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5 Personal Finance Lessons from NASCAR
Posted By Jim On 04/04/2008 @ 6:04 am In Personal Finance | 9 Comments
Having grown up on Long Island, I didn’t have many opportunities to watch NASCAR on television (or sports in general, I didn’t discover televised sports until I left for college) so I never truly understood the intricacies of the sport. Since college, I’ve come to appreciate the difficulty of NASCAR and the skill required of its drivers.
Well, last weekend I was watching a few laps of the Goody’s Cool Orange 500 at Martinsville Speedway  and I finally understood why NASCAR fans love the sport. By the way, for all the junk people say about NASCAR not being a sport, I dare you to tell a trucker to get a real job. 500 laps is an unreal amount of time. Can you imagine the concentration and endurance it takes to go 500 laps at nearly two hundred miles an hour, constantly maintaining vigilance, and your life constantly at stake? If you accept golf as a sport, NASCAR certainly is a sport.
That being said, you can learn a lot about personal finance (since that’s always swirling around my head), and life in general, by watching NASCAR because the race (and hence the season) is like a marathon. The story told in the first hundred laps may be, and usually is, totally different than the second hundred and last hundred laps. The reason people watch is because the story is so compelling. (before you scoff at what I just said, watch a few laps and listen in… then recognize those race cars are going very fast)
Here are five lessons you can learn about personal finance from NASCAR:
You can be in the last starting position but you get a shot at taking home first place every single time you fire up the engine. One of the great things about America is that your starting lot in life by no means completely dictates where you will go, that’s the appeal of America. There is no caste system, no House of Lords, it’s based primarily on merit and what you’re able to bring to the table.
Starting last does make it difficult to finish first but it’s not impossible. How many people start off in poverty but through their own ability are able to bring prosperity to themselves and their family? Certainly more than zero, which is the case in many other countries. Just because you’re $30,000 in doubt right now doesn’t mean you can’t pull yourself out of the hole and retire a comfortable millionaire if you’re willing to make some sacrifices.
The reverse is also true, just because you start off wealth doesn’t mean you will stay that way. You could start off first but one little error could cost you the entire race. One bad bump into the wall and your day could be over. Finances are no different, you could be born into the wealthiest family and one mistake (like not filing taxes!) will wipe you out.
Very few personal finance writers will talk about taking some gambles because slow and steady can often win the race. If you contribute to your 401k, get that company match, you have a great chance of having a tidy sum in there when you’re ready to retire. However, to truly take advantage of the opportunities available in America, you have to be willing to take a few chances on things you believe in.
I don’t mean you need to put your life savings on a spin of the roulette wheel, that’s just stupid, but try to test your boundaries little by little to see what happens. If all of your money is in nice safe Treasury bonds and CDs, consider moving into the stock market. If you have a few index funds, consider shifting some into international indices or equity stakes. Don’t go to Vegas, don’t invest your life savings in your cousin’s crazy idea, and don’t believe the same and invest in Forex – that’s for entertainment. (I mean no disrespect to either Vegas, your cousin, or Forex, I’m not experienced enough in any of them to make a recommendation either way)
In NASCAR, a little front side damage to your fiberglass fender and you lose significant fuel efficiency because of drag. A small problem in the quality of a tire and it can cost you the race. In NASCAR, everyone pretty much has the same types of vehicles (especially with the Car of Tomorrow) and so it’s the little things, and driving skill, that separate the winners from the losers. In personal finances, we talk ad nauseum about little things like Latte Factors and snowflaking. As small as these things may be individually, they can have a tremendous impact on your finances. We all pretty much work, save for retirement, pay for expenses, get married, have kids, repeat (not always, but that’s seen as the main, fairly or unfairly, path). It’s the little things along the way that separate the prosperous and the indebted.
500 laps… that’s a long time, even longer if you’re sitting behind the wheel of a race car jockeying for position at nearly 200 miles per hour (you thought that watching it took a long time? Ha!) NASCAR drivers have to be very patient because they know that the race is long, there will be plenty of stories between 0 and 500, and that they have to bide their time. Sometimes opportunities present themselves, sometimes you have to go out there and make them, but either way you have to have the patience to wait for the right conditions to make your move. In personal finance, you have to be patient to wait for your opportunities. The most obvious example is with the stock market – it’s far more prudent to wait for the right opportunity than it is to force action. Many stock investors track hundreds of stocks at any one time. They aren’t looking to making hundreds of investments, they’re looking for the right opportunity to present itself and then they’ll invest in the one.
Tactics govern how a race is raced that day, but strategy is what will get you the Championship at the end of the year. While each driver wants to win every single race, when it gets to the end of the year the priorities start to shift and strategy takes over. The Sprint/Nextel Cup is a points based championship so ultimately whoever is in first place going into the last race will invariably not have to win the race to be season champion. Since being season champ is the goal, that driver will drive more conservatively to ensure total victory versus single race victory.
Your personal finance world is very much like this in that your strategy should drive your tactics. If your strategy is to save the maximum for your Roth IRA and 401(k), then your tactics may be frugality to get more on hand cash to contribute to those funds. Frugality is important by its own right, but it’s more important because you’re working towards the goal of contributing to a Roth IRA. If you just save money and put it in a savings account, ignoring the Roth IRA, you may be spinning your wheels and not getting your full potential. So, review your strategy and how your tactics are working towards your goals.
By the way, that guy with the NASCAR tattoo is hardcore!
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