Advertisement

The Effect of Luck on Finances

I have had my fair share of good and bad luck.  And, this has definitely affected my finances in a substantial way.  So, I thought I would dedicate a post to luck and it’s effect on our finances. 

When Good Luck Strikes

Last month, I had one of the luckiest days of my entire career.  I received a big raise, a promotion and they doubled my stock options.  This was totally out of the blue and completely unexpected.  I wasn’t even due a review for another couple of months.  At a time when so many others have been laid-off and are hurting, I caught a huge break.  I felt like the luckiest man alive.

It started me thinking about what I had done to deserve all of this.  I had worked hard and completed all of my projects, but that didn’t seem to be the cause.  According to the feedback, the primary reason was my willingness to pitch in and help.  Management appreciated my positive attitude and rewarded me for it.

When Bad Luck Strikes

My son had the extreme misfortune of having his truck towed away twice last month.  This cost him over $400 that he had to borrow, in order to bail out his truck.  I could tell from his attitude that he felt unlucky about this happening to him.  I’m not so sure that he understands how his own actions have contributed to his problems.  In other words, if he wasn’t out late at night carousing with his friends, his truck was not likely to get towed away.

I remember being 20 years old and thinking I was very unlucky to be getting a lot of speeding tickets.  Everyone kept telling me to slow down, but I wouldn’t listen.  Instead, I kept thinking that I was driving in the wrong lane or that having a red car was the cause of my problem.  It wasn’t until I lost my license and had to walk for six months that I realized I was causing my own bad luck.

How Luck Affects your Finances

It’s not so much how luck affects your finances, as the perception of luck.  For example, if I had realized when I was young that I was driving too fast instead of being unlucky, I could have saved myself thousands of dollars in traffic fines and insurance costs.  That would have definitely improved my luck and my finances.

Another example of the perception of luck is the “wealth effect”.  This is when people feel wealthy because the stock market or home values are up.  People tend to spend more money when experiencing the wealth effect, even though they may not have any disposable income.  I believe the wealth effect caused a lot of problems for people in this recession.  And, they aren’t feeling very lucky right now.

Making your Own Luck

One of my favorite sayings is that “Luck Favors the Prepared”.  My first experience with this concept was in buying my house.  At the time, I remember thinking I am so lucky to get this house.  The reality was that I was prepared.  I had saved for 10 years and had the down payment in the bank when the opportunity presented itself.  Yes, I got lucky with an incredible deal on my house.  But, if I hadn’t been prepared, my good fortune would have moved on to someone else.

Here is another way to get lucky.  Reflect and analyze the good and bad things that happen around you.  If you know someone experiencing good or bad times, listen to their story and ask yourself what can be learned from it.  Can you avoid their mistake or duplicate their good fortune?  If bad things are happening to you, are you evaluating it objectively?  Or, are you in denial?  Are you blame-shifting the cause to others?  Evaluating your mistakes can be a very painful process.  But, it’s much better than repeating the same mistakes over and over again.

I have recently been very “unlucky” in the stock market, after many years of solid gains.  I tried a riskier investment strategy, which cost me a lot of money.  By recognizing my mistake and adjusting my investment strategy, I hope to improve my luck in the future.  The lesson I learned may become more valuable than the money I lost.

The Bottom Line

The bottom line is that luck happens to everyone.  Whether it’s good or bad luck, your actions can definitely change the outcome.  There are thousands of people who change their circumstances every day.  And, luck has very little to do with it.

A wise person strives to change their luck.
A foolish person employs luck as an excuse.

“I’m a great believer in luck, and I find the harder I work, the more I have of it.”

Thomas Jefferson – Founding Father of America

Recommended Reading

There is a chapter on the subject of luck in my favorite book, The Richest Man in Babylon.  It’s called Meet the Goddess of Good Luck.  It contains a fun discussion on how you can turn luck to your favor.

This post was featured on the Carnival of Personal Finance. There are lots of great articles from many of the best personal fianance bloggers. Check it out.

4 comments to The Effect of Luck on Finances