The Number You Can Afford to Lose

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? 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 is 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. An emergency fund is the money for worst-case scenarios, for security, for fear.

The number you can afford to lose is the excess of your larger long-term investments. You don’t rely on it for your day-to-day. This is the money for best-case scenarios, for daring, for believing in yourself. Maybe it means you have to work a bit longer in the future to make up for it if it’s lost, but this is the money that lets you aspire to your big lofty dreams. This is the money that lets you know that if you fail and lose it, you’ll still be ok. This is the money that you can lose on parking tickets and not lose your mind.

You Can Lose More than You Think You Can

I once mentioned to a friend that I was starting a brokerage account for stocks. I only funded the account with an amount of money I thought I could risk losing in its entirety, which at that time I judged to be $5,000. My friend countered I could actually lose a lot more than that and still be ok. Based on my age, my stable income, lack of debt, and savings, I could lose perhaps $50,000 or more and I could earn it back over time without major changes to my retirement or my life. I didn’t depend on any of this money for the near-term.

This was a revelation for me. It meant that I didn’t need to worry that much about every little thing. It gave me a lot of confidence.

And of course, I’m investing in index funds and reasonable stocks for the long haul, so it’s near impossible that I would lose all the money in the account. It’s much more likely that I would gain more by investing more. Ironically, knowing the number I can afford to lose helps me earn much more money.

What the Number Means

What’s the point of knowing the number you can afford to lose? As I said above, it can help you earn more. But also, it’s to give some peace of mind.

I don’t want to worry about $70 tickets for the rest of my life and I don’t have to.

It’s also a goal. I want to be able to have enough money that any typical unexpected fines won’t crush me. I want to have enough money that I can pursue my dream, fail spectacularly, and know I’ll still be ok. The money is a game-changer in terms of your life trajectory and your mindset.

Don’t Sweat All the Small Stuff

I have always sweated all the small things, and to great result. Having an extra $7 from bringing my lunch from home became an extra $35/week, an extra $1820 over the year, and an extra $20,000 over 10 years. That money was important to pay for things when I had no money and it gave me peace of mind.

But after I had paid off my debt and accumulated a certain amount of money, it became less important to save that $7. It didn’t provide as much to my bank account or to my peace of mind. I’m not saying I started buying lunch out every day (I actually don’t like eating out that frequently) but I didn’t need to care if I wanted to spend $7 on something.

Because I’ve always tracked my spending, I’ll always care a little about spending $7. But now that I have savings, I have trained my emotions not to panic about a missing $7 now. I spent all that time saving every $7 so I wouldn’t have to worry as much about $70 or $700 or $70,000 in the future. I managed my money so I wouldn’t have to keep reacting as if I was in the same position I was in when I was young and broke.

Worry Less

Racking up parking tickets, is a waste of money and it’s annoying. But if you’ve got savings, parking tickets are just annoying. Knowing that you’re fine even when life throws something unexpected at you is a huge benefit.

Women are much more worried about losing everything and becoming homeless than men. It’s called “bag lady syndrome.” Part of it is how we encourage women to obsessively worry. But this problem affects more than women’s minds. Women are often much less likely to leave abusive environments for fear of becoming homeless.

The number you can loss is a little bit like F-U money. It lets you confront your worst fear, plan for the worst, and once you’ve got a plan, you can feel more confident in your ability to rise up out of it.

Forgive Yourself for “Wasting” Money.

Part of the reason my mother went loco for the parking ticket was the moral culpability. Granted, wasting money is annoying. But it’s not a devastating loss. You can recover, you have recovered.

It’s just money. Women in particular may suffer from financial perfectionism. One budgetary mistake and a perfectionist is likely to throw her budget out with the proverbial bathwater.

But mistakes happen and we have to learn to forgive ourselves and move on. No one can be perfect with money and we don’t even need to.

Take Some Risks

It’s a number you can afford to lose and that means you can take some risks with it. You shouldn’t try to lose your money of course. Don’t go to Vegas. But you can think of it as play money, or, even better, dream money.

Too many people are too afraid to go after what they really want. But if you know how much you can afford to lose, you can take that risk. If you are in the stock market, you can ride it out until your losses swing back to gains. So now you have seed money for a business, tuition money for a new class, or just money that means you can keep your emergency fund intact.

Conclusion – The Number You Can Afford to Lose

Look, I’m not trying to say you can or should just throw money away. But too often people have money and still don’t have security. You have to build that security by believing in yourself. It’s very freeing to know that you don’t have to worry about every random fee or bump in the road. I hope it gives you confidence figuring out the number that you can afford to lose.