When Competition Obscures Financial Goals

Years ago, a friend with an incredibly successful career as a sales representative shared a story about what she and her brother called their W-2 Derby. It’s exactly what it sounds like. At the end of each year, they’d pull out their W-2s and compare who had the higher income. There were even rules for what really counted as income, and there was a prize for the winner.

When she first told me about it, I was impressed. I like a good competition as much as anyone. After all, I played high school football 20 years ago, and I used to do CrossFit. I’ve even found a way to turn yoga into a competition to see who can stretch the farthest before something tears.

But the more I thought about it, the more it bothered me. The W-2 Derby had turned income, something that’s a means to an end, into the end itself. I wonder how many fewer vacation days they took or what other sacrifices they’d made to push their numbers higher for this competition. And for what? The prestige of winning a competition that doesn’t really matter?

Competing over something as personal as personal finance switches our focus from what actually matters to us in our real lives to the goal of simply beating someone else. It increases the odds that we’ll make a decision in pursuit of winning, but as a result, it may end up costing us what matters most to us. That seems like a high price to pay.

Seth Godin, an entrepreneur, pinpointed the problem when he wrote in June, “If income becomes a game, not a means to an end, then people will distort their goals and choices in order to win. They’ll cut corners, maybe even do things they’re not particularly proud of, all because our culture has created a huge scoreboard, updated hourly.”

Another way this happens is the incessant focus on finding the “best” investment. The best, in this case, is the one investment that does better than all the others. An entire industry, and an accompanying entertainment industry, is set up around the idea that finding the best investment is what really matters. Complex software shows you how to find the best one, and then generates reports that show you how your investments performed compared with others and even against selected benchmarks, like a simple index fund.

Let’s skip the debate about whether identifying the best investment is even possible and just focus on what happens as a result of the obsession. By focusing on finding the best investment, we turn investing into a competition. Somewhere along the line, beating others became the goal.

But here’s the sad truth in the form of a rhetorical question: If, by some miracle, you managed to beat everyone else, in every quarter, and didn’t meet your financial goals, would you be happy?

On the other hand, what if you never won the investment performance derby, but met all your personal financial goals. Would you be happy then?

In other words, beating everyone else is not a financial goal. It’s a game. Having the money to put your children through college, retire on your own terms or go on your dream vacation for your 30th anniversary — those are financial goals.

It’s very important that we know the difference.

This commentary originally appeared July 28 on NYTimes.com

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The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

© 2014, The BAM ALLIANCE

Carl Richards, CFP®

Carl Richards is the creator of the weekly Sketch Guy column in The New York Times and is a columnist for Morningstar Advisor. Carl has also been featured in The Wall Street Journal, Financial Planning, Marketplace Money, The Leonard Lopate Show, Oprah.com and Forbes.com. His simple but meaningful sketches served as the foundation for his first book, "The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money."

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