Seinfeld was and is my favorite TV show. The characters are memorable and the show, although about nothing, continues to be quoted to this day even though the last episode aired almost 20 years ago.
In one episode, George Costanza has the realization that every decision he has made in his life has been wrong. Therefore, if he does the complete opposite of his instinct, it has to be right. His first attempt at his new theory is to go up to a beautiful woman and tell her that he is unemployed and lives with his parents – the complete opposite of what he would normally do. It turns out the woman is intrigued by him and he gets her number.
What if the rest of us are all like George and our gut and initial reaction about money is wrong and that we should do the complete opposite and we will be right. I spoke with Tony Liddle, Financial Advisor and writer at TheSimpleAdvisor.com about 4 situations where people’s gut reaction is wrong. Here are his thoughts.
Initial reaction to “the stock market is plummeting”:
“I should sell everything and put my money under the mattress.”
The Costanza reaction to “the stock market is plummeting”:
“This is an awesome opportunity to buy stock at very low prices. I should invest more.”
March 2009 was the generational bottom for the stock market. Today, the stock market is up over 200% since then. What if in early 2009 when everyone was selling you stayed put? Many did and many people have seen their portfolios go up 200% from that point. What if in 2009 when everyone was selling, you actually bought. It is easy to look back and say it made sense to buy then, but when emotions are high, it is almost impossible to go against the crowd.
One person that did go against the crowd was Warren Buffett. He was lending money to companies that he saw as financially strong, but were being brought down with the rest of the market. He is only the second richest person in the world, but what does he know. His popular quote, “Be fearful when others are greedy and greedy when others are fearful” best lays out the case why we need to follow George Costanza and just do the opposite.
Initial reaction to “I need a new fill in the blank”:
“I’ll buy the cheapest one I can.”
The Costanza reaction to “I need a new fill in the blank”:
“I’ll buy the best value even if it means spending more today, so that I can use this for a long time.”
This is my biggest issue. For many years, Allison swore by Mac’s, but I was a PC guy. Faithfully, every year after my PC would die or would be so slow that it barely worked, I would buy a new one. I would research and buy the cheapest one I could find. Allison would mumble, “Should have bought a Mac”. After 5 years and 5 computers – yes, 5 computers! – Allison was still plugging along on the same Mac. If I had bought quality instead of what was on sale, I too would have the same computer and saved a bunch of money and time transferring my files from computer to computer. Yes, I have learned my lesson. I am writing this on a Mac.
Initial reaction to “Life Insurance”:
“What do I need that for? Besides, I have a policy through work.”
The Costanza reaction to “Life Insurance”:
“Life insurance isn’t for me; it’s about making sure my family is taken care of.”
If someone is counting on you, whether it is your spouse, your child, or someone else important, you need life insurance. The rough number is 8-10 times your annual salary. It could be higher though if you have a lot of debt or other obligations, such as a business.
Initial reaction to “Impulse Spending”:
“I’ll have the Venti Triple Shot Soy Milk Pumpkin Spice Latte.”
The Costanza reaction to “Impulse Spending”:
“I’ll have a tall coffee, black.”
Impulse spending leads to blown budgets, blown budgets lead to debt, and debt leads to stress and reduced savings.
David Bach popularized “The Latte Factor”. His concept is that impulse spending is terrible. He pokes fun at Starbucks and other places that offer the $5 coffee. If someone spends $15 per week on coffee, over a year you spend $1,100. Over 5 years that is $5500 – for coffee!
Now apply this concept to eating out, smoking, and the lottery. The amount we spend on stuff that isn’t necessary is crazy.
Here’s my request. For one week, try to think like George Costanza in regards to money. I’m not saying go out and do the complete opposite about everything, but just for one week be conscious of your thoughts on money. Ask yourself “why am I thinking that”, and then ask yourself “what if I thought the complete opposite”. You might surprise yourself!