Nice work, Grant! I really like your use of analogies to explain your key points. I tend to use buffers to manage risk. For example, determining my minimum final exam grade needed to receive an X letter grade, keeping the ball in the center of the tennis court instead of going for winners down the line, and playing the 18th hole conservatively when holding a one-shot lead over my golf opponent.
I agree that buffers are useful, but have you thought about how buffer size can sometimes cause more harm than good?
The first example I can think of relates to investing. A proper emergency savings account typically hold 3-12 months of living expenses. This money often is sitting as cash or in a bank collecting practically no interest. When people go beyond this range and hold the majority of their money in a savings account instead of in the market, they end up losing out on significant gains over time because they would rather keep their money safe in a savings account instead of risking their money losing value in the market.
The second example relates to football. At the end of a half or the end of a game, the team ok defense often plays a “prevent” defense if the score is close and the team on defense is winning. This conservative strategy is used to prevent long plays that could go for touchdowns while sacrificing short and medium yardage plays. The problem with this strategy is that the defenders create an extreme buffer between themselves and the offensive receivers which makes it easy for the offense to move the ball down the field into field goal range or into the red zone with a good chance at scoring a touchdown. I can’t tell you how many times I see a football team play good defense throughout a game, but ultimately loses the game because after giving up points on the final possession using a prevent defense.
In both of these cases, I see extreme buffers as causing more harm than good.
These are great points. I think the key is in the subjective term "appropriate" buffer. We call things extreme because, based on our experience, they are overkill, or inappropriate for the situation at hand. And you need relevant experience or knowledge to make that judgment call. Your specific knowledge actually determines what appropriate means for you.
Very hypothetical, but if you know for sure you can get a similar-paying job 1 week after you lose your current job, do you need as big of an emergency fund as someone who has very limited re-employment prospects? Your knowledge changes the "appropriate" size of your emergency fund buffer.
It's really interesting how "appropriate" is so context-dependent. It definitely takes some effort to get it right, but I think it's effort well-spent.
Nice work, Grant! I really like your use of analogies to explain your key points. I tend to use buffers to manage risk. For example, determining my minimum final exam grade needed to receive an X letter grade, keeping the ball in the center of the tennis court instead of going for winners down the line, and playing the 18th hole conservatively when holding a one-shot lead over my golf opponent.
I agree that buffers are useful, but have you thought about how buffer size can sometimes cause more harm than good?
The first example I can think of relates to investing. A proper emergency savings account typically hold 3-12 months of living expenses. This money often is sitting as cash or in a bank collecting practically no interest. When people go beyond this range and hold the majority of their money in a savings account instead of in the market, they end up losing out on significant gains over time because they would rather keep their money safe in a savings account instead of risking their money losing value in the market.
The second example relates to football. At the end of a half or the end of a game, the team ok defense often plays a “prevent” defense if the score is close and the team on defense is winning. This conservative strategy is used to prevent long plays that could go for touchdowns while sacrificing short and medium yardage plays. The problem with this strategy is that the defenders create an extreme buffer between themselves and the offensive receivers which makes it easy for the offense to move the ball down the field into field goal range or into the red zone with a good chance at scoring a touchdown. I can’t tell you how many times I see a football team play good defense throughout a game, but ultimately loses the game because after giving up points on the final possession using a prevent defense.
In both of these cases, I see extreme buffers as causing more harm than good.
These are great points. I think the key is in the subjective term "appropriate" buffer. We call things extreme because, based on our experience, they are overkill, or inappropriate for the situation at hand. And you need relevant experience or knowledge to make that judgment call. Your specific knowledge actually determines what appropriate means for you.
Very hypothetical, but if you know for sure you can get a similar-paying job 1 week after you lose your current job, do you need as big of an emergency fund as someone who has very limited re-employment prospects? Your knowledge changes the "appropriate" size of your emergency fund buffer.
It's really interesting how "appropriate" is so context-dependent. It definitely takes some effort to get it right, but I think it's effort well-spent.