Lately, I’ve been watching The Last Dance on Netflix. It’s a documentary that covers the career of NBA Basketball star Michael Jordan and the 1997-1998 season of the Chicago Bulls. It got me thinking about the critical role that an athlete’s mindset plays in sports.
In an NBA finals game between Utah Jazz and the Bulls, Chicago player Scottie Pippen delivered one of the best trash talk lines ever to Jazz player Karl Malone. He told him, “The Mailman doesn’t deliver on Sunday”. Moments later, Malone missed both free throws, costing Jazz the game.
Malone had established himself as the “Mailman”; someone who always delivers his shots. Once that suggestion got the better of him, his game went off. With personal finances, your mental game can also have a huge impact on outcomes.
I consider myself fortunate, because I know many people who were never exposed to the concept of savings accounts, or saving money for that matter.
When I was young, my parents brought me to the bank to open up a savings account. They also gave me an allowance. I could spend it, or I could put it in the savings account and watch it grow. I did a bit of both, but what I learned was how delayed gratification could shift this balance. Every time we went to the bank to see how much was in my account, there was more than last time! It was like magic – think of how many more candies I could get! From early on, then, this concept of being able to set money aside, and have it grow, stuck with me.
Thankfully, it was a mindset that helped set me up to be financially responsible. However, like many people, I went through the education system believing that my idea of managing personal finances was all there was to it.
Financial Literacy Isn’t Taught In Schools, But It Should Be
Since we don’t get exposed to it at school, a great deal of influence on our financial mindset comes from what we see our parents, family members and friends do.
We don’t know any better, and we don’t know whether those habits are good or bad, because our view of financial management is so narrow. I was just lucky that the habits I picked up turned out to be good ones.
Conversely, if my parents had practiced poor financial management habits, I would just as easily have picked those up. This doesn’t just apply to finances; it applies to many areas of life like relationships, eating, and even driving!
An Extreme Example
An acquaintance of mine, we’ll call him 500Guy, gets a juicy 6 figure salary with fat bonuses, working for a Fortune 500 company. He also likes to spend big. Meals at expensive restaurants, luxury cars, and trips to exotic destinations…all posted to social media. His parents also like to spend, so the apple hasn’t fallen far from the tree.
While he does get enjoyment from those things, he also feeds off the social media attention. He says he feels his self worth go up when people comment on pictures of his vacations or new purchases.
500Guy has the kind of mindset that will keep him in corporate handcuffs for a good long time. He claims to enjoy working there, but I’m sure he’d be even happier if he didn’t have to. If he had saved or invested a large chunk of that money, and adjusted his spending habits, he would have easily been able to retire by now.
What if 500Guy were to lose his high paying job? He might still be living the life, but borrowing money to do it. Our perception of wealth is a funny thing. Many people find themselves spending more as their income increases. Their lifestyle becomes more lavish – and why not? There’s enough money to cover it, right? In life, there are ups and downs. When things are going well, we often can’t see far enough down the road to know when bad times are coming, and assume that this financial situation will always be the case…until one day, when that level of income isn’t coming anymore. Lifestyle changes from basic to lavish are easy, but going the other way can be extremely hard. Going back typically doesn’t happen overnight, if ever, and 500Guy could find himself borrowing money to maintain his lifestyle. Borrowing begets more borrowing, and it doesn’t take much imagination to see that 500Guy could eventually become BankruptcyGuy, without the right mentality.
The psychology of spending
Where does this come from? 500Guy is addicted to the “good times”.
Whenever 500Guy spends on something he wants, and anticipates some enjoyment coming down the pipe, his brain gets a hit of dopamine, the pleasure hormone. When people comment on 500Guy’s social media posts, he’s also getting dopamine hits. Once the novelty wears off, he needs the next new thing to trigger that hit again.
Many people, like 500Guy, are addicted to feeling good all the time, and are willing to blow the entirety of every paycheck to keep the good times rolling.
This shows that people can become addicted to spending, among other things.
On the flip side, I’ve seen people who are super disciplined, like robots, and pinch every penny. They have good jobs with decent income, yet take the FIRE (Financial Independence, Retire Early) movement to the extreme.
I fall somewhere between the middle of the spectrum and the frugal end. While I’m pretty disciplined, I do realize that life is short, and at my age, getting shorter, so my wife and I do spoil ourselves once in a while. Yet, I dream of quitting my stressful day job, and spending my time doing things that I want to do. Hopefully before I hit 50, because that might be achievable on my current trajectory, but I’m not going to kill myself to hit that target if I go a little over.
There’s a balance to be found when thinking about how aggressively we want to work toward our saving and investment goals, and identifying wants vs needs can help each of us identify a balance that we can live with.