The Number You Can Afford to Lose
The Number You Can Afford to Lose
By A Lawyer and Her Money December 1, 2020
My family got a $70 parking ticket on vacation in Canada. When she saw the ticket, my mom started cursing, yelling, and crying. This was shocking both because my mother has never been an emotionally effusive person and also because my parents are quite comfortable financially, having lived frugally their whole lives. This $70 fine was a number she could afford to lose with no repercussions and yet she acted as if it was a life-changing disaster.
The only thing that calmed her down was assuring her that Canadian police were unlikely to enforce the ticket (sorry, Canada). Still, the whole experience got me thinking, what’s the point in having money if you don’t feel the wealth emotionally? And how can you finally get that feeling of financial security?
The Number That You Can Afford to Lose
I came up with a concept that I call “the number that you can afford to lose.” This is an amount of money that you can lose for whatever reason, and it won’t detract from your life.
The point of knowing the number you can afford to lose is being able to differentiate between a catastrophic loss and an annoying one. Of course, when you’re starting out in your financial life, a $70 parking ticket could set off a cascade of events that ruins your life. Maybe paying the ticket means you’re late on rent, which means you get a late fee, and that fee leads to a payday loan to pay for groceries, etc. If a $70 fee could turn your life into a tailspin, you better park extra carefully.
When you gain more savings and have more stability in your career, you shouldn’t respond in the same way to a $70 fee as when you you had very little money. It’s always going to be annoying to get a parking ticket, but it’s important to realize that you can recover. And that means you don’t ruin your day or others.
Is this an Emergency Fund?
The number you can afford to lose as the opposite of an emergency fund. An emergency fund is the short-term money you keep around in case everything goes wrong. If you lose your job and can’t make any other money, that’s why you have an emergency fund. This is the money for worst-case scenarios, for security, for fear.
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