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Examining the Role of Luck in Personal Finance

Personal finance is just like anything else in life. We like to feel in control. That’s even the reason that I started this blog. Because I realized I needed to get my personal financial situation under control. But, in reality, just like everything else in life, luck plays a huge role in personal finance.

So let’s take a closer look at this…

Luck exists

Luck is all over the place. And while the reason may not always seem clear, it’s actually pretty simple. (And it’s not about rabbit’s feet or wearing g old socks so your favorite basketball team wins…)

personal finance luck

Each one of us represents about 1/8,000,000,000 of the world population. Each action that we take represents about 1/8,000,000,000,000 of the actions taken by humans every day. Whether were like it or not (and trust me, we don’t!), pretty much all of life’s actions are out of our control!

Our reality is based on the actions that are under our control within the swirling entropy and collisions of all of the other 8,000,000,000,000+ actions taken by everyone else every day.

Actions ping pong off each other in ways we could never predict. And the results sometimes come to affect our lives. Even though most of the time they don’t. And when they do affect our lives, sometimes it works in our favor and sometimes it doesn’t.

That’s luck and it is real.

Why do we hate good luck and love bad luck?

We all hate luck. We don’t want to give it any credit. In fact, most of us will go out of our way to convince ourselves that we are not lucky. Instead we are deserving.

In my mind, both are true.

For some reason, and trust me this happens to me all the time, we feel that attributing any of our success to luck or randomness diminishes from our accomplishments or current reality. But does it? Not really.

However, on the flip side, if something bad happens, we are pretty quick to attribute it to bad luck. It’s easy. We cant rationalize that without insulting our ego. And maybe sometimes luck does play a role. Regardless, we are much more accepting of it in this case.

But again, the point here is that luck exists in all aspects of our lives, including personal finance.

Take me for an example…

A huge part of my financial success thus far, including my ability to increase my net worth from around -$400k to +$500k in less than two years, can be attributed to, you guessed it, luck!

As many of you know, at the end of my 7 years of training, I was burned out. And a big part of this, I realized, was due to a lack of financial well-being. Selenid and I then committed to changing this and taking control (there’s that word again) of our finances.

It just so happened that this huge mindset shift followed by massive action took place right before I graduated training and got my first attending job.

That allowed us to develop a financial plan and completely rehabilitate our financial habits before we got a huge increase in income. We designed a budget saving 40-50% of our income, we bought items like our home and cars intentionally, and we invested our money.

But what would happen if we discovered financial well-being 6 months later…

Well, it would be a completely different story!

We each would have already started out new jobs with a huge increase in income. And we would have mismanaged that increase in income. And we all know it’s much harder to undo spending we have already spent than to not spend it in the first place.

Our path to financial freedom was accelerated based on the timing of when we started it. Which was dumb luck.

Now, even if we made this course correction 6 months later, we would still be able to achieve financial freedom. Just like any of you. Regardless of when you are starting. But the point is that dumb luck played a huge role in my personal finance story.

And that’s not the only way luck affects personal finance for all of us…

The role of luck in personal finance

It’s impossible to create a concise list of the way that luck affects personal finance on even a daily basis.

So let’s just list off some examples:

  • In 2008, the narrative around the housing market changed. People now believe that homes were overpriced. Buyers evaporated and mortgage holders defaulted. Banks dried up lending leading businesses to stop hiring. Which led to decreased spending which led to less hiring. And on and on…
  • In 2019, due to myriad factors that still are not completely clear, a microscopic virus shut down the world and its economy
  • In 2022, old USSR wounds began to open fresh and through a maze of micro actions, a war began. The economic impact of this remains to be fully revealed

And these are just a few on a worldwide scale from the past 20 years!

If we bring the focus even closer on just our individual scale of personal finance, the role of luck is even more magnified.

Here’s an example…

A surgeon in the OR rests his elbow on the scrub tech’s stand. The surgeon had just used to knife and the scrub tech set it down on this stand. When the surgeon places his elbow there, the knife cuts and severs their ulnar nerve. They can never do surgery again. (Better hope they have disability insurance!)

And another…

You happen upon a personal finance blog that mentions a 100% stock portfolio is the way to go, especially now that bonds have such low yield. So you invest in all stocks. But then a bear market hits (due to infinite factors beyond your control that even the most seasoned financial “experts” do not understand). You can’t sleep at night and sell your stocks, interrupting your ability to compound and grow wealth significantly.

Both of these examples start with very benign, seemingly inert actions that many of us do on a daily basis. Their ultimate impact on our personal finance is luck.

So how do we deal with luck in personal finance?

Once we acknowledge that luck exists, this is the real question.

And, to me, the answer is that we must embrace luck. Not to try to avoid it or pretend it doesn’t exists.

The full answer is not even to become more skilled. I do believe that luck favors the prepared mind. And we all need to control what we can, our own actions and strategies and philosophies, the best that we can.

However, even the most skilled investors are subject to the same force of luck. They just manage it better than most. How? Because the embrace it.

Embracing luck in personal finance

To embrace luck in personal finance means that your financial plan doesn’t need luck to be successful.

Within your financial plan, the more things you need to go right to be successful, the less you are embracing luck. In this case, you essentially have made the assumption that you can control everything. And since you can control everything, you are certain everything in your plan will go off without a hitch and you will have huge success.

But the danger here is that if one things goes wrong, because we actually live in a world that we cannot control, your plan is hosed. This is a big risk and not one that I recommend taking.

On the converse, the greater margin that you create between what you need to go right and what can go right in your financial plan, the more you are embracing luck and “luck-proofing” your financial future.

For example…

Let’s say my financial plan calls for heavily investing in cryptocurrency, let’s say 80% (it doesn’t). I chose this because cryptocurrency has seen huge gains in the past few years and I am concerned about the solvency of fiat especially with what we are seeing happen in eastern Europe currently.

In this case, I need my decision regarding cryptocurrency to be right. If it is, I’ll reach my financial goals. If not, I’m in trouble. Luck needs to be on my side, which of course no one can guarantee.

On the converse, take my actual financial plan

I invest in the overall stock market using index funds. That way, I don’t depend on any one stock or even a certain sector of stocks to do well. Luck doesn’t need to be on my side.

I invest 25% in bonds. This helps me sleep at night knowing that if my stocks don’t do well, I’m protected. Heck, even if stocks do so poorly that bonds outperform them, as they have in the past, it’s ok. Luck doesn’t need to be on my side.

I invest in cash flowing real estate. Our strategy calls for conservative measures and multiple levels or cash flow protection. Cash flow ensures that I don’t care about the actual market value of the property. We invest in various neighborhoods. Luck doesn’t have to be on my side.

Not including my doctor job, we have about 5 other streams of income. So if one is lost, we are ok. Luck doesn’t need to be on my side.

We carry an emergency fund to handle any unforeseen surprises (which by definition are unforeseen). Luck doesn’t need to be on my side.

Now don’t get me wrong, my plan isn’t perfect

None are. And I hope luck is on my side. And many of my strategies try to capture overall upward leaning trends. But, we also need to protect our downside. And that is what “luck-proofing” your investment plan does!

Here are some helpful links to get started building your financial plan!

And check out my free masterclass webinar on The 12 Steps to Financial Freedom for Physicians!

What do you think? What role does luck play in personal finance? How do you approach luck in your financial plan? Let us know in the comments below!

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    Jordan Frey MD, a plastic surgeon in Buffalo, NY, is one of the fastest-growing physician finance bloggers in the world. See how he went from financially clueless to increasing his net worth by $1M in 1 year and how you can do the same! Feel free to send Jordan a message at [email protected]

    3 thoughts on “Examining the Role of Luck in Personal Finance”

    1. I count it as lucky a coworker felt comfortable to share info about Mr. Money Mustache, that led me down the rabbit hole of personal finance.


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