Here is an exploration of why building "room for error" is the ultimate strategy for long-term success.
The Concept: Single Points of Failure
In the world of engineering, a single point of failure is a part of a system that, if it fails, will stop the entire system from working. As Housel notes on page 145:
"A good rule of thumb for a lot of things in life is that everything that can break will eventually break. So if many things rely on one thing working, and that thing breaks, you are counting the days to catastrophe."
Most people believe they are being efficient by eliminating "waste" or "extra" parts. However, in an unpredictable world, efficiency is the enemy of resilience.
Engineering Resilience: Learning from Jets and Bridges
To understand why we need redundancy in our wallets, we can look at how we build things that must stay up. Housel points out that critical systems on airplanes have backups, and those backups often have backups of their own.
Modern Jets: They possess four redundant electrical systems. A pilot can fly with one engine and, remarkably, can land with none because the brakes alone can stop the plane on a runway.
Suspension Bridges: These structures are designed to lose many of their cables without collapsing.
These aren't "inefficiencies"—they are the only reasons these systems are safe. If we demand this level of safety for a bridge, why don't we demand it for our livelihoods?
The Financial Equivalent: Saving for the Unknown
The biggest mistake most people make is believing that they only need to save for a specific goal, like a car, a house, or retirement. Housel argues that the most important kind of saving is for the things you cannot see coming.
"The biggest single point of failure with money is a sole reliance on a paycheck to fund short-term spending needs, with no savings to create a gap between what you think your expenses are and what they might be in the future." (Housel, 145)
Why You Should "Save for Nothing"
In chapter 10 of The Psychology of Money, Housel emphasizes that you don't need a specific reason to save. Realizing that you can save just for the sake of saving gives you:
Optionality: The ability to wait for a better job or a better investment.
Redundancy: A buffer against the "unknown risks" that are, by definition, impossible to prepare for.
Conclusion: Embellish Your "Room for Error"
The world is messy, and "uncharted territory" is where most of life happens. You cannot prepare for what you cannot envision, but you can guard against its damage by avoiding single points of failure.
By building redundancy into your life—through emergency funds, diverse skill sets, and a margin of safety in your budget—you ensure that when one "cable" snaps, your whole bridge doesn't come tumbling down.
Reference: Housel, M. (2020). The Psychology of Money: Timeless lessons on wealth, greed, and happiness. Harriman House.
