60-80% of NBA and NFL players go bankrupt or experience financial stress within two years of retirement. Why? Aside from all of the obvious reasons like fancy cars, bad investments, child support payments, and gold chains, could there be a less-obvious underlying concept that explains them all? Yes indeed.
So many athletes go bankrupt because of the extreme stability they inherit overnight. Many of these players come from poor to middle-class backgrounds, and were forced to live reasonably their whole lives. But when they got that first paycheck, their previous experiences instantly became obsolete. Not only do they now have a ridiculous amount of money, but they are getting a lot more of it, too. Rather than carefully allocate their funds, most players will throw it around as if they’re multi-millionaires. Clearly, even a multi-millionaire can go bankrupt rather easily.
How can so many throw away such a golden opportunity for lifelong wealth?
These players aren’t as insane as you think. You and I might not do much better in their situation, because it’s human nature to do this.
When given extreme stability, one can easily become blind or partially blind to risk, and unknowingly take risks that are very likely to cause instability. No player plans on losing all their wealth. It just… happens. And then it’s too late to fix it.
The antidote to this, is, of course, to never concede stability, to never believe that you’re beyond the reach of risk and ruin. Never become blind to your fragility as a human being in a flawed world.
Now let’s look at the broader economy for another example of stability leading to instability (because of human nature).
Economic Meltdowns Caused By… Stability?
I read an article yesterday that really got my attention. It’s about how when the economy is strong and prosperous, that platform of stability often causes instability. From the article…
“The crisis of a decade ago followed a prolonged period of stable financing conditions, marked by slow, regular Federal Reserve interest-rate hikes,” Forsyth wrote. “That, in retrospect, encouraged all sorts of feckless mortgage borrowing, which was repackaged in nefarious manner by Wall Street.”
When prosperous, people are more likely to take on risks… ill-advised risks that they wouldn’t otherwise tolerate. For the financial system, stability and confidence generally means riskier lending practices and increased leverage… both of which can eventually lead to a downturn or partial collapse in the economy. This is precisely why my investment money is mostly in cash right now (Mark Cuban feels the same way, apparently).
We’re currently in the 10th year of a bull market in the United States, the longest in history. Because of that, we have gotten extremely comfortable with increased risk (and ridiculous stock valuations). These 10 years of stability have brought us a greater risk of instability. That’s just my take on the current situation, and of course, do your own financial research. But the point is that history has proven this stability-to-instability cycle to be true. Human nature is the most reasonable explanation for why economies experience bull and bear markets. When times are good, euphoria carries us overboard and then we suddenly find ourselves overleveraged. The recent crypto currency rise and fall is another great example of this phenomenon.
Does this concept translate to a personal level? I believe it does.
Personal Stability May Lead to Instability
Seeing this concept of stability leading to instability in financial markets immediately struck a chord with me. I’ve seen this same phenomenon in my own life. The more stability I acquire, such as in health or finances, the more difficult it becomes for me to remain stable. This is because of the perceived cushion I think I have. As I’ve done better financially, I’ve gotten proportionally more reckless with my finances, seemingly without consciously deciding to do so. As I’ve improved my health, I’ve noticed I’ve let myself eat more unhealthy foods and drink more alcohol. As my career and income have improved, I’ve worked less. My increased stability has only served to destabilized me!
My mid-to-late 20s were the worst years of my life. I had moved back in with my parents, had no money, had some health issues, and had no career prospects (just an apparently-worthless Finance degree!). It was a bad situation for me, but because of that instability, I lived as if I had no cushion. I pushed myself to work harder. I made great effort to eat healthy food. I didn’t really buy anything besides food to save money. I had a huge chip on my shoulder.
While I much prefer my current life to that life, I recognize that I’ve lost some of the edge I had while my situation was relatively unstable. The instability made me scrappy, gritty, and focused. The discomfort made me cautious and strategic. The bad situation made me fight hard for a good situation.
People tend to make health improvements to their lives after a heart attack. Before you have a heart attack, you have perceived stability. After one, you know you are and were actually on thin ice.
Do you classify your life as stable or unstable? This question can apply to finances, relationships (take them for granted and well…), health, career, etc.
Unstable Life? Fight for Stability
Fighting is the primary benefit of instability. If your life is unstable, the best intuitive response is to fight for stability. Fight for the life you want or feel you deserve.
One of the most satisfying paths of a human life is going from instability to stability. Every underdog, every rags to riches story, every happy ending is the result of someone who fought through adversity to overcome circumstances. If you’ve got poor circumstances, you’ve got a powerful launch pad for future greatness.
But the real issue is when you think you’ve got stability. That’s when you’re most vulnerable.
Stable Life? Find or Create Your Edge
Tom Brady is the most successful QB in NFL history by most measures, but you wouldn’t know it from looking at him play. Even after 18 years in the league, he plays as if he’s a hungry rookie looking for his first win. He hasn’t lost his fiery edge, which is the only reason he’s still been dominating the league at 40+ years old! He hasn’t let up despite his success. Part of it is his personality, but I believe this can also be choice.
I’ve been working on the Mini Habits for Weight Loss video course for two years now. TWO YEARS. My obsession with making evergreen, elite products makes them take a long time to create, but I’ll admit I’ve also been too comfortable.
My strategy of doing everything for long-term success (instead of compromising for short-term gains) has paid off. My books sell better today than they ever have, which is rare in the publishing industry. They say most books have a 6-month lifespan before interest drops off a cliff and you have to write another book. Since my books have continued to succeed years after publication, my previous sense of urgency has waned… until now.
There’s been a change in my mindset in the last month. I’ve ramped up my productivity working on this video course. I’ve re-found my edge, but it’s not the same one I started with. Here’s what drives me to finish the course now: I’m still a minority voice in the corrupt dieting industry, my video course can change lives the moment I release it (not a moment sooner), and I can start on a new book once I finish this (books are my favorite projects!). I have so many reasons to fight through this admittedly-difficult project, but they are different reasons than the ones that fueled my prior projects or even the start of this project.
Here’s the critical lesson I’ve learned: as you succeed in an area, your driving force may need to change. If you don’t take the time to think about the validity of your current driving force compared to possibly-better options, you may find yourself floundering below your ability.
Conclusion
Stability is desirable, but can be dangerous because it relaxes us. Stability can decrease valuable traits like caution, eagerness, drive, and grit. The best way to fight this phenomenon is to create your own edge. Basically, that means to create your own sense of instability. For example, a famous actor who has the money and fame and comfortable life they dreamed of might turn their focus outward to the instability in the world (philanthropy, politics, teaching, etc).
Beware of the illusion of the perfect life, “making it,” or other fantastical ideas that suggest permanent success. Our lives will always be imperfect, so any sense of stability is actually a fabrication of your mind. It’s so important to recognize this because stability (or the illusion thereof) is actually a major cause of instability. We see it in financial systems and in human lives alike. Thus, those who look for imperfections in themselves, their lives, and the world around them will always see opportunities—they always have something worth fighting for and never get too comfortable for their own good.
(photo by West Point)
