The fear of immediate loss

Loss is a fascinating thing. It taps into some of our greatest fears, and causes us to make irrational decisions. My past two posts have been on managing the fear of loss, and the fear of future loss. This post is on the flip side to the second topic: the fear of immediate loss.

This fear commonly occurs when we find ourselves in sub-optimal positions in life. We know that we need to change our circumstances, but know that this change will cause immediate loss, which leads to immediate pain.

This is the person stuck in a relationship that they aren’t happy about. Or stuck in a job that they aren’t happy about. They know a change is needed, but doesn’t it need to be right now? The immediate pain of a breakup sucks. Losing a current job, and a current paycheck also sucks. Beyond that, job hunting can be stressful. A career change can be even more stressful. We respond to this fear by procrastinating on making the proper change in our lives.

When we procrastinate on these changes, we introduce another kind of pain into our lives: the psychological pain of knowing we aren’t living the way we should. This psychological pain is initially small, but over time, it grows and eats away at one’s soul. With enough time, the pain becomes a large enough that we make the change we intended to make in the first place.

But do you see what has happens here?

The immediate pain is necessary. The psychological pain isn’t. It only exists because we wait and procrastinate. Sometimes it is days.. but more often weeks, months, years, or even decades. By then, we have (1) suffered an intense amount of psychological pain, and (2) potentially lost years or decades of our lives.

There is only one case where the immediate pain doesn’t occur, and that is when the procrastination is indefinite. This isn’t any better. In fact, it is much worse. Imagine living an entire life that is inconsistent with what you actually want in life. I wouldn’t wish this this pain on anyone.

The moral of the story?

If you know something has to happen, but fear the immediate loss, just get it over with. You don’t have any better options

P.S. This is post number #62 in a 100 day blogging challenge. See you tomorrow!

Follow me on Twitter @alexshye.

Or, check out my current project Soulmix.

Retirement and the fear of future loss

Yesterday, as I finished writing on managing the fear of loss, I realized that the topic could easily be a much much longer blog post. One of the problems with this 100-day blog challenge is that don’t have the time to write longer posts. So here is an addition to yesterdays post.

This post is on a particularly insidious type of loss aversion: the fear of future loss. The main example I have here is dealing with money and retirement, but there may be other examples.

As a guy that has quit his job and burned into his savings for the past 18 months, I am often in a strange position when I interact with most of my friends and acquaintances. My financial situation isn’t particularly enviable. I don’t have the money to live like a 30+ year old with a well-paying Silicon Valley job. Yet, my work is somewhat enviable. I will occasionally hear:

Man, what you are doing is great. I have a few ideas and would love to try them, but don’t think I can step away from my paycheck. The pay is too high, and I’m not sure I can eat into my savings and my retirement.

Basically, people occasionally envy that I am able to burn money that they can’t, or won’t. Strange, but I hear it fairly often.

So why won’t they do it? My take on it is that it is the problem of dealing with future loss. And it can be a big psychological problem; especially with money.

Let’s do the math here.

Let us say that a 30-year old is thinking about the value of a dollar for retirement and estimates a 10% growth in investments per year. This would mean that each dollar this 30-year old has will be worth over $28 at age 65, and over $72 at age 75! That is quite a multiplier, huh?

This 30 year old looks at their savings, does the math. If they stop taking a salary, they will lose out on a lot of retirement money. And it is worse than that. They will need to burn money, and they will lose out on the growth from that money also.

When looking at the numbers this way, it is a no brainer that this 30-year old should save their money and keep in the job. In fact, you can get as extreme as you would like. Why spend $1,000 on a vacation when it will be over $28,000 for retirement? Why buy a $1 Coke now, when you could have $28 in the future?

A person who is sufficiently afraid of this future loss will skimp on everything right now in order to reap the benefits in the future.

And in doing so, IMHO, they will have done themselves a great disservice.

Why? We only live once. At each age, there are things that we can do that will maximize our life experience. Vacations and trips may seem frivolous, but can turn out to be life-changing and eye-opening. Some vacations are best done when you are young. Others are best when you have a family. Quitting a job to start a business is requires energy. You must start relatively young. At the very least, you can’t wait until retirement age.

It is possible to push off some experiences for months or years. But thinking about retirement is insidious because it requires pushing things off for decades. At this point, it isn’t even pushing them off — it is ignoring them. It may mean ignoring experiences that will greatly add to your life. It may mean ignoring your hopes and ignoring your dreams.  By the time you retire, you will be too old for many of these things.

Of course, planning for retirement is important. These days, we can’t count of pension plans or social security for retirement. But, be careful with how you think about these things.

Valuable life experiences are invaluable — you simply can’t put a price on them.  It is tough to reconcile these experiences with the loss of future money, but it is tradeoff everyone needs to figure out at some point. When you decide, just make sure that you understand the price you have decided to pay, and that this price doesn’t lead to large life regrets. Because if does, you won’t realize it until it is far too late.

P.S. This is post number #61 in a 100 day blogging challenge. See you tomorrow!

P.P.S. I realize that this blog post is useless for the starving artists of the world. They clearly don’t have this fear of future loss. However, there are many people I know who aren’t these starving artists, but sometimes wish they could let go and try something. This post is for those people.

Follow me on Twitter @alexshye.

Or, check out my current project Soulmix.

Managing the fear of loss

Scientific studies have shown that psychologically, loss is twice as powerful as gain.

This is a crazy thing, and IMHO, causes poor decisions as well as a poor mindset in general.

Why is this?

The expectation of gain is hope. Hope does wonderful things for humanity and society. Is it only with hope that we can create a vision of the future, plot out a course towards the vision, and the put in the blood, sweat, and tears that are necessary to get things done. Hope drives progress. Hope drives innovation. As an entrepreneur, I am fueled by hope. Without it, I wouldn’t get anywhere. As a society, we all need hope to exist; the more cumulative hope we have in the world, the better off we are for it.

When we give in to our natural fear of loss, we give our fear twice the power it should have to squash our hopes and dreams. It is irrational, and it causes people be motivated by fear instead of hope.

The only way to manage this fear is to be aware of it.

The first thing you can do is to work to mentally treat loss and gain equally. That is already a huge step because it removes the 2x multiplier that loss usually gets. Realize that the $1 lost as the same value as the $1 gained.

However, in many cases (I would argue that in most cases), you can do much better than this: you can zero out the loss.

The trick is to manage your expectations. Ask yourself a few simple questions. What matters to you in life? Are you still alive? Do you have the basic necessities? Do you still have your friends and family? Can you pay rent/mortgage and find a way to eat? If so, what else do you need? How important is the actual loss?

Obviously, there are larger forms of loss. And there are important losses; especially the loss of loved ones. However, most of the loss we deal with in life are not these important losses. They are little (potential) losses that become large within our minds, and then cause us to make bad decisions and squash our hopes. Don’t give the little (potential) losses this power.

P.S. This is post number #60 in a 100 day blogging challenge. See you tomorrow!

Follow me on Twitter @alexshye.

Or, check out my current project Soulmix.