A Kentucky Derby Personal Finance Lesson

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The Kentucky Derby, also known as “The Run for the Roses”, is one of the most famous sporting events in America. Every year since 1875 approximately 160,000 people crowd into Churchill Downs to watch graceful thoroughbreds compete for one of horse racing’s top prizes.

The 2012 Kentucky Derby is Sunday, May 5. While millions of TV viewers will watch to see who wins the race, there are also some fun insights and lessons that we can learn about personal finance from the “The Most Exciting Two Minutes in Sports.”

What can the Kentucky Derby teach us about personal finance?

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A lot can change in an instant: The Kentucky Derby is a 1.2 mile race, but the winner is determined by constant shifting of positions and delicate maneuvers throughout each turn of the track. One wrong move by a horse or its jockey, and one of the competitors can gain a tiny advantage that becomes a lasting lead. In the same way, your personal finances can change in a short amount of time – if you get in a car accident, lose your job, suffer an illness or sustain an injury, you can quickly find yourself in financial trouble unless you’ve planned to manage those risks. Protect yourself from quickly falling behind in the race toward your financial goals by buying insurance (car insurance, health insurance and disability insurance), and make sure you’ve saved up an emergency fund.

Appearances can be deceiving: The horse that wins the Kentucky Derby is usually not “the favorite.” The fanciest looking thoroughbreds with the richest pedigrees and the most high-priced trainers don’t always win a the Derby. Instead, sometimes there is a long shot horse that comes from out of nowhere to defy expectations and shock the world by winning the race. (In 2009, Mine That Bird won the Kentucky Derby with 50-1 odds.)

In the world of personal finance, appearances are not always what they seem. People who drive the nicest cars and live in the fanciest houses aren’t necessarily in the best financial shape – they are often just living beyond their means by taking on bigger debts. Don’t worry about “keeping up with the Joneses.” The safest bet for financial success is to focus on living within your means.

Run your own race: The Kentucky Derby is a highly competitive race, but fortunately, personal finance is not a race. True financial success isn’t about “doing better” than other people around you; instead it’s about doing better for yourself and for your family. Good personal financial management is a lifelong practice of trying to live within your means, save money, and spend smarter. The only person you’re trying to “beat” is you – by continually getting better at managing money, paying off debt, and living with financial freedom to spend your life with the people you love, doing the things you love most.

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The Kentucky Derby is a truly stirring, exciting sports event, but we can all be grateful that we have a lifetime to get better at managing our personal finances, and not just a single 2 minute lap around the track.