Moments in Motherhood and The Bottom Dollar Effect
It’s hard to believe the summer is almost over and kids will be going back to school soon. A few weeks ago I bought my son new school uniforms for the fall. There is one store in the area we have to buy them and they have few sales, so I make sure to go in June for the 10% discount. Even with the discount I ended up spending a few hundred dollars on everything we need. Feeling poor I then bought myself a fast food lunch and paid in quarters. Soon after that I realized I also needed to purchase a new soccer uniform for him and then both kids will also need new shoes. Oh, and the balance is due next week for our annual beach vacation. Of course this all came at the end of the month. These kids are bleeding me dry!
Bottom Dollar Effect Explained
Having just spent a significant amount on items for my children, it’s easy to feel like that is where all of my money is going. This actually has a name. It’s called the “bottom dollar effect,” and it is the tendency to attribute more satisfaction to purchases made when your bank account is flush than those made at the end of your budget or when your financial condition is not perceived to be as strong.
Research at the University of Arkansas “demonstrated that consumers experience significant differences in satisfaction based solely on their budget status or financial condition at the time of purchase, rather than the quality of the product or how much it costs.”
Related: Money Can Buy Happiness
While these findings have significance for companies that market directly to consumers, they are also another element of behavioral finance for long term investors to consider. Knowing that we attribute more pain to cash outflows on a dwindling bank account can further blur the lines between what is a true expense and what is an investment in our future financial independence. For example, it’s easy to justify that you “can’t afford” to fund your Roth IRA contributions or increase in your 401k deferral because other expenses are higher priority. Flipping your budget upside down and implementing a pay yourself first strategy can combat this counterproductive behavior.
Keep Attention on Savings
Chad quoted Morgan Housel in a recent podcast that really illustrates this point, “Every bit of savings is like taking a point in the future that would have been owned by someone else and giving it back to yourself.” This is a great way to think about your savings strategy. Sometimes I’ll also use the example of moving money from one pocket to the other for funding account contributions. Unfortunately, many investments are not as straightforward as shifting funds from income to assets. Many times investments can be disguised as expenses and vice versa. Some common examples of this are:
- Monthly Mortgage Payments
- College or Graduate school tuition payments
- Student Loan Debt
- After Tax Contributions to a 401k
- Financial Planning, Tax, or Legal Services
- Home Renovations and Improvements
Even in my example of school uniforms I know that buying the uniforms at a discounted rate in June saves me money over the course of the year since I likely won’t have to buy him much more in the way of clothes and sending him to a school that requires uniforms also eliminates the desire for specific brand name clothes that the other kids might be wearing, saving money and headaches. And while uniforms are necessary, it is a public school, so we are also not having the much larger outflow of private school tuition.
While I know all of these things, my gut reaction was still to be disgusted with spending that much money on the uniforms. This is why it always helps to step back and take a look at the big picture. It’s very easy for our emotions to deceive us and this can be hazardous to your wealth. Putting these investment/expense decisions in the context of a holistic financial plan can be invaluable in sticking with your long term savings and investment plan.
NBA Player Carl Landry Demonstrates the Value of Persistence in Life and Work
Written by: Jon Sabes
When you meet Carl Landry, stand-out college basketball player and nine-year NBA player, you imagine that becoming a professional basketball star was a straight forward run for the 6-foot-nine-inch power forward.
However, when you go deeper into Carl’s background, becoming a NBA professional was less than certain and little came easily to the 33-year-old from Milwaukee:
- He was cut from his high school team as a freshman and averaged less than ten points a game when he did play as a senior.
- He started his college career not at Purdue, but a junior college where it was not clear he would play.
- When he finally got to Purdue, he tore his ACL in his knee his first year and reinjured it the next year.
- While his family held a party for him the night of the NBA draft, he slept in the Philadelphia airport after missing a flight following a workout for the 76ers.
- In the NBA playoffs, Carl had a tooth knocked out, but came back in the same game to make a game-winning blocked shot as the Rockets beat the Utah Jazz 94-92.
Landry, who I interviewed on my podcast, Innovating Life with Jon Sabes (www.jonsabes.com), is a remarkable example of the value of “persistence.” In a time where technology creates the image that anything is possible at the touch of a button, persistence is an under-appreciated trait. When I spoke with Carl, I clearly saw someone for whom success has only come through a force of will that made him a NBA player, but it also made him a better player every year he played. That’s the kind of personality that has produced greatness in business as well as sports.
Carl was, in fact, drafted that night he spent in the airport. The Seattle Supersonics chose him as the 31st overall pick and then traded him to the Houston Rockets where he rode the bench for much of the first half of the season. When All-Star teammate Yao Ming was injured, he stepped in and played a key role in the Rockets astonishing 22-game winning streak (the third longest streak in NBA history). And, that season, after sitting on the bench for 33 of the first 36 games, he was named to the All-Rookie second team.
Carl was the first in his family to go to college. “I told myself that this was my ticket out, so I did everything I possibly could to be the best person in school and also on the court,” he said.
His family life in Milwaukee showed him what he didn’t want to do. “Just being honest with you, seeing some my cousins, peers, they went to work for jobs paying six, seven dollars an hour or they didn’t go to work at all and then living off welfare. I didn’t want that.”
When he was first injured, he had to contemplate the end of a career before it even got started. “When you have an ACL tear, it’s over…no more basketball,” he told me. “I said, God, give me health again and I’ll do everything I can to leave it all out on the line and be a successful individual.”
On my podcast, Carl pointed out another interesting lesson he learned in the NBA: Not doing things just to fit in.
“Fitting in was easy,” he said. “Doing everything that everybody else does was easy. If I stood out in some type of way, I’m going to have different results. I’m going to have stand-out results.”
That’s called the “Law of Contrast” and it produces that exact effect of changing the outcomes that everyone else is experiencing. Carl is smart, he recognized that differences make a difference, and doing whatever it takes is what is required to make real, meaningful differences.
Every off-season for the last 11 years, he has run a camp for kids in Milwaukee where he tells youth his story of hard work and persistence. “I always tell the kids to apply themselves and always be persistent,” he said. “If you dream, apply yourself and be persistent. With hard work, man, the sky’s the limit.”
When Carl says the sky’s the limit he means it. He is smart to recognize that it’s important to dream big, because if we don’t – we may be selling ourselves short. “You have to dream bigger than your mind could ever imagine,” he said. “I wanted a nice house. I wanted a nice car. I said, and I got all of that. So, what do I do, do I stop now? Maybe I didn’t dream big enough.” That’s a big statement coming from a kid who grew up to be the first in his family to graduate college and go on to be not only a top NBA basketball start, but a good businessman, father and someone who gives back to the community.
I’m convinced that in whatever he takes on as a basketball player or in his post-hoops career, Carl Landry is not going to stop getting better at whatever he does, and in the process of doing so, make the world a better place.
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