On Margin

This post is for my younger colleagues on the student planet.
Yes kids, this is a long post. Suck it up and read it over the weekend.
This is important stuff.
And please go, read this on the blog.



Introduction

In The Intelligent Investor, published in 1949, Benjamin Graham[1] wrote:

In the old legend the wise men finally boiled down the history of mortal affairs into the single phrase, “This too will pass.”

Confronted with a like challenge to distill the secret of sound investment into three words, we venture the motto;

MARGIN OF SAFETY.

… the function of the margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future.

(emphasis mine)

What does that mean to me?

That in order to do anything with my life, in any area, I should have enough to face the worst that I think, could happen to me.

I’ll simplify it further.

Margin is having enough room to breathe;
and knowing what “enough” means in every sphere of life.

It has implications throughout life and across various societal disciplines even.
Ben Graham’s quote above comes from the field of finance.
What about engineering?

Consider a highly-engineered jet engine part. If the part were to fail, the engine would also fail, perhaps at the worst possible moment—while in flight with passengers on board … We’ve designed the part for 10,000 hours of average flying time.
That brings us to a central question: After how many hours of service do we replace this critical part? 9,999 hours? Why replace it any sooner than we have to? Why waste money?

The first problem is, we know nothing of the composition of the 10,000 hours any individual part has gone through. Were they 10,000 particularly tough hours, filled with turbulent skies? Was it all relatively smooth sailing?
And, how confident are we, that the part will really last the full 10,000 hours? What if it had a slight flaw during manufacturing? What if we made an assumption about its reliability that was not conservative enough? What if the material degraded in bad weather to a degree we didn’t foresee?

The challenge is clear, and the implication obvious: we do not wait until the part has been in service for 9,999 hours. Perhaps at 7,000 hours, we seriously consider replacing the part, and we put a hard stop at 7,500 hours.

The difference between waiting until the last minute and replacing it comfortably early gives us a margin of safety. We leave ourselves a cushion. (Ever notice how your gas tank indicator goes on long before you’re really on empty? It’s the same idea.)

Go read the whole post. It’s awesome.


So, Why Do We Need Margin?

To paraphrase Dr. Richard Swenson, who’s literally written the book on Margin (the book has a moral, Christian bent. Don’t let that bother you);

  • Progress gives us more and more, which leads to
  • stress, change, complexity, speed, intensity, and overload.
  • which is bad, because all humans have physical, mental, emotional, and financial limits that are relatively fixed
  • Thus progress is on a collision course with human limits and once we can’t take progress any more, we flame and burn out. On the unsaturated side of our limits, humans can be open and expansive. Cross them however, and the rules of life totally change.

What would you think if this page had no margins?
What would you think of me if I crammed the print top to bottom and side to side so that every blank space was filled up?
The result would be aesthetically displeasing and chaotic.

Like some of our lives!

Marginless, according to Swenson, is being thirty minutes late to the doctors office because you were twenty minutes late getting out of the bank because you were ten minutes late dropping the kids off at school because the car ran out of fuel two klicks from the petrol pump and you forgot your wallet.
Margin, on the other hand, is having breath left at the top of the staircase, money left at the end of the month, and sanity left at the end of adolescence.

No Margin, causes hyperstress and overload. (terms that to folks like us, need no definition)

Here’s Dr. Swenson again,

To be healthy, we require margin in at least four areas:

  • emotional energy,
  • physical energy,
  • time,
  • and finances.

Yet, right now for the most part we are emotional wrecks, stressed, alone, and so exhausted in spirit.
Physically, we are overfed, underactive, and sleep-deprived.
We have no time, at all.
And when it comes to finances, our bank balances look as barren as the surface of Mars.


What Can We Do about It?

Thank Pareto, grab the low hanging fruit and do the twenty percent of the work that’ll yield the most margin in your life.

Remember, we live lives, full of intention now :)

Let’s intentionally tackle each domain and see what we can do.

Emotional:

  • Bond with your family
  • Make time for friends
  • Switch off the TV! … and your other screens
  • Get a pet or go play with doggies in the park
  • Pray, meditate.

Physical:

  • Eat less, move more
  • Walk, Run!
  • Cut out sugar
  • Drink water.
  • Have the discipline (or build it up) to keep at it.
    (I didn’t have any and I’m paying the price!)
  • Most importantly, get enough sleep.

Time:

  • You’ll never “find time”. Be intentional. Make time!
  • Learn to plan your day and your week.
  • Plan your day with plenty of spaces in the middle
  • Did you cut out FB? Twitter? TV? :P
  • Learn to say No. No is a complete sentence.

Financial:

  • Stop eating out! Learn to make do.
  • The only debt you have should be your home. (and no more than 40% of income at that)
  • Have 6 months living expenses in the bank.
  • Spend way less than you make. (The bigger the buffer, the more chaos you can handle.)
  • Be comfortable with charity and giving now, when it’s hard to do. Like Dave Ramsey says, “If you will live like no one else, later you can live and give like no one else.”

And finally here’s James Clear, echoing Taleb
Leave Room for the Unexpected!

If your life is designed only to handle the expected challenges, then it will fall apart as soon as something unexpected happens to you.
Always be stronger than you need to be.
Always leave room for the unexpected.

Thank you for reading. Here’s a puppy.


This is the bonus section

Want to hear from an actual practitioner?

So what is the lesson?
Save your current income, even as you build complementary skills like frugality, adaptability, and the ability to earn money in more than one way.
Then you’ll be ready to retire much earlier, because the sum of your safety margins will be enough to make you feel comfortable taking the leap.
And most importantly, stop worrying!

That’s Mr. Money Mustache (real name, Pete Adeney), software developer who retired at age 30! (watch the video)


Resources:
(in the grand tradition of @mbuf feeding us well with knowledge)

P.S. This post is part of the Life Outside Code series.



  1. via http://amarginofsafety.com/about/ ↩︎