If you didn’t know it, this week is Master’s week. It’s the first major PGA golf tournament of the year. Watching the Master’s is the annual tradition for my wife’s family as they anxiously wait to see who will don the green jacket (maybe Phil or Jorden Speith?). This is their “must see” event like the Super Bowl, Daytona, the Kentucky Derby, or March Madness might be for you.
Since the golf season is getting back into full swing again now that the fairways are green once again and the trees have budded, I thought it would be appropriate to look a the financial lessons of golf that everybody can learn.
The Long Game (Drivers)
We all have dreams, financial and personal, about doing the best we can each day & how tomorrow will always be better than today.
The same is with golfers as that first shot is crucial when they step into the tee box for each hole. It’s not uncommon for the average driving distance of a professional golfer to be near 300 yards. That’s pretty far. If they were to only hit the ball as far as you or I (way less than 300 yards) it’s going to be a loooong day at the course for them.
Lesson #1: Identify Your Long-Term Financial Goals
In the game of “financial golf,” your tee shot with a driver is making long-term financial goals. You may think it’s crazy to make these goals first, but, your long-term vision will influence you follow-up shot (financial decisions) to get the ball in the cup.
If you don’t have a vision, you have no clue where to swing.
You may land on the fairway or out of bounds.
Knowing where you want to go makes it easier to know what to do until you get there.
My Personal Example
To give a personal example, one of our long-term goals was to build a house of our own & repay the mortgage (i.e. be debt-free) before we turn 40.
It took my wife & me a year or two to make a solid plan & get everything in place like having enough money to cover most the construction costs to get the smallest loan possible & I had to change careers.
Medium Game (Irons/Chipping Wedges)
After your initial drive stroke, you essentially have 1 to 3 more follow-up strokes (assuming you only putt once) to make par for the hole.
This means you are going to use your shorter clubs like irons & wedges to get you on the green without overshooting it.
Lesson #2: Make short to medium term goals that ultimately accomplish the big goal.
What you don’t want to be is Jean Van De Velde at the 1999 British Open who all but had the tournament won, but, lost because he forsook his vision by being overaggressive.
While you may hope to get an eagle or a birdie, sometimes, it’s not possible on the financial golf course.
Since your short game can be just as crucial as the first stroke, you need to make reasonable financial goals.
My Personal Short-Term Goals
Our long-term goal was to build our own house & have it totally paid off by the time I turn 40 in 10 years.
To make this goal realistic, we made several medium-range goals:
- Use a mortgage payoff calculator to see the minimum monthly payment required to repay our mortgage in 5, 10, & 15 years.
- Save $xx,000 before we built the house to serve as a down payment & buy materials to reduce our total borrowing amount.
- Complete “non-essential” expenses like planting trees & buying better appliances, furniture, etc. as additional cash come available in the future instead of borrowing money upfront to make the “perfect” house.
Finally, the last way to complete each hole is to put the ball in the cup. Ideally with one stroke. This is your day-to-day
These are your day-to-day financial decisions that you make without thinking. Depending on how well you did on your driving & chipping can determine how your putting game is as the “little mistakes” can add up quickly & completely undo how you did from the tee box and fairway.
Lesson Tip #3: Make Smart Money Habits
Look at your daily activities and how you manage your money. You might decide to track your spending by using the Free Financial Tools at PersonalCapital.com.
It also means saving a portion of your income by living frugally (not cheaply) that way you might even be able to accomplish your goals even quicker than anticipated.
Most importantly, it means paying your bills on-time and in full every month. To quickest way to bogey is to not follow the fundamentals of daily money management.
My Personal Experience
My wife & I track our spending on a bi-weekly basis & compare it to our monthly budget goals.
We also make sure we do three other things as well:
- Pay our bills on-time
- Never touch our emergency fund to pay our daily living expenses
- Try to look for the cheapest option when buying (Craiglist saved us $4,000 in building expenses & it’s still our best friend for buying & selling)!!
The one thing no golfer likes is landing in a hazard like sand or water since it usually makes it very hard to make par.
Lesson #4: Plan for the financially unexpected
Financial hazards happen in real life too, so, you have to plan for them. It’s why we have an emergency fund.
Here are some ways you can prepare for the unexpected:
- Save at least 6 months living expenses in a “no-touch” emergency fund.
If you don’t have one, start small with setting aside $500 and gradually doubling it to $1,000, $2,000, etc.
- Diversify your investments to limit risk (just ask the Enron employees that had a large portion of the 401k invested in company stock in 2001).
- Spend less than you earn
My Personal Experience
We had a few hazards with our house so far. The most expensive has been a water leak.
Our normal water bill is about $40/month, but, we received a bill for $150 in the winter when we weren’t watering the grass or playing with the sprinkler. Unfortunately, it’s literally two weeks from the time our water utility reads the meter and sends the bill, so, our second bill was also near $150 since the leak lasted two weeks on both cycles.
Our pipe had a slow leak at a coupling along our driveway because we have really high pressure. The incoming pressure is 195 psi, most houses have between 40-80 psi just to put that into perspective.
As we had two other leaks in other spots in our line when we first installed it the year before, we decided to install a $300 pressure reducer that drops the pressure to 50 psi & we haven’t had a leak since then.
Essentially, we spent $500 that we hadn’t budgeted for. Our emergency fund paid for the expense, but, as two-thirds of Americans would struggle to pay for a $1,000 emergency, let alone a $500 emergency, this could be a very costly hazard.
Just as golf has a long, medium, and short game….your financial golf game does as well.
It’s important to get off on the right foot (long-term vision), make the required follow-up shots to get on the green & still be able to make par (short & medium goals), & finally tap it into the hole (day-to-day money decisions).
I don’t wish a “Jean van de Velde moment” on anybody, so, do know your limitations yet still challenge yourself. And, prepare for the sand traps and water hazards that you will inevitably land in at some point during the 18 holes of life.