Luck is chance. You can’t leave money matters to chance. However, have you ever thought about how much of what transpires in your money life has to do with luck?
Did you get lucky with an early inheritance? Some unsolicited good investment advice? A chance meeting with an experienced bank manager? The fluke of starting your equity investment at the bottom of the market cycle?
This all sounds like good luck.
Did you also lose money on that bad real estate deal? Lent money to your relative never to see it again? Bought an insurance policy hoping to make good returns, only to realise that high premiums come with costs which eat into returns? Entered the equity market two years ago and are still waiting for some reasonable gain?
This is the flip side of luck, better recognized as risk.
All of us have experienced some luck or risk in our money life.
While financial planning has little to do with luck, invariably outcomes in our financial lives can only be part planned and part fortuitous.
You can’t chase luck
Recently I found myself giving some relationship advice to a younger cousin who is at the cusp of getting married and on the fence when it comes to the decision of having children. Her fiancé is clear about this and would like to have children of his own. My cousin sat down to make a list, pros and cons of having children.
I found myself discouraging this approach she had taken because, despite some known variables, the experience of being a parent is largely unpredictable. You may be lucky or it may turn out to be your biggest risk. The point is that there is no certain way of knowing which way things will go.
A financial plan is also like a list but one which tries to focus on only the positive outcomes and builds in a better probability of achieving these outcomes. Despite this, there will be failures, mistakes and just plain risk.
There is no way to avoid that. Plus, while you face the risks, your neighbour may be lucky and successful to a larger extent in the outcome of their financial plan.
What now? First, don’t compare, because luck and risk are random and there will be no logic you can ascribe to these outcomes. Second, don’t sweat the luck or risk, it’s often going to be out of your control. Focus only on what you can control – your financial plan. This means focusing on maximizing savings, making good quality investment decisions and taking the help of a professional if you don’t understand how to invest.
If your bad luck wipes out the success of the past, dust it off and start again.
Most importantly ensure that in the journey you make informed choices yourself, rely less on what others would do and why. Choose what’s best for your set of variables.
Know the difference between luck and a good decision
Having a suitable financial plan and asset allocation is a good decision; the equity market crashing a month after you have invested all your surplus funds is bad luck. You don’t have control over the market crash, so you can only think about it as bad luck. However, what you can control are your investment strategy and financial plan.
What if, instead of investing your entire amount in one go, you were to stagger it out into smaller amounts to be invested every month. This way you would still have something to invest after a steep correction. That’s what a good financial plan will guide you towards.
Having a financial plan itself is a good decision. Without that, your efforts to save and invest may not even come close to the outcome you desire.
As individuals, we can make conscious choices and aware decisions about where we are headed. What we can’t do is predict how close to the destination we will reach and when.
If we are indeed doing the above, we will, however, have a high probability of coming closer to the outcome we want to achieve.
This is not only true for our money lives but also all aspects of our lives in general.
Yes, luck – both good and bad – has a role to play in our money lives but that role doesn’t negate the effort we make towards planning and making aware choices.
Keep at the right path, embrace your good luck and learn from the risks. Having the right financial plan will give you a higher chance of experience good luck with money.
At the same time, acknowledge that everything is not in your control and focus only on the behaviour and outcomes you can control. Keep it simple and see the positive outcome in your money life.