Addicts, Irrationality and Emergency Funds

Addicts make zero sense. Especially if they admit to trying to quit. They want to quit, their loved ones want them to quit and yet they seem to settle on the same pattern of behavior.

We like to pride ourselves on being rational and making decisions based on data and numbers. We’re all rational until we’re not. Everyone makes logical decisions at the moment, but we’re all looking at different time horizons.

Debates and Debates

It’s entrenched in our DNA to argue on the internet. Morgan Housel’s exceptional book, The Psychology of Money, exposes the seemingly illogical decisions that others make. To a college-educated, white male, investing in the stock market seems to be the most valuable thing you can do. To someone from Zimbabwe escaping the hyperinflation crisis, investing in anything seems crazy. Our experiences shape our life and more importantly, our decision-making.

Take the example of emergency funds and lottery tickets. The group of people most likely to be habitual lottery ticket buyers is the same group who don’t have three months of expenses saved. Instead of buying lottery tickets, the money spent would be better put into an emergency fund, right?

Wrong. When people are in such a bind that a single unexpected expense can cause a cascade of unfortunate events, the lottery seems to be the best option. It provides hope. Even if an emergency fund would provide substantially more to one’s financial situation, an emergency fund can’t buy hope.

This is the crux of short-term thinking. When living paycheck to paycheck, it becomes unfathomable to plan for a retirement fund or save for your kid’s college. All the steps for long-term success, saving 10% of income, investing 10% in index funds, and keeping housing costs under 30%, go out the window. Your eyes glaze over and the advice goes in one ear and out the other as someone looks at your situation in shock. All the logical advice is worthless if it can’t speak to someone in desperation. That’s why having an emergency fund is so valuable.

An emergency fund allows you to expand your time horizon. Once you have three to six months of living expenses saved up, you’re able to breathe. The former life-altering flat tire now becomes an inconvenience. The emergency fund gives peace of mind to the present day so that you’re able to build solid habits for the future.

Too Much of a Good Thing

Of course, there’s such a thing as too much of a time horizon. Everything we have should be in the scope of our lives. Bill Perkins's central argument in Die with Zero is, “Too many people save too much money for a future date that will never arrive.” Whether working too long at a job you hate, saving too much money for a vacation that you’ll be too sick to enjoy, or avoiding the donut, we over-optimize our lives.

Every season in life has its time horizon. When you’re young with nothing to lose, it’s all about taking risks and chances. Try new activities, meet new people, and work hard. Once you’ve gotten older, it’s time to focus. You have less time to waste, so it’s important that you know what’s important to you and cut everything else.

So What Now?

This is why addicts exist. For an addict who admits they want to stay clean, they want to live the rest of their lives free from their addiction. But when something triggers them, their time horizon narrows. Their decision-making process now becomes a decision between the pain of relapsing or the pain of staying in their emotional state for the next 30 seconds. And often, the pain of staying in their emotional state for the next 30 seconds is too great. They relapse, beat themselves up, and then start the recovery process again.

Addicts make logical decisions, just like the rest of us. But being able to sustain recovery is avoiding the moments when the other guy is in control. Desperation makes fools of us all.

-Derek