Improve Savings by Planning for Failure?

My friend was thrilled to find a multimedia section at her library. It had movies, even new ones, for a one-week loan. And the best part was DVD rentals were free. She quickly cancelled Netflix and rejoiced in saving hundreds of dollars a year.

All was going well until she got a late fine. She really tried to remember to return on time. She felt stupid and guilty for the mistake. The $1 fine upset her so much she chose to go back to Netflix. And there’s the irony. Instead of getting hit with an occasional late fee, she is choosing to pay much more in monthly fees. In general, she has trouble saving. Does this sound like anyone you know?

The story certainly reminds me of myself. I used to waste hundreds of dollars buying only new books, guilty about a single time a used book seller ripped me off. The truth is such mistakes are made by everyone. I hear the same thing when I talk to doctors, traders, and college students.

Too often we blame ignorance for our failures. This is a case where we know full well what we should do but we have trouble doing it. We can do better, and I hope this article motivates you.

What’s our problem, and how can we solve it?

Our problem: planning for perfection rather than planning for failure

All decisions have a chance of failing. There is no such thing as a risk-free choice. And yet, we forget that when we plan.

My friend wanted a perfect library system. She wanted completely free movies. She failed to consider the realistic outcome of failing and having to pay late fees. She was faulting herself rather than an unrealistic goal. The practical matter is that getting library movies, with occasional late fees, is a cost-effective solution. In her case, it hands down beats online videos.

When you make a decision, the relevant question is not whether there are problems. The relevant question is what you should do. If you can do better, then go for it. If you can’t, then stop complaining and feeling guilty.

Solution: plan for failure and tolerate flaws

It’s natural to look for flaws, but the problem is we use different yardsticks when making a decision. For things that are bad, we often measure what is good. For things that are nearly perfect, we measure what’s missing. And we let these flaws immobilize us.

Yes, it’s true getting movies from the library isn’t perfect. There are late fees. You have to leave your house. You don’t have the same selection. But measuring these things doesn’t really matter.

The simple question: is it better than Netflix, or another service? If the answer is yes, then don’t change.

Isn’t planning for failure pessimistic?

This is the biggest criticism I get. I respond that there is nothing pessimistic about considering failure.

Whether you plan for disasters or not, the risks are there. The only difference now is that you explicitly recognize the risks and make a more informed choice.

By realizing failure is part of the game, you will likely persevere through some bumpy times to reap big rewards. In a sense, this is a very optimistic system.

Other areas you can improve

Perfection is holding us back from making sensible choices. We need to consider risks and allow for randomness. Here are some areas where I plan for failure:

• checking account: Try as I may, I know I’ll mess up payment timing, so I keep a little extra on hand for random payments to avoid overdrafts and excessive transfers.
• scheduling my day: I expect for things like traffic and tardiness so I am generous with my meeting blocks. I am less stressed and have seen no productivity decline.
• changing my diet: I allow for weight swings and other issues, like cravings. I put the setbacks in perspective and don’t let them stop me. I might not be fully compliant but I end up eating healthier on average.
• investing in stock: I am patient with market swings because falls are unpredictable and often it’s not always easy to find better investments (sometimes cash might be the best). When I hold, I also stay in position for rallies.

I use this advice in thousands of areas. But I want to see your take.

How do you plan for failure? What is your advice for people who are struggling to save?

This article is included in the seventy-second Carnival of Money Stories at BrokeGradStudent