How Much of Personal Finance is Luck?

I’m going to say something that might irritate some personal finance bloggers:

A sizable portion of your net worth is based on luck. 

Some of the best financial “decisions” I’ve made in my life were simply a matter of being in the right place at the right time.  And some of the worst “choices” I’ve seen others make were due, at least in part, to some truly horrible luck. How Much of Personal Finance is Luck?

My Story

Two of the best financial choices I’ve ever made were deciding to move back in with my parents during my junior year of college and accepting a job that paid well during my first year of grad school.  I would like to tell you that those decisions were the result of hard work, perseverance, and careful consideration of all of my options – but that isn’t entirely true.  A big part of both of those decisions was luck.

When I was a junior in college, I shared an apartment with my then-boyfriend (now-husband).  My hubby was going to a community college at the time and he applied to a few different universities.  He was accepted into an out-of-state college, and of course, I was devastated by this at the time.

Looking back on it, this was the best thing that could’ve happened for us financially.  Instead of continuing to live with him and spending my student loan money on our apartment, I moved back in with my parents and saved tens of thousands of dollars.  If he had been accepted into the school I was attending, we both would’ve wasted a small fortune on apartment rent.

The other excellent “decision” I made was accepting a well-paying job for my first year of graduate school.  Again, this was due in large part to good luck (that seemed like bad luck at the time).  The summer after finishing my undergrad degree, I was working as a part-time HR Assistant for only slightly more than minimum wage.  Needless to say, I was barely scraping by financially.  I was crushed when I was laid off unexpectedly.

I assumed it would take me a while to find a new job, but it actually ended up being one of the shortest job searches of my entire life.  I applied for a job that seemed like a long shot – it was a Research Assistant position at the University’s Department of Mechanical Engineering.

I seemed to meet the basic qualifications for the job (I had prior research experience in a psychology lab), but I had no background in engineering and the job paid $23/hour – which was three times what I had been paid at every job I’d had in the past.

By some miracle, I landed the job.  I found out AFTER I was hired that the department would be reimbursing the majority of my tuition for that school year – another amazing stroke of luck.  What if this opportunity hadn’t been available?

I probably would’ve found myself working in another HR Assistant role for $8/hour.  It’s true that I made the decision to apply for the job and I worked hard to prepare for the interview, but a huge part of landing the role was simply luck.

Other Examples of Luck

Here are some other examples of good financial luck:

-Having parents who can afford to pay for the entire cost, or part of the cost, of your education
-Being raised by parents who taught you to make smart financial choices and served as excellent role models for you
-Living close enough to a college that it’s logistically possible to live at home with your parents while attending college
-Being offered a good job because you know someone within the company who referred you
-A relative of yours, who owns a company, deciding to hire you

Here are some examples of bad financial luck:

-Growing up in poverty
-Being raised by parents who taught you to believe that debt is normal and modeled poor financial choices for you
-Losing a job through no fault of your own during a layoff
-Having expensive, unexpected serious medical issues (like cancer)
-Purchasing a vehicle that turned out to be a lemon

So, what’s the point of all of this?

Many people use bad luck as an excuse to start making bad choices – and getting stuck in a victim mentality will not help you get out of your financial mess.  And if you’re in a great financial situation, I am not saying that you shouldn’t be proud of your accomplishments, even if some of them were partly due to good luck.

What I am saying is that we shouldn’t judge others. 

We may see someone who is struggling financially and assume that they “deserve” to struggle because they have made some bad choices.  We may see another person who is doing extraordinarily well financially – and we assume that they do “deserve” it because they made smart choices.  In some cases, these assumptions may be pretty accurate.

But other times, these judgments may be way off.  Luck does play a role in personal finance, and it’s naïve to say it doesn’t.  I am not saying that luck determines everything.  We can’t control whether we have good or bad luck.  But we can control how we respond to it – what we choose to do with our good or bad luck is up to us.

So, if you’ve had some good luck lately:

-Be grateful. Don’t look down on others just because you’ve been fortunate to have good luck lately and they haven’t.

-Use the good luck to make good financial choices – if you’ve got some extra money coming in, put it toward an emergency fund, debt payoff, or a retirement account.

If you’ve had some bad luck:

-Don’t get trapped in the victim mentality. Yes, you’ve had some bad luck and that really sucks. But feeling sorry for yourself will not fix the problem.  You may have to do some difficult things to turn your situation around – like getting a second job, asking for a raise, finding a better job, starting a “side hustle”, and/or drastically downsizing your current lifestyle.

-Do not make your situation worse by digging yourself further into debt. The first step to getting out of a hole is to stop digging.

-Build an emergency fund so that any future bad luck will not put you back in debt.

-Turn the bad luck into something positive. I chose to take on student loan debt, but the fact that college is so absurdly expensive (and my parents couldn’t afford to pay for it) is bad luck.  I do my best to see the positive aspects of my situation.  I started this blog as a way to help others avoid the same mistakes that I made and to encourage them to live a frugal, minimalist lifestyle.  If I didn’t have debt, I probably never would have started this blog.

How Much of Personal Finance is Luck?

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