Financial psychology

Key topic

Financial psychology relates to our behavior towards personal finances and financial decisions regarding money, budgeting investing and so on. Family, society and culture play a huge role in the development of the athlete’s financial psychology.  Money is a social tool and our attitudes, beliefs and practices in relation to it, are to a great extent influenced and molded by the people who surround us.  In this lesson, we discuss how the pursuit of money is all about trying to meet either emotional or psychological desires and identifying these desires will give athletes greater control over their financial behavior.

Learning objectives

• Understand that our financial beliefs and behaviors are related to the general psychological principles of needs, wants and environmental influences.
• Realize that the financial behavior of athletes is influenced by family, society and culture.
• Become aware that our financial beliefs and resulting emotions usually direct our financial decisions and our spending and saving habits.
• Understand that financial behavior can change, once athletes recognize what constitutes bad financial behavior, understand their money personality and develop a strong set of financial skills.
• Seek proper help and support which will enable athletes to withstand societal pressures and expectations regarding their financial behavior and take corrective action.
• Be ready to draw upon and utilize a number of athletic strengths to deal with and overcome financial setbacks.

Introduction

We have already discussed that you need to have a life plan in place and we went over the skills you need to do so.  We have also talked about the challenges and hard realities that solo-sport athletes have to deal with and offered guidance on how to deal with such situations, if and when they arise.  Today we will discuss financial psychology and how it influences our money decisions along with the resulting effects on our life and financial plan.  Understanding how our financial beliefs have been formed, will give us greater control over our financial behavior.

A large number of athletes with modest financial backgrounds and means come to “sudden wealth” when they turn professional.  Their decisions on how to handle this sudden wealth are influenced largely by their financial beliefs and the expectations of society.  Financial beliefs and societal pressures exert a high degree of power over the athletes’ financial behavior and lifestyle choices.  With proper guidance and support, athletes can modify their financial beliefs and formulate winning financial strategies that can lead them to financial independence.

Financial beliefs and behaviors are rooted in psychology

Wealth is often created or destroyed based on our behavior.  Our financial behavior is rooted in our past experiences, our mindset and our beliefs about money, which can lead to irrational money decisions based on emotional associations related to money.  Our past experiences shape what we perceive and feel about money and they are linked with the financial outcomes in our lives.  Understanding the psychology of money can help us become aware of the origin of our financial beliefs and be able to create meaningful change in our financial behavior.

Maslow Hierarchy of Needs

According to humanist psychologist Abraham Maslow, our actions are motivated by the achievement of certain needs. Maslow first introduced his concept of hierarchy of needs in his 1943 paper “A Theory of Human Motivation” and his subsequent book “Motivation and Personality”. This hierarchy suggests that people are motivated to fulfil basic needs before moving on to other, more advanced needs.

Maslow used the terms “physiological”, “security”, “belonging”, “love”, “self-esteem”, and “self-actualization” to describe the pattern that human motivation generally moves through. According to Maslow, the higher people climb up the needs hierarchy, the better their lives will be.

It is obvious that financial issues place you in the lower levels of needs. You must first address these lower-level issues in order to be able to move to the fulfillment of the higher levels of need.

Action Steps – Exercise 1 (15 minutes): How would you spend $100,000?

a. Give the following instructions to the athletes:

• Pretend you have just received $100,000 to spend any way you please, with no strings attached.
• Take a few minutes to write down what you would do with the money.
• After you’ve figured out how you’d spend the $100,000, take a few minutes to explain why you’d spend it that way. For example,
  • If you’re going to save them, what are you saving for? (For example, I want to start my own business as soon as I retire)
  • If you’re going to buy something, what’s the occasion? (My sister wants to buy an apartment and I can help her out with that money, because she has always been there for me)

b. Identify motivation in spending. Ask a few athletes to read out their answers to the following questions and initiate a discussion:

• What need did you fulfill by spending the money the way you did?
• At what stage of the Maslow Hierarchy of Needs do you think you are right now and why?

Now that we’ve seen how finances can fulfill different psychological needs, let’s think about how we’ve learned to use money to fill those needs in our lives. We’re going to step away from Maslow for a minute and talk about human conditioning.

Humans are conditioned to move away from pain and towards pleasure.  Let’s think about that in a financial context.

• If you take pleasure in your daily steak or getting the latest iPhone as soon as it hits the high street, it’s easy to justify spending your money on those
• If your favorite place for holidays is Hawaii, it’s probably easier for you to save money for tickets and accommodation for your next trip there.

These are all financial decisions that move us towards pleasure—we’re using money to get what we want. We also make financial decisions to avoid pain. The positive aspects of pain avoidance are things like using money to buy insurance to avoid the future pain of paying medical bills out-of- pocket; or putting money in savings to avoid the fear that comes when you get your paycheck and it’s less than you need to cover your monthly expenses. The negative aspects come in when we avoid spending money wisely because it’s not as pleasing as spending money on fun. That’s how we get into situations where we spend $4 a day on coffee but don’t have anything saved for retirement.

Often the difference between making smart financial decisions and foolish financial decisions comes down to whether we’re conditioned to think about money in terms of long-term pain and pleasure, or short-term pain and pleasure.

• Someone who knows from life experience that it’s painful not to have enough money for rent or food or medicine, will probably take steps to avoid that pain by saving, planning, and thinking about long-term
• Someone who has always been fairly comfortable in terms of meeting their physiological and security needs but uses money to reward themselves or loved ones—that is, someone who’s always used money to meet love and belonging needs—will find it pretty painful to cut back on spending money to buy

Action Steps – Exercise 2 (5 minutes):

Discuss the following scenarios and identify the level of need in Maslow’s hierarchy that each person is trying to meet and what that person’s motivation is: seeking pleasure or avoiding pain:

• Andrew wasn’t paid the prize money he was owed in the last two months. He has enough savings to make his rent payment this month, but if he doesn’t get paid soon, he will have to choose whether to pay his electric bill or his phone bill. Andrew cancels plans for Christmas holiday with his girlfriend and asks his father to lend him some money. What level of Maslow’s hierarchy of needs is he seeking to fulfill? Would you say Andrew is seeking pleasure or avoiding pain? (Answer – Physiological needs & seeking to avoid pain)
• Every year, John’s training mates book tickets to extravagant destinations to celebrate the holidays. Some of them go to Europe, others to exotic islands like Bora Bora. Only one of them had decided to stay home for the holidays last year, and everyone gossiped about him being stingy. John doesn’t particularly enjoy this extravaganza during the holidays and he plans to celebrate at home with his family. What level of Maslow’s hierarchy of needs is he seeking to fulfill? Would you say John is seeking pleasure or avoiding pain? (Answer – Self-esteem & seeking pleasure)
• Paula is planning to start an after-school marathon training academy for underprivileged children. She hopes the program will inspire children to work hard and find their passion in running, just like she did when she started running at age seven. Now that Paula is a successful marathon runner, she wants to pass the same opportunities along to others. What level of Maslow’s hierarchy of needs is she seeking to fulfill? Would you say Paula is seeking pleasure or avoiding pain? (Answer – Self actualization & seeking pleasure)
• When Arnold was growing up, his parents lived paycheck-to-paycheck. He remembers not having enough money for new clothes or shoes, and even a few times when they didn’t have enough to eat. Now that Arnold is an adult, he is a professional boxer. However, Arnold always worries about what would happen if he had an injury. He still buys everything used and puts as much as he can into savings, just in case. What level of Maslow’s hierarchy of needs is he seeking to fulfill? Would you say Arnold is seeking pleasure or avoiding pain? (Answer – Security needs & seeking to avoid pain)

Answer the following questions:

• What level of need in Maslow’s hierarchy is each person trying to meet?
• What do you think is motivating the person—seeking pleasure or avoiding pain?” Facilitate a discussion about motivation and how it relates to a person’s

Financial psychology and solo-sport athletes

Financial psychology has to do with your behavior and approach to financial issues. More specifically, it deals with how you as an individual deal with concepts such as budgeting, investing, planning, buying and selling among other things. Understanding your psychology with respect to finance is as important for solo-sport athletes as it is for athletes of team sports. However, there are certain particularities with respect to individual sports that might have an impact on your financial psychology. These particularities ultimately link back to some of the themes we discussed in our introductory lesson.

You may have family and friends who try to understand the challenges that you are up against and try to help and offer their thoughts, but that will never be enough. Unlike athletes of team sports, you don’t have older members of the squad whom you can look up to, whose examples you can try to either follow or avoid. You don’t have teammates around your age whom you can discuss these things with and help each other through those conversations. Moreover, you will be required to spend good chunks of your time alone either for travelling or competing. This can be extra tough on you and may eventually affect your financial psychology.

Nonetheless, these are the realities of the path you chose to follow and there are various steps that you can take to soothe the impact of these issues. Firstly, you have to make sure that you attain a basic understanding of financial concepts, principles and techniques. By doing so, you will be in a position to understand your wants and desires and then manage to dissect them in order to understand which are worth keeping and which should be dropped. For example, if you like playing golf because it helps you relax, then having a membership at a private golf club makes sense. If, on the other hand, you realize that you keep buying gifts for people you want to impress, then that is probably something that you need to re-evaluate.

Secondly, you have to find the right people who will help you guard and expand your wealth and capabilities. That is not a substitute, however, to educating yourself with respect to financial matters, but rather a complement. After all, you will be better-positioned to make decisions yourself instead of blindly following your advisers’ recommendations, and also be able to hold them accountable when, and if, necessary. Finally, you have to discover the right mentality which will act as your anchor for making sensible and informed decisions. As a solo-sport athlete, it is crucial that you take every step possible to be self-sufficient and involved in all matters relating to your financial well-being.

Money and emotions

If a person has a lot of money, they may feel happiness and joy, whereas a person who does not, may feel stress and anxiety about not being able to pay their bills. There are, however, many unhappy wealthy people who are solely focused on money and miss out on time with friends, family, and life experiences because they are so focused on achieving their financial goals.

It’s important to identify feelings and to be aware of your emotions toward money as you develop your own personal financial knowledge. One of the main reasons why relationships and marriages fail is because of finances and failure to communicate about money. How would you feel if someone you were close to spent money on luxury items instead of bills, or vice versa?

Emotions and money can also greatly affect your personal health. It’s unhealthy to constantly live under stress, as a person experiencing stress or anxiety tends to have an elevated heart rate. When you are in stressful situations or carry anxiety, you often neglect other areas of your life that help maintain good health—like exercise, good nutrition, and sleep.

To help us understand the emotions involved with money and making financial decisions, let’s see Robert Plutchik’s Wheel of Emotions theory which says there are basically eight emotions:

1. Trust → this also includes admiration and acceptance.
2. Fear → the feeling of being afraid, shocked, or scared.
3. Surprise → how you feel when something unexpected happens.
4. Sadness → feeling sad, grieving or feeling depressed.
5. Disgust → feeling something is wrong or “dirty”.
6. Anger → feeling angry or enraged.
7. Anticipation → the sense of looking forward positively to something which is going to happen.
8. Joy → feeling happy, glad.

We believe that a great deal of the above emotions is involved in financial decision making.  Therefore, it is crucial that you have a grip on these emotions when making financial decisions.

Dealing with your Emotions

Your emotions can cause you to make bad financial moves, and it is very important to:

• Recognize your emotions for what they are, and
• Take control of them instead of them having control over you.

Below, we set different types of emotions, how they may relate to financial decision-making and how to control them.

• Anxiety

Anxiety could be pervasive, making you too conservative with your investments, your financial goals, lowering your self-worth.

Deal with it:  : Come up with one thing per day, to control the situation that causes you anxiety. If you are forgetful about your bills and you struggle paying on time, consider automatic payments, or set up calendar reminders that will alert you the day before the due day.

• Jealousy

If you are jealous of your friends or other people’s possessions then you might end up overspending and undermining your own budget as a result.

Deal with it: Stop thinking about others! Try to focus on what you have, not what you lack.  Write down every day one thing that you’re grateful for. Soon enough, you’ll develop the mechanisms that will help you focus on the good things in life.

• Regret

If you beat up yourself all the time about a lousy decision you made in the past then you are stuck in the past. For example, if you are blaming yourself for not saving when you were younger and you think that is too late now, you may end up without any savings at all when you retire.

Deal with it: Channel your regret into a learning opportunity. Forgive yourself for the mistake and then focus on decisions that’ll will help you avoid taking the same missteps in the future.

• Embarrassment

You are out to dinner with a friend. You go for a cheap dish and your friend orders an expensive one. When the time comes for the check, your friend suggests splitting it, but you’re too embarrassed to say that she should pay more.

Deal with it: Be honest. Tell your friend that you’re looking to save money, and would prefer separate checks. If they are a good friend, they will understand and encourage you not to stress over it. On the contrary, if you’re in a social situation with maybe a new friend or someone who you aren’t as comfortable with, try to avoid budget-ruining scenarios right from the start. Instead of going to a high-end restaurant, go for a walk in a romantic place or go for a casual drink.

• Sadness

When people feel sad because of a troubling money situation, they avoid using money, they don’t want to think about, touch or spend money.

Deal with it: Find a trusted financial planner who can assess the situation and give you some options. A third party who can think clearly and who is also experienced in financial affairs can help ease some of the pressure as well—and knowing that things are under control may even help lift you out of your depression.

• Guilt

All of a sudden, you’re struck by luck and money, but instead of being psyched, you feel like you don’t deserve this lucky break. You start spending too much and you are too lavish with gifts for less fortunate friends and family.

Deal with it: Having a financial plan for your money is absolutely essential. Consider channeling some of your resources charitably. Arrange for let us say, 10% of your earnings for each year to go to a charity organization of your choosing.

• Feeling overwhelmed

Feeling overwhelmed by a money issue can have disastrous results. For instance, if you’ve amassed huge credit card debt and don’t know how get yourself out, it can paralyze you and prevent you from doing what needs to be done.

Deal with it: Feeling overwhelmed may be the result of lack of control. You can begin by making a list of specific and realistic steps that will enable you to dig yourself out of the money situation you’re struggling with. As you slowly expand your knowledge about investments, bonds, mutual funds, securities, etc., you may start feeling more confident about it and (re)gain control of the whole situation.

• Overconfidence

While it’s great to have a positive and can-do attitude, optimism can undermine your finances if it transforms into denial. Overconfidence creates a fake reality.

Deal with it: Having a positive outlook can be crucial in overcoming money problems because it can equip you with the confidence to believe that you have what it takes to make it happen. Think of your financial progress based on numbers with realism. Optimism and a clear head can elevate you. When you know where you stand, you can then get your reason and logic to work.

Action Steps – Exercise 3 (15 minutes): Role play addressing 3 scenarios from 4 different points of view

Divide athletes into four groups:

• Group A has all the money they want.
• Group B has enough money to feel comfortable in a middle-class lifestyle.
• Group C is just barely getting by.
• Group D is broke.

Have each group address the three scenarios described below using a role-play activity. Give minimal direction to allow for creativity. Make sure they answer the question about how they would feel in each of the three situations.

SCENARIOS

1. Your girlfriend or boyfriend wants to go out for a nice dinner to celebrate your anniversary.
2. All your friends are taking a trip to Costa Rica for a week.
3. A close relative is graduating from college and you want to buy her a great gift to honor her accomplishment.

• Give athletes 5 minutes to plan their skits.
• Have athletes perform their skits for the class.

Dealing with the sudden wealth phenomenon

You’ve managed to become an elite athlete, and you’re living your dream doing what you love while making pretty good money.  But it is not all rosy:  there is a good to fair chance that all of a sudden some of those people who supported you throughout the years, have finally turned up to collect, even worse, people who were only on the margins of your journey now want to be your best friend, favorite uncle, etc.

Athletes and the people who surround them make lots of personal sacrifices, for many years, in order for an athlete to gain professional status and be able to play sports for a living.  Athletes usually make a great effort to prepare themselves physically and mentally to perform at top level in their sport.  In contrast, the effort they put to prepare themselves for dealing with the emotions associated with the changes in their financial lives when they turn professional, is almost never equal to their athletic efforts.

Sudden money or sudden wealth is a phenomenon connected to individuals who suddenly come into large sums of money. The phenomenon is magnified when these amounts are six, seven, eight digits or more. Scientists have come up with the term “Sudden Wealth Syndrome” to describe the adjustment problems faced by individuals who suddenly come into large sums of money.

Sudden wealth can be a great opportunity for athletes to create a better life for them and their family if they manage their money properly. If the athletes are not ready or don’t take the right measures, they might end up even worse off than before signing their first professional contract.

So how can the sudden wealth phenomenon affect an athlete? Many become overwhelmed and start to overspend. And athletes who tend to spend too much money on themselves, will often spend money on others too. Pressure for money, from family and people who helped them reach the top, can weigh heavily on athletes.

Being overwhelmed is the simplest of the psychological effects that an athlete who suddenly comes into money might face.  There are other symptoms of the sudden wealth syndrome which we want athletes to be aware of:

• Increased levels of anxiety and/or panic attacks that can lead to obsessive thinking and might affect the athlete’s daily life and on-field performance.
• Sleep disorders, such as insomnia or early morning awakening and irritable mood.
• Feeling guilty about having money or being overly self-confident, which leads to acting on impulse, over-purchase things, or do things that undermine sound money management.
• Athletes may face getting stuck in feelings of confusion and uncertainty as to who they are and what is important to them, which can lead to denial of real choices and being passive in managing their money.
• Excessive concerns about being exploited or hurt by others.
• Increase in feelings of depression. Feeling empty, gloomy, not enjoying ordinary pleasurable activities.

Sudden wealth is not a problem of professional athletes only. The challenge is the same for anyone, trying to turn sudden wealth to lasting wealth.  All life changes, including sudden shifts in finances can be traumatic; therefore, athletes should take things slowly and not rush into any big decisions. They should take time to adjust to the changes and think clearly in order to make the decisions that will serve them well in the long run.

To help them with these decisions, solo-sport athletes should surround themselves with trusted financial professionals who can teach them how money can create options; that they can facilitate their dreams by creating a financial life plan and a budget based on their core values and lifestyle. Due to their relative isolation, solo-sport athletes should be primarily concerned with finding people who are trustworthy. The fact that solo-sport athletes cannot look to teammates for comparisons and for drawings examples from, makes it even more necessary to ensure that the people who are around them can be trusted. This process helps them set their priorities and makes the adaptation to their newfound wealth easier. It’s a process of identity change to a person who accepts having money as a resource, that can make all the difference.

Real Life Example (5-minute discussion) Mike Tyson made a fortune during the ’80s and ’90s and filed for bankruptcy in 2003. His extravagant spending included three Bengal tigers which cost $70,000 each to buy, and an additional $200,000 in food per year and a 2-million dollar bathtub as a Christmas gift for his ex-wife. What do you think of Tyson’s purchasing choices?

Action Steps – Exercise 4 (5 minutes):

Ask the athletes the following question and discuss their answers with the class:

• Remember when you received your first substantial sum of prize money. What did you do with that money and why?

Coping with family and societal pressures

Professional athletes live a unique life because of their status and recognizability, especially nowadays when they have millions of social media followers. They show unprecedented athletic skills and expertise and participate in elite tennis, golf and track and field competitions, all the way to the Olympics. Many end-up making millions of dollars and are drawn to a lifestyle of the rich and famous, living for the moment, and revelling in their fame and fortune. Very few are concerned about the financial implications of living in luxury and the financial issues that may arise from their unique lifestyle.

Athletes need to realize that they can be luxurious in their lifestyle and still have control over it.  It is common for athletes to let their athletic successes and sudden wealth affect their financial decisions, despite the fact that their earnings window is very small and their earnings are extremely volatile (e.g. risk of injury or bad off field behavior).  The statistics show that there is a great possibility that an athlete may end up broke:  Within five years of retirement, about 60% of NBA players go broke!  But what are the main aspects of an athletes’ lifestyle that may lead to financial distress and how can an athlete cope with them?

The most common mistake that professional athletes make is spending excessively and irrationally their newfound wealth, to support their new extravagant lifestyle which society expects them to follow.  It is very important for athletes to set and follow their own lifestyle that may be similar to the lifestyle they followed before becoming famous. Keeping up with the healthy habits of daily life and their regular routines, spending time alone, eating well, resting and keeping up other responsibilities will keep them grounded and protected from external pressures.

Athletes may be expected to provide for their family, friends, coaches, and others who have helped them succeed.  It is not easy for athletes to say no as they feel an obligation towards these people. The athletes need to have strong professional support who will guide them to handle these types of pressures in a rational, yet diplomatic way.

Society views wealth as a life goal and a solution to all problems. At the same time, there is great disparity in the way money is distributed between the population, creating hostility and mistrust towards people who have money and causing people of all income levels to view one another with mistrust.  Critics and media voices can launch all sorts of opinions, regarding athletes’ lifestyles and the way they spend their money.  Athletes should accept that people will have different opinions on their athletic skills and their character; this is the reality of being a pro-athlete. There are even some people who just like to hate and criticize, that is just how they are.  Accepting criticism as part of the game or even ignoring it when is right, and not internalizing it, can help athletes cope with it.

Athletes should also be careful not to start using money as a substitute for intimate connections and for creating instant gratification emotions. This is particularly important for solo-sport athletes who are deprived of many aspects of a normal social life due to frequent travelling, training, and so on. They need to keep a tight inner circle of people or friends with whom they have created real relationships, which are not based on their athletic and financial success.  This inner circle can assist athletes in nurturing their emotions and stay grounded in their life and money management.  Athletes can cope with all the stresses that come with their expected lifestyle with smart money management and by recognizing and overcoming any excessive lifestyle traps.

The importance of money and developing a strong set of financial skills

It is often said that money is the most important thing in the world. Is money really as important as some people believe it to be or should we consider such people as simply overly-materialistic? Not necessarily. Money itself, paper and coins, are not important. What is important is that money can give you freedom and choices.

When you have money, you have the freedom to decide for things such as where you want to live or the choice to hire someone to do all the things you might dislike doing such as house chores, and use the time you would spend doing that to do something you enjoy, like going out.  On the other hand, when you don’t have much money, choice may be something that you cannot afford. The choices available to you may not really be choices at all. Without enough money, or a true scarcity of it, life can be miserable. The most important use for money though is that they can help you turn some of your dreams and aspirations into reality.

As an athlete, you have the potential to earn substantial amounts of money from a young age, either from competition and tournament prize money or by building and monetizing on your image. There is a distinct possibility that these earnings will drop significantly after the end of your career, so it is paramount to prepare financially for any possible outcome.

Most athletes don’t get the chance to develop their financial skills through the usual education path that most people follow, because of their very busy training schedules or their choice to go professional before or during receiving higher education.  Developing strong financial skills can support both your motivation and the attainment of your financial goals as it allows you to choose the lifestyle you want to have, help people you care about, experience the freedom to do what you want, when you want to do it, live without the stressors and negative emotions often associated with financial struggles and make a positive contribution to society.

Money usually does not change who we are. What it does, is magnify our personal traits inherent to our nature. If you have a mean and selfish disposition, you will have more to be greedy and selfish with. If you are caring, kind and loving, you have more to be thankful for and give. As Tony Robbins put it, “In the end though, what all of us are really after is not money, it is the feelings and the emotions money can create, such as empowerment, freedom, a sense of security and feeling alive”.

Financial skills are skills related to the understanding, evaluation and management of your financial resources and the creation of personal wealth.  They also relate to your capability to use relevant knowledge and understanding to manage an expected or unpredictable situation in order to solve a financial problem and convert it to a benefit or opportunity.  These skills can be acquired through financial education and they include but are not limited to:

• Setting up a budget
• Balancing a checkbook
• Building credit and managing credit cards
• Being a conscious consumer
• Committing to saving money
• Insuring yourself, your assets, and your family, adequately
• Investing
• Understanding interest rates and managing debt
• Planning your retirement

Financial goal setting

Being able to afford your dream life is incredible and fulfilling. Imagine having plenty of free time to live life on your terms and at the same time being able to help the people who are important to you. Goals define the actions you must take to make your dreams real. Setting goals and priorities, and then following through with active plans to make them happen is the essential process for turning dreams into reality.  The process of setting and achieving financial goals is very similar to the experience of an athlete setting an athletic goal.  Similarly, if you choose to work with a professional financial advisor to create your financial plan, you are creating an athlete-coach-like relationship.

It is important to start the process by identifying your goals, which must be directly connected and in line with what is most important to you and what exactly you want out of life. Discuss your goals with a financial advisor and set dates for their achievement. A financial advisor will then help you quantify these goals and build a plan around them. Your ultimate goals are not going to be achieved overnight so you will have to set intermediate goals with events and dates that will help you stay focused and enjoy small victories on your way to their achievement. Intermediate goals also provide a measure to check whether your plan is working or needs adjustments.

Athletes choose to work with a coach that can advise them on their training routine, diet or their lifestyle. Coaches are usually people with a background and experience in the area of sports and have knowledge that can help the athlete move forward. Most importantly they keep the athlete on alert and in a state of preparedness; by reviewing their performance, keeping them on track, and reminding them what their goal is and what it takes to achieve it. Working with a financial advisor follows the same logic. A financial advisor is there to help you stay focused on your plan and to provide you with an honest and objective assessment. Therefore, you will need to choose an advisor who you feel can understand your goals and has helped other people achieve similar goals.  It’s relatively easy to assess our current situation and figure out where we want to be. The toughest part is what happens in between, the actual work to get there. Successful athletes are not always those who work the hardest or the longest but those who work the smartest. Successful investors also need to make smart and efficient financial decisions. A financial advisor will help you make the right adjustments to keep you on track in your journey to financial freedom.

Athletes have to maintain balance in their training, resting time and diet with the help of their coach. Your financial advisor will help you maintain balance in the factors that affect your financial plan, the amount of money you save, the time you have available to reach your financial goals, and your related risk.

The process of setting and working towards achieving your financial goals doesn’t need to be perfect. The path to success won’t be straight, and you will need to achieve intermediate goals and correct your course along the way. Your goal should be constant progress following the steps we recommended above: identifying your goals, choosing an advisor that suits you, making smart decisions and maintaining balance to reach success.

The basic methodology to financial goal setting is quite simple and it has as follows:

1. Write down your personal financial goals (see examples below)
2. Decide what the timeline for each goal is, i.e. whether the goal is short-term which means it will be achieved up to a year maximum, medium term which will take about 1 to 5 years to achieve or long-term which will take more than 5 years to achieve.
3. Figure out how much you will need to save to achieve your goal. It is better if you divide this figure by the number of months in your timeline for achieving your goal so that you know how much money you will have to allocate each month for that specific goal.
4. Think of possible ways you can achieve your goal such as savings, cost cutting, increasing your income, etc.
5. Come up with a plan of how you will achieve your goal, for example, by saving alone, or by saving and cutting down on certain costs at the same time, or by increasing your endorsements to earn additional income.

To fully understand what financial goals are, we list some examples below:

• Saving for vacations
• Paying off credit card and other debt
• Paying off your car loan
• Building an emergency savings fund
• Saving for a home improvement/renovation
• Saving for a house down payment
• Saving for college education
• Investing for retirement

Goal Setting Advice from the Best (5-minute discussion) Usain Bolt, the fastest man ever recorded: “If you want to be the best, or you want to strive for more, you’ve got to set goals in life. I try to set the highest standard that I can for myself, that’s what keeps me going.” American gymnast and seven-time Olympic medallist Shannon Miller: “It’s great to have that ultimate goal, but regardless of what that long-term goal is, you have to set those short-term goals. Think about what you can do each and every day to make that long-range goal happen.” Olympic swimmer Gary Hall Sr.: “When I was 16 years old, training for my first Olympic games, my coach wrote all of my goal times down on the top of the kickboard I was using every day in practice. I couldn’t escape them, but the result, after executing the plan, was that I made the Olympic team.” Bob Bowman, coach of Olympic Michael Phelps: “Champions rehearse success on a daily basis — mentally, physically and emotionally.” Mark Allen, six-time Ironman triathlon champion: “Often we do what is comfortable, but the work our goals require from us can be very different. If you start to lose focus, step back and say, ‘What is it about this endeavor that has importance to me?’ We can use that vision to carry us past moments when other people may quit.” What do you think of the above?

Action Steps – Exercise 5 (5 minutes):

Ask the following questions and have a discussion in connection with the athletes’ answers:

• What is the most important short term financial goal for you right now and why?
• What is the most important medium term financial goal that you are planning to set for yourself and why?

Your money personality and how it affects your financial planning

Financial psychology is a science that comes in to fill the gap between psychology and behavioral economics.  Advertisers and marketers use scientific research on this field to tempt consumers to spend money on their products and services. Well, if it has such a great effect on the manner we spend our money, we definitely need to take some time to understand what it is all about.

All of us relate to money in a different way.  Things, such as what money means to us and how we behave in situations that require us to make a financial decision, define our relationship with money. This relationship is called our “money personality” and affects our overall finances.

Our money-management habits tend to fit into four money personality categories. The four money personalities and their characteristics according to the “Success Resources” website (www.Successresources.com) are:

Personality #1: The Saver – while others see money as a means to buy nice things, Savers see it as a means to obtain security. No matter how much money a Saver has, they will always fear that one false move or unexpected disaster will make them poor. Beware though, saving too much may lead to a diminished quality of life! You should always opt for that equilibrium that will enable you to save but also to sustain a decent quality of life.

Personality #2: The Big Spender – Buying things is a common behavior that helps Big Spenders feel important, loved, and validated. The Big Spenders’ inner voices tell them, “I deserve this: I won’t be denied anymore.” The biggest spenders are status seekers who equate extravagant possessions with self-worth. Whether or not they can afford it, that Ferrari makes them feel respected. Unfortunately, opting for style over financial substance may lead to critical financial mistakes – especially in the long run!

Personality #3: The Avoider – Avoiders are not comfortable with the subject of money due to either their lack of interest or because they feel that there are other important issues. The Avoider takes a “see no evil, fear no evil” approach to manage their financial affairs. But by not staying informed about their finances, Avoiders are missing out on opportunities to set the foundation for a more financially secure future.

Personality #4: The Worrier or Money Monk – Handling money in any way makes Worriers feel like they are giving in to its seductive power. Often Worriers were raised with deep religious or political convictions – their parents taught them that money is the root of all evil, or that rich people are “capitalist pigs”.  Worriers feel that money is bad and has the power to corrupt.

Once you identify your money personality and understand where your financial behavior is rooted, you will be able to make changes and formulate a logical financial plan.  Your plan should be based on a disciplined approach that is consistent, flexible to changing conditions and should adhere to your goals and risk tolerance. You can also seek advice from a financial professional who has the knowledge and experience required to help you adjust your financial plans to your money personality, comfort level and goals.

Action Steps – Exercise 6 (5 Minutes):

Have athletes pick out the money personality that describes them best and have a discussion in class on how it affects their lifestyle choices.

Financial setbacks and how to maintain a positive attitude

Financial failures and setbacks are unavoidable in life. It is true that we all had that time in our life when we had our financial hardships, sometimes mild and sometimes severe. What we have to realize is that the most successful people around the world are the ones who have failed the most to reach high, even if we only know and see the ‘bright side’ of their success and admire their achievements.

In today’s world, where we are flooded left and right with tons of information, we hear about financial success stories of individuals, almost on a daily basis. It is natural to compare ourselves and our situation to theirs, and feel ashamed for failing or not achieving as much financially, at a personal level.  Such feelings of shame though, may lead us into the darkness of depression.

As an athlete you must have had your fair share of failure; and you have learned to deal with it and move on because this is how the game of life is. The same attitude should be applied to your financial life and the financial difficulties you are encountering.  The British novelist J.K. Rowling, expresses her opinion about failure with the most inspirational quote: “It is impossible to live without failing at something, unless you live so cautiously that you might as well not have lived at all–in which case, you fail by default.”  Therefore, when faced with financial setbacks, stand-up, gather your pieces and rise from your ashes by just following the below four small steps.

STEP #1. ACCEPT IT

The first and most important step for financial recovery is to accept reality!  Accepting any situation in life makes you understand that a setback or a failure is not your final destination, but a stepping stone in your journey to financial freedom.   You have to realize that failure is part of the process to succeed. Yes, you will experience difficulties, you will repeatedly get disappointed and upset, but you have to stay focused on your target and not let it bring you down.

STEP #2. “UNBLOCK” YOURSELF

After the acceptance stage, there is always an emotional stage which must be handled really carefully and with full awareness of the situation.  After you have taken some time to realize and accept the situation, you have to clear your mind from any negative thoughts. Don’t let yourself be overwhelmed with feelings of misery.   After all, once the harmful emotions finally dissipate, you will then be able to see clearly and turn your focus to recovery.

STEP #3. REFLECT

Reflection is a synonym to thought, meditation and consideration. Three words with high importance for every person who wants to operate under the control of their own power and who want to learn from their mistakes and not repeat the same action again and again and expect a different result.  Reflection might be the most critical step and many people do not take it seriously.  It’s simple but invaluable. You have to take some time to reflect on what happened and it is extremely important to be harshly honest with yourselves on why it happened. When you reflect on something, you obtain the skills to answer these three vital questions:

• What went wrong?
• Why this went wrong?
• How can I fix it?

STEP #4. TAKE ACTION

Your actions are what actually define you as a personality.  Nothing actually happens, until you take some action.  It’s not only about just thinking and dreaming.  The actual work is that you have to make the right decisions and act wiser without falling into the same trap. Your actions are what will lead you to achieve your goals and success.  Many people envision improving their finances, but how many of them really take action? And that is what makes all the difference.  The difference between successful people and unsuccessful ones, is the capability to steadily and consistently convert their ambitious thinking into actions toward achieving their goals.

Using your athletic strengths to overcome financial setbacks

To be able to deal with challenging financial situations, we all try to draw upon our experiences and strengths in order to bounce back as quickly as possible.  Athletes are no different than the rest of us in this respect; they also try to use their strengths to deal with financial distress.  What is different though in the case of athletes, is that during their athletic training they have developed a unique set of strengths, unlike most people, which if used properly, can help them get into a positive recovery mode faster.

Let’s take a look at these unique athletic strengths and how athletes can apply them to financially challenging situations in order to expedite the recovery period and have positive results.

1. Resilience – Throughout their athletic career, athletes must have failed more times than they have actually won. They realize that this is how life is and they always get up and keep going, because very soon, there is another game or another competition to be won.  There is no time for self-pity; they have a situation and they need to deal with it immediately and move on!  Resilience is one of the important traits in situations of financial difficulty as it gives the person the strength and the insight needed to move on quickly; athletes have an advantage because they have already cultivated and possess this trait, so they can get a head-start due to their ability to bounce back quickly.
2. Focusing on the target – Also, a skill athletes develop, is focusing on the target. Because athletes have been winning and losing their entire life, they have learned to eliminate external influences and focus on the target to win the game.  In consequence, they do get over all the negative emotions associated with failure-like situations fast and they focus on how to win the next game. Drawing upon this strength can help athletes minimize the negative emotions arising from financial distress and focus on devising a recovery plan.
3. Self-reflection – For athletes it is common practice to reflect on the results of the performance during game breaks and after the end of the game, to assess what was done right and what went wrong. Self-reflection helps athletes reflect and analyze the financial challenge they are faced with, in order to assess what went wrong and how to prepare themselves to do things differently to turn around the undesirable situation.
4. Collaborating and following instructions – Most solo-sport athletes have a team of people behind them. They have learned to receive tough feedback from their coach and coaching team and to follow instructions.  These skills are important when faced with a financially challenging situation because in most cases, you will have to create a team of professionals with whom you will collaborate and whose instructions you will have to follow in order to get out of the rat-hole!
5. Getting into an effective state of performance – When under pressure, elite athletes make sure they get the performance they want, by being able to shift their body and mind into an effective state of performance. How do they do that?  They tip the balance in their favor by visualizing past and future successes to increase self-confidence; they develop consistent pre-performance routines in order to increase perceived control and they make sure their goals are set towards success and not against avoiding failure.  All these are learnable techniques and they can be applied to a multitude of stressful situations including financially challenging ones.
6. Self-Control – Research shows that self-control is a decisive factor that enables athletes to transform their workout intention into actual workout behavior. Regularly exerting self-control strength in one situation can have a positive self-control effect in various different situations.  The self-control strength that athletes cultivate by training throughout their entire athletic career can be applied when they find themselves in a negative financial situation, in order to restrain their spending and change their spending habits.
7. Work Ethic – The best athletes have become the best because they have perfected their skill by perfecting their work ethic. They know that in order to be successful, they need to work long and hard.  The effects of financial failure can be devastating and along with resilience and devising a plan to come out of it as soon as possible, a lot of hard work is required from the athlete’s part.  Having a strong work ethic helps athletes put in the hard work necessary to overcome financial failure.

In addition to the transferrable athletic strengths identified above, there are many more sports-unique traits that athletes can draw upon when faced with financially challenging situations.  These traits include persistence, attentiveness, organization and so forth.  All these strengths, skills and traits, inherent to and as a result of athletic training, can be transferred and utilized by athletes in all sorts of challenging situations and they give the athlete the tools to deal with such situations more effectively and come out a winner!

Lesson wrap-up

Today we covered a wide range of financial psychology issues starting with the sudden wealth phenomenon and the challenge of dealing with the abrupt rise in income levels. We then discussed how to deal with family and societal pressures and talked about acquiring financial skills and financial goal setting.  We also talked about financial setbacks and the skills that athletes possess by nature of their profession that can help them navigate these challenges. Finally, we turned to the concept of money personalities to explain the different clusters of attitudes that exist out there and encouraged athletes to figure out their money personalities.  In short, we have tried to show that the most important thing is to cultivate a flexible yet resilient mindset to help athletes deal with the financial roadblocks that they will inevitably encounter.

At this point, we will wrap-up today’s lesson.  First, we will go over the learning objectives of this lesson and we want your feedback as to whether they have been achieved, and then we will address any questions you may have.  Please feel free to ask anything you’d like in relation to today’s lecture and we would love to hear how the concepts we discussed today relate to you and your greater life plan.