On this episode of Saving the American Dream, I explain how financial planning is like basketball. You might be surprised how much they have in common.

Shot clock

In basketball, you can’t just hold on to the ball forever without taking a shot. You have a limited amount of time to get the ball up to the rim. And in financial planning, you’re sometimes on the clock and have to make choices within a relatively short window.

The later you wait to start planning for retirement, the fewer options you’ll have. In the blink of an eye you’re 45 or 50 years old and you’re getting started a little bit late. And your options are limited instead of taking a balanced approach.

Double dribble

In basketball, you can’t pick up your dribble and then just start dribbling again. So when you pick up your dribble, you’d better have a plan for what happens next.

In financial planning, there are several decisions that you might make hastily that could be equivalent to picking up your dribble without a plan. You need to focus on building flexibility into your plan, and you should build up assets on your balance sheet that are liquid and available.

Personal fouls

In basketball, committing a foul isn’t the end of the world. It’s part of the game, so getting called for a foul or two isn’t a big deal. But if you commit too many fouls, you’ll be disqualified from the game.

The same thing is true with investing. You’re going to have some investments that just don’t do well. It’s not the end of the world. And you’re probably going to make some slightly inaccurate assumptions about your lifestyle in retirement.

Things won’t go perfect every time in sports or your retirement planning. But you want to focus on mitigating the negative consequences of your mistakes.

Listen to the full podcast or use the timestamps below to jump to a specific section.

Navigating the Show

[3:20] – Shot clock

[9:21] – Double dribble

[13:03] – Personal fouls

[15:26] – Other comparisons

“You need to build up assets on your balance sheet that are liquid and available.”

– Michael Schulte