Smart Money Choices Don’t Always Feel Right

April 8, 2008

Do you follow your “gut instinct” when making money decisions?  Often times that’s a great policy but in some cases, going against your mental reflex is a smarter move.

College Basketball Lesson
This came to mind as I watched the NCAA basketball final last night between Mephis and Kansas.   With seconds left in the game, up by three, and without the ball, the Memphis coach and players were faced with a situation that seemed obvious.  Play good defense for a few seconds and you win the game. Don’t foul, certainly not on the three point line, just deny Kansas a shot.

It turns out, Kansas did get that shot, “Super Mario” Chalmers tied the game with a buzzer beating three pointer and Kansas won the match in overtime (congrats to Kansas on their National Championship!)  In the post game analysis the commentators pointed out how Memphis could have won the game if they’d fouled Kansas as soon as they crossed midcourt, putting them on the free throw line.  Even if Kansas makes both free throws, they’re still down by 1 and Memphis gets posession with only seconds left.

This move goes against the natural reflexes of a college basketball player.  Typically when you’re winning, you don’t want to foul the other team, stop the clock, and give them a chance to score some points. However, had Memphis followed this plan, they may well have been national champions.

Buy Low, Sell High
I think there are good examples of this in personal finance as well. In the stock market, everyone knows you’re supposed to buy low and sell high but it’s not always psychologically easy to do.  It’s hard to sell your winners, stocks that have been making you money.  Plus, some of the best opportunities to buy low are when a good company has hit a rough patch.  It may not be easy mentally to buy stock in a company that’s experiencing hard times. 

Tax Refunds
Another scenario that comes to mind is tax refunds.  Many people over withhold taxes from their salary and look forward to getting a money back at tax time.  From a financial perspective, it’s better to actually owe some money instead of getting a refund.  The money you didn’t give Uncle Sam all year can be put to work earning interest for you, instead of the government. Although it may be nice getting a check come tax season, your money is better off in your pocket all year long.

Ben

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Ben

Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn’t like the other kids… His addiction to personal finance has paid off for his family and now he’s helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.


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Comments

5 Responses to Smart Money Choices Don’t Always Feel Right

  • Live TV

    I never involve my intuition when I am dealing with money. I always analyze the money involved situation and I take the best theoretically possible decision.

  • Ben

    Frugal Dad, that’s right. Of course there are always risks. If Memphis had fouled, Kansas made both free throws, and then stole the inbound pass & scored, Kansas could potentially have won in regulation. Of course, that’s a long string of “ifs” so from a probability standpoint, it probably would have been smart for Memphis to foul.

  • Frugal Dad

    I missed the post-game analysis, but it makes perfect sense to me. This is sort of like a football team intentionally taking a safety when up by six late in the game and punting from their endzone. It seems counterintuitive to give the other team two points, but the end result is that a TD still beats you, but hopefully the other team has worse field position after your free kick than a shanked punt.

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