too big to fail

Collapsing Villa
If a company is too big to fail, it’s too big.
If something in your life is too big to fail, it’s probably too big, too.  I have a number of things in my life that can easily be classified as too big to fail:  family, health, income, home, my goals.  For each part of my life that is “too big to fail” I either break it down into smaller, less-likely-to-fail components (for example, my income), take steps to protect it (my home) or make preventing failure a priority (my family).

As one company (AIG) after another (Citigroup) benefited from being “too big to fail”, someone should have asked the question “why are we allowing these companies to become so big, in that case?” Wal-Mart is too big already, for example.  Could it fail and not affect the US?  What happens after Citigroup fails?  Does Bank of America then vault to the top of the “too big to fail” list?  How can anyone sleep at night knowing that the economy has companies whose failure might cause the destruction (or at least degradation) of our way of life?

Yet many of us do the same thing in our own lives. We allow our sole source of income to be our job’s income, making our job “too big to fail.”  We put too much of our net worth into our homes, making our home’s value “too big to fail” in relation to our net worth.  Even though our health is “too big to fail,” many of us neglect time exercising or eating right because we have other priorities.  Will those priorities still seem important if you have a heart attack from overweight?

I never spent much time worrying about the consequences of any part of my life being too big to fail until recently. I understood – or thought I did – the markets and the path to a safe and secure retirement.  I was supposed to work hard at a job put what I could into savings (IRAs, CDs, whatever).  Even though the market might fluctuate up and down, over the long run I would be doing the right thing – I would be securing my retirement.

But this strategy may be too big to fail. Hoping to save money now for a secure life in the future may not be enough.  I am enough of an optimist to believe that the markets and our economy will, in time, recover – but I am enough of a realist to realize that one more collapse like this in 20 years could destroy my life’s strategy of “saving.”  What I am coming to realize is that relying on savings at any point in my life may be dangerously close to making those savings “too big to fail” for my family and me.

The insurance policy is to make sure that my income is diversified, that my savings are not concentrated solely in the market, and that I keep my mind focused on the endgame:  creating the life I want to have, not the life the government (or anyone else) wants me to have. The government would prefer us all to be a corporate employee, paying employee taxes, putting money in the market to benefit the corporate partners of the government and quitting work at a government-mandated age so we have to start pulling out our savings and paying those long-delayed taxes on our traditional IRAs and 401(k)s.

The goal has to be making your financial existence a complement to your life, not the one part of your life that is too big to fail. if you can’t control your spending, or if a single source of income puts a chokehold on your career choices or even if your savings strategy doesn’t account for a changing economy, you have made something in your life too big to fail.  Don’t.  Diversify.  If anything is too big to fail, break it down until it isn’t.  It’s a timeworn saying, but it’s just as true today as ever:  don’t put all of your eggs in one basket.

photo credit: ZeroOne

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13 Replies to “too big to fail”

  1. That's a great title, because it really is true. I am too young for that to fully hit me but can understand the point. Because of that philosophy you would think people would start living below their means opposed to above like many currently are. Too much relies on the big picture and needs to be handled appropriately to be comfortable for the future.

  2. Interesting idea.. so, let's say we DO keep saving for retirement. How do we make those funds fail-proof? Should we take a percentage out every 5 years and put them into cds or something? That of course can potentially bring on a different kind of fail: failure to maximize growth in the interest of protecting capital. But the flip side, facing another gut-churning market right before I retire, isn't appealing at all.

    I realize you don't have answers, but would like to hear thoughts on this subjec.

    1. @bethh: I think it's got to be a mix, doesn't it? I've put some money in cash and I've kept a lot – in fact the majority – in investments. The failure to maximize growth is based on an assumption that may not be assured in the future: that growth will occur in the markets! It's been a long-standing belief that markets must inevitably rise, but I think we'll see it tested over the next decade – we may have a long, slow stasis. We'll see – but for now I'm hedging my bets.

  3. You make a very good point. We should all try not to become 'too big to fail'. Too many people (including myself) rely on their job. I am trying to make it so I am not so reliant. Brilliant post, really got me thinking.

  4. Well said. We are learning that any kind of “eggs in one basket” or deferred life plan is set up for trouble.

    “Happiness is not something you postpone for the future; it is something you design for the present.” – Jim Rohn

  5. True — the current state of the economy (and all that lead up to it) has opened my eyes to the fact that you can't rely on one source of income (whether it be your IRAs for retirement or your paycheck during the working years). This has instilled a baseline caution in me and reinforced my desire to be proactive with my financial choices.

  6. What a great way of making the point, Steve. And too big to fail can apply to a lot of aspects of our lives – house, debt, income, expectations and aspirations, and so on. You may be making the argument (which I have tended to believe) that it is better to be a generalist in your life, rather than a specialist.

    For many years I have had multiple income streams – my LLC and its clients have traditionally accounted for 30-60 percent of my income. One downside of this strategy is that I work a lot of hours, and some periods are much busier and others, as both the salary work and my LLC hit peaks. I wish I could control it better, but we are subject to market trends. Today, many more companies seem to be outsourcing the work I do in my LLC, and at the same time I am filling two full-time roles in my day job.

  7. Great points! Still some things, by definition would have to be too big to fail. Like our health, family perhaps for many, etc.

    On the material things, you have made a whole new perspective on diversifying.


  8. Great points! Still some things, by definition would have to be too big to fail. Like our health, family perhaps for many, etc.

    On the material things, you have made a whole new perspective on diversifying.


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