Page 142 - Morgan Housel - The Psychology of Money_ Timeless Lessons on Wealth, Greed, and Happiness-Harriman House Limited (2020)

Several of these events were existential to the company’s future. But none
were foreseeable, because none had previously happened to the CEOs
COBACOBA
dealing with these problems—or anyone else they knew, for that matter. It

was unchartered territory.

Avoiding these kinds of unknown risks is, almost by definition, impossible.
You can’t prepare for what you can’t envision.

If there’s one way to guard against their damage, it’s avoiding single points
of failure.

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. That’s a
single point of failure.

Some people are remarkably good at avoiding single points of failure. Most
critical systems on airplanes have backups, and the backups often have

backups. Modern jets have four redundant electrical systems. You can fly
with one engine and technically land with none, as every jet must be
capable of stopping on a runway with its brakes alone, without thrust
reverse from its engines. Suspension bridges can similarly lose many of
their cables without falling.

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.

The trick that often goes overlooked—even by the wealthiest—is what we
saw in chapter 10: realizing that you don’t need a specific reason to save.
It’s fine to save for a car, or a home, or for retirement. But it’s equally
important to save for things you can’t possibly predict or even comprehend
—the financial equivalent of field mice.

Predicting what you’ll use your savings for assumes you live in a world

where you know exactly what your future expenses will be, which no one
does. I save a lot, and I have no idea what I’ll use the savings for in the