the problems Walter and Jesse learn early on is that they need middlemen. Even if they could cook pounds and pounds of crystal meth, they couldn’t sell such large quantities on their own. They needed a distributor, a middleman, to move the “product”.
The first is the unstable Tuco Salamanca, who insists on “consignment” operations, offering to pay only after the meth is sold. Jesse gets his ribs broken when he tries to renegotiate. Then Jessie tries to get his friends to sell the drugs, which gets one of them shot and the other sent to jail. The third attempt, through Gus Fring, almost gets Jesse and Walt both killed.
The only reliable middlemen are corrupt lawyer Saul Goodman, and the distributor Declan at the end of the series. They’re both expensive (Saul charges 5% and Declan 35%), but they clearly made up for their fee.
The lesson is simple: a product only makes you as much money as the quality of the middlemen involved. You can apply the same lesson to financial products. Even if a particular fund or insurance policy is great, it can be ruined if you pick a corrupt or fickle go-between (e.g. a financial advisor who is more interested in commissions than in your well being.)
Always be picky with the middlemen you work with. Be wary, and be willing to change them fast if they aren’t working out.
(2) Know When To Stop
Walt’s biggest problem is not knowing when to stop. At one point, Mike Ehrmantraut successfully sets up a deal to sell their stolen methylamine (a chemical used to cook crystal meth.)
It was also an assured pay out of five million dollars to Walt, Jesse, and Mike. More than enough money for Walt, and a relatively danger-free exit from the crime business.
Walt chose not to take the deal, partly out of ego, and partly out of greed. He does make $80 million from continuing, but loses his life, his family, and most of the money he made.
The same lesson applies to investing: don’t get greedy. If you’re trading, use a trailing stop loss to quit while you’re ahead. If you don’t trade yourself, listen to your financial advisors or wealth managers when they warn you against the green-eyed monster of greed.
(3) Understand How Trust Funds Work
Walt is unable to get the money to his family. His horrified son doesn’t want the blood money, and it would just get be confiscated by the police anyway. His only recourse is to blackmail Gretchen and her husband into setting up a trust fund for his son, using the money he has left.
In this one instance he acts more wisely than Ehrmantraut. Mike’s plan, which is to stash money aside and surprise his grand-daughter with millions of dollars on her 18th birthday, was risky from the start. In fact, the money get seized on two such attempts.
(It’s also poorly thought out, because authorities would certainly notice an 18-year old spending millions of dollars.)
Learn from Walt, not from Mike: set up an ironclad trust fund, which ensures the money goes where it’s meant to. With the right kind of trust, the money is no longer yours; it’s in the hands of the trustee, who will pay it out according to your instructions.
Rather than hoard your children’s inheritance in a bank account, talk to an estate-planning expert and see if a trust would be safer.
(4) Easy Money Often Costs More Than It’s Worth
This seems common sense, but most people miss it. Gus Fring, the primary antagonist for much of the series, offers Walt “three million, for three months of your time.”
All Walt has to do is cook meth, in a secret laundromat-turned-meth lab. Every aspect of distribution is handled for him. It seems easy. But it’s only after he’s taken the offer that he starts thinking of the real cost: what happens when Gus’ men have learned the formula, and don’t need him anymore? The only answer lies in Walt’s death, which is a price far higher than the “easy” three million offered him.
While you’re unlikely to encounter such extreme situations, know that the same thing happens with scams. When you’re offered a chance to make easy money, be on guard. Even if you aren’t ripped off, you’ll find the consequences tend to be more expensive than what you make.
A good example are Forex trading schemes with “free” money: sign up for a $1,000 trading account, and you will get $10,000 “free”. Later, you’ll find out you can’t withdraw any of it (including your initial investment) until you’ve made them $50,000 or $100,000 by trading.
(5) Don’t Put All Your Money In One Spot
Walter White had an idea to bury his money in barrels. Fair enough, it was illegal so the bank wasn’t an option. What was incredibly stupid was burying all the barrels of money in the same spot.
Had Walt spread out the location of the barrels, Jack Welker would never have gotten them all at once. It would also have been harder to lead Hank and Jesse to the hiding spot.
The financial lessons here are to diversify and keep your cash in different places. In investing, don’t dump everything into one stock or one industry. Spread it out among lowly correlated assets, and mix stocks and bonds – that way a single bad financial year won’t crush you.
In a more direct, physical sense, don’t carry all your money in the same place when you travel. Keep some in the safe, some with your companion, some in your pocket, etc. One good trick is to have two wallets, one with less money than the other (but with all the relevant ID.)
There is a chance that a robber or pickpocket will take the decoy wallet, with less money, than the actual wallet you keep hidden somewhere else.
(6) Make All Major Purchases On Your Own
Walt gives Jesse $7,000 to buy a Recreational Vehicle (RV). This is their first meth lab. Later we discover Jesse spent most of it at a strip club, leaving only $1,500. His friend then “helps” him out, by pocketing the money and stealing a relative’s RV for Jesse.
The lesson here is to make major purchases yourself. Heaven knows what Walt was thinking, by just handing $7,000 to a known drug addict.
While it’s not likely that you’ll ever deal with crackheads or meth addicts, it’s a good lesson to keep in mind anyway. Never hand casual acquaintances your credit card or cash, and have them buy major items (e.g. television sets) on your behalf. The potential and temptation for abuse is high.
If you do this in business, note that the person doing the buying is often incentivized to find a cheaper product and pocket the difference (see point 1 about middlemen.)
Buy the expensive stuff yourself.
(7) Communicate With Your Spouse
Things turn better (as well as they possibly could) when Walter communicates with his wife about the money. Had Marie communicated with Hank, she may never have accepted the money that Walt later used in a blackmail video.
Critical financial decisions, and issues of money, have to be talked about. However it is you are making money, and however much you’re making, your spouse (or the rest of your family) is going to find out. The sooner you involve them, the easier and safer your financial situation will be.
If you’re broke, communicate it instead of resorting to credit, and hiding the fact from your family. If you’ve made a lot of money, have a sit down with a clear financial plan, to quash any idea that you were secreting it for yourself, or some other nefarious purpose.
Don’t wait to be discovered the hard way.
This article was contributed to us by SingSaver.com.sg