The Scarcity Trap

You’re back where you started
It’s the same thing
You keep trying to do something different
Over and over again
Something has to change


I’ve been thinking about the NPR Hidden Brain podcast episode, The Scarcity Trap: Why We Keep Digging When We’re Stuck In A Hole.

Not having enough of what you need can become the only thing that matters to you.

It’s a great episode (a 30ish min listen); I’ve copied the last part on the scarcity of time from the transcript to make it easier for future reference.

VEDANTAM: Eldar Shafir and Sendhil Mullainathan believe that when something you desperately need is in short supply, your brain tends to focus on that thing. This focus can be so intense that it impedes your ability to think about anything else. What happens when the thing you’re missing is time, when you’re so busy it feels like you don’t have time to breathe?

Expand to continue reading the excerpt

VEDANTAM: Let me tell you the story of a young woman named Katie (ph). She asked us to use her middle name for reasons that will be clear in a moment. For as long as she can remember, Katie has been driven - really driven.

KATIE: When I was in high school, I was determined to be valedictorian. So I took a sophomore-level honors biology course as a freshman in high school. And I studied around the clock. I had note cards. I walked through the hallways with the note cards. If there was a holiday party, I brought the note cards. And I’d also study till 2 or 3 in the morning.

VEDANTAM: Katie says she wanted to be perfect at school. She eventually got to medical school, where she excelled. She graduated at the top of her class and quickly started her residency. The new schedule was grueling.

KATIE: You can get in at 5:30 or 6 in the morning, and you round on all your patients. And then you - you round with the team. That means you go to all the patients and check in on their plan and adjust medications, et cetera, as necessary. And then there’s usually a lunch conference, where we have education. And then in the afternoon, we might take new patients in and keep following up on our patients. And on some days, we get to leave at 4 p.m. Some days, we don’t leave till 1 a.m. (Laughter). So - and then you usually start the next day at 5:30 or 6 in the morning again. And you get one day off a week, usually work 80 hours-ish a week.

VEDANTAM: As Katie’s workload grew, she started to feel she couldn’t afford to waste a single moment. Instead of spending any time relaxing, she started to focus only on things directly related to her success at work.

KATIE: When I first started, it was just, like, really busy. So I’d try to come home, and I felt like, you know, I just don’t have a lot of hours. So I need to make the most of them and was like, OK, I need to make sure I’m exercising, keeping my body healthy. And I need to read and stay on top of things. So I’d come home after a pretty long day, and I might go walking for half an hour. And then I’d read. And then I’d go to sleep.

But then, as the time went on, I decided to try to get in more exercise cause I’m like, I never know when I’ll get enough exercise in. So I started spending all my free daylight hours walking or running outside or going to the gym, up to three hours a day, plus, like, working 15-hour days and then trying to read and then go to sleep.

VEDANTAM: As she focused intensely on the things she believed were key to her professional success, Katie lost sight of things on the periphery. She didn’t know it, but she was entering the tunnel of scarcity. In her case, it was scarcity brought on by a lack of time.

KATIE: So I wasn’t going to the grocery store. My house wasn’t unpacked yet. And it was stressing me out. And it was just a mess. And I’ve - my clothes piled up. I had a lot of dirty clothes. And coming home just felt so overwhelming. I didn’t want to be there. And that’s part of, I think, why I was walking so much, just to get out of the house and get away from all the things I hadn’t done. And I also forgot to pay a bill in the midst of all of this.

VEDANTAM: What did you forget to do? What bill did you forget to pay?

KATIE: It was my energy bill.

VEDANTAM: The old Katie would have spotted all of this. I mean, you were just basically, at this point, almost falling apart it sounds like.

KATIE: I was. I was falling apart.

VEDANTAM: There was something else. Katie had battled anorexia as a teenager. She knew she had to stay vigilant about her eating. But as she started to focus ever more intensely on work, she slipped back into some old habits.

KATIE: I was eating mostly vegetables and fruits. And I wasn’t eating a whole lot else, maybe a cliff bar here and there.

VEDANTAM: No one knows better than a doctor about the importance of nutrition. And yet, despite all of her medical training, Katie stopped taking care of herself. Here’s one thing I haven’t told you yet about scarcity. It can rob you of insight, insight about how your own mind is changing. Katie had no awareness that she was heading down a dangerous path. It became obvious to her only when it finally affected her work.

KATIE: I started to notice that I was, like, nearly missing things as I was reviewing. For example, I admitted a diabetic. And I almost didn’t order insulin for them. But I did order the insulin. But I was like, I don’t think I can keep up with this anymore because if you don’t give a diabetic insulin - especially if they’re Type 1 - they can have very fatal circumstances in the hospital and get really high blood sugars that can cause them to have an acidosis and end up on a ventilator. So I turned myself in at the point that I saw that it was starting to affect my work.

VEDANTAM: In two months of the residency program, Katie’s body and mind had withered. Things had gotten so bad, she had to go to a residential treatment center. Katie struggled with two things. Her body was desperately in need of nutrition. And her mind, she had to find a way to stop the intrusive thoughts that were consuming her. She had to…

KATIE: Learn how to just sit because we weren’t allowed to exercise. We weren’t allowed to stand. We weren’t even allowed to do jumping jacks or squats. We had to just sit.

VEDANTAM: Katie’s mind was filled with angry and impatient thoughts.

KATIE: At first, I felt like - I felt useless because I thought, you know, if I’m not doing something productive, what is my purpose in life?

VEDANTAM: But gradually, as the program literally forced her to do nothing, she started to emerge from the tunnel. She realized she had been so narrowly, relentlessly focused on one goal, doing well at work, that she had ignored the very things she needed to succeed - moments of relaxation, like watching TV or reading a book. Katie had loved art as a child. But she had put it aside because she thought it wouldn’t help her become a better doctor.

KATIE: I’m kind of the type of person that just likes to study and then do after I’ve, like, mastered it from a study point of view. And so to just do something without instruction is - it feels very vulnerable to me. But it ended up kind of being my saving grace in my recovery. And I’ve actually created an art room in my house. I changed my office from a work room into an art room. And it has paints and watercolors and chalks and everything you can imagine. And I try to go in there once a week and just create something without any expectation, just for the purpose of creating it because I can.

VEDANTAM: Katie eventually returned to her residency program with a new outlook. She started doing something that Eldar and Sendhil recommend to all busy people. She actually pencils time into her schedule to do nothing.

KATIE: One of the big things I’ve done is I kind of have a date night with myself once or twice a week, where I just schedule off the night. And I won’t do anything with anyone else. And it’ll just be free for me to do what I feel like. It might be watching a movie. It might be taking a soak in the tub and reading a book or being in my art room and painting whatever comes to me. But I do - like, I prioritize that. And I actually won’t accept plans with friends, generally, when I do this. So that’s one of the things I do.

VEDANTAM: Katie is consciously freeing up bandwidth. And something strange has happened as she’s done so. The less consumed she feels about work, the better she does at work.

KATIE: Honestly, like, it’s kind of incredible. But at work, my brain has increased its capacity fourfold. I am able to hold so many more things in my consciousness at once and manage them. I’ve just seen a really huge improvement in my ability to enjoy being in the company of others, to enjoy, like, occasions and to enjoy my work and do well at my work.

VEDANTAM: While the psychological studies into scarcity and bandwidth are relatively new, the ideas are actually ancient. Avoid tunnel vision. Keep difficult things in one part of your life from contaminating everything else. Be present.

MULLAINATHAN: Say you have a big deadline tomorrow for something you’ve got to finish. You go home, and you’re spending the evening with your kids. And in that moment, you’re not present-focused at all. What you’re focused on is that deadline. You - you may go through minutes where you didn’t hear what your kids were saying to you because your mind keeps going to this other thing.

VEDANTAM: Tunnel vision is not in itself a good thing or a bad thing. Shutting out distractions can be helpful at times. The question is, do you know when you’re inside the tunnel?

MULLAINATHAN: To me, that’s exactly the heart of managing scarcity. It’s recognizing when you’re trying to do something related to your scarcity where you really want to use that instinct. And when have you made a conscious decision to do something else where what you really need to do is to not have it intrude on that something else. You’re at home. You’re with your kids. You chose to be a parent for that three-hour period. You really don’t want scarcity to intrude then.

VEDANTAM: Of course, it’s easy to say, build free time into your schedule. Stay present with your family. Take a vacation. These strategies presume you have choices.

MULLAINATHAN: You can’t say, I’ve had it with being lonely. I’m going to take a vacation from being lonely. It’s not a choice. And to me, loneliness and poverty are the forms of scarcity that feel the biggest because while all these forces are at play, there’s no release valve. There’s no escape mechanism.

VEDANTAM: Eldar and Sendhil want policymakers to design solutions that recognize how scarcity creates traps from which many people may not be able to extricate themselves. And they want the rest of us to stop preaching to those in poverty.

SHAFIR: If you look at programs of poverty, we often confound a little bit the attempts to help the poor with the attempts to educate them, make sure that they show up on time, that they do the right things. From the perspective we’re taking with scarcity, in some sense, if I’m very busy juggling a very complicated life, insisting that I show up at the office at 8 and not 8:05 is not doing me a favor. I don’t need to be educated. It’s just hard to manage. I’m - you know, it’s just the transportation is not reliable. My kid is not ready. I don’t have a babysitter. I’m going to make mistakes. It’s not clear educating me,” in quotes, about things is going to help me at all. It just makes my life all the more complicated.

VEDANTAM: When people in poverty fail or make mistakes, the researchers think we should respond to them the same way we respond to mistakes made by airline pilots. There was a time not long ago when we thought that airline pilots who made mistakes were just bad pilots. Sendhil says a big reason air travel has become safer in recent decades is that there has been a shift in thinking about such mistakes. Designers have made cockpits fault-tolerant. Rather than trying to find perfect pilots, cockpits are now designed to account for human error. The goal is to alert pilots when they’ve made a mistake and to diminish the consequences of mistakes.

MULLAINATHAN: It’s ironic that when we design cockpits, the entire mantra of fault tolerance seems so intuitive. But when we design social policies, nobody’s out there talking about, let’s make this fault-tolerant. I mean, you know, poor people have a lot on their mind. Their bandwidth is taxed. They’re going to make mistakes. Let’s make sure this program is robust when they do make that mistake. It’s just not the way we think.

If I offer a training program, I don’t sit there and say, let me make sure, you know, what’s going to happen? This is for low-income individuals. Surely, they’re going to miss a few days because, you know, it’s hard to get get to class sometimes or other things are on their mind. So let me design this curriculum so that it’s in-attendance (ph) tolerant. So even if somebody misses three days in a row, they’ll be able to come on that fourth day and still feel caught up. In fact, our training curriculum is often quite the opposite. If you miss three days in a row, it’s an invitation to miss the fourth day because you’re not going to get anything.

VEDANTAM: Brandy Drew eventually turned her life around. She found a low-income assistance program that offered her help. She worked with a financial counselor who gave her strategies for budgeting her money and keeping track of long-term priorities.

DREW: I actually have a calendar now that I write down everything to make sure I’m paying things on the correct day and time.

VEDANTAM: It’s taken time and little steps, but Brandy is no longer in the scarcity tunnel. She’s been working for two years now. And she has savings.

DREW: I know that if anything happens - God forbid, if I lose this job - I know that I can survive for at least six months if I have to look for another.

VEDANTAM: Eldar and Sendhil themselves say they are constantly trying to keep the lessons of scarcity front and center in their own lives. As a busy academic, Eldar has come up with a rule. When an invitation to an event two months down the road comes along, he asks himself whether he would attend the event if it were tomorrow. If the answer is no, he declines the invitation because his life is not going to be any less hectic two months from now.

Preserving bandwidth takes conscious effort. Most of us, Eldar included, are going to violate the Eldar rule. We’ll say yes to new commitments when we don’t have the time or pull out a credit card when we can’t afford it. In those moments, it’s important to look up to notice we are inside a tunnel.

Takeaways

I’ve highlighted some of the sections that stood out to me in the excerpt above. Gone unchecked, scarcity can easily trap us in this loop:

In hindsight, I can pin point times in my life I’ve been a scarcity thinker. The effects of scarcity also remind me of the impact of burnout I’ve felt, which I’ll probably write about in the future.

I’m trying to get better at identifying these feelings as they happen and effectively combat the lapses in judgement they can create.

December 6, 2020 · life

Decision Tree of Life

Surely we’ll live to see the day
When all of our problems, they fade away


Have you been making the right decisions for yourself? How do you know?

Life is a sum of all your choices
Albert Camus

Most times, there’s no objective way of knowing we’ve made the best call, which is what makes big decisions so difficult. At best though, we can be mindful of how it aligns with what we truly want.

My ideal approach to decision making is as follows:

  1. Classify the problem into a category of my life
  2. Mentally make a decision tree for each category with the questions that are important to me
  3. At decision time, follow my ready-made decision tree, making lose adjustments if necessary
  4. In reflection, reiterate my decision tree based on the new experience

Do I just wanna be an AI??Do I just wanna be an AI??

Why do I do this? Because sometimes life is noisy!! That’s when it’s hardest yet most vital not to let momentary emotions make me lose sight of my guiding principles/goals and ultimately, myself.

Now, the key word was ideal approach as I can’t be prepared for everything (hey, that’s life). If and when I find myself caught up in my emotions, then at the very least I should optimize for a certain one.

For a long time, I thought I should be optimizing for happiness but I’ve realized the pursuit of it felt almost competitive — just as I could gain it, I could in equal likelihood lose it. Happiness fluctuates but peace, on the other hand, feels more constant. It’s completely independent of external circumstances or experiences. That’s what I want to optimize for.

In the book Love is Letting Go of Fear, Dr. Jampolsky shares 12 lessons as foundations for creating that inner peace. Once I looked past how cheesy it seemed, it taught me a lot of interesting lenses from which to view the world. A lot of it stems from recognizing our choices. Perhaps the most profound lesson has been the simple, all encompassing decision tree I’ve derived from it.

I was stuck by this line:

Each day ask yourself the question, Do I want to experience peace of mind or do I want to experience conflict?”

Maybe it’s an oversimplification, or maybe I’ve just been overcomplicating it. Lately, this is what’s been driving most of my decisions:

I can work with that.

December 3, 2020 · life

FIRE Plan

When is it enough?
How bad do you need that stuff?
What’s it all for?
Why’s it seem like you still want more?


In the past few months, I’ve been thinking more about what my financial goals are and how I can attain them.

It’s mostly involved learning from other people but in this post, I want to explore what a roadmap to financial independence could look like.

Financial independence: When income from your investments alone is enough to cover all your expenses.

FIRE: Financial independence / retiring early

Now, there are plenty of shorter term goals, i.e. buying my first property, but I want to analyze what these goals entail separately so that by the end, I can:

  1. order them by my priorities,
  2. build a comprehensive, actionable financial plan for myself, and
  3. incrementally work towards them simultaneously

I’m starting with retirement because honestly, being 21 and graduating being the most pressing life goal in my short term future, it’s by far what I think about least.

I’m no expert so this for my own reference and perhaps food for thought.

Motivation

Goal: Afford retirement at 34, which gives me roughly 13 years from now. It seems ambitious but hey if I miss the goal, at least I’d still be on the right path.

I have no desire nor intention to retire at that age but if I can commit to the financial discipline, I could use the savings to instead seriously help support the retirement of my parents which is one of my personal goals.

If not, then use it for literally anything else ¯\_(ツ)_/¯

Retirement Math

This article outlines how long someone has to work before they’ve saved enough money to retire, where savings rate is the % of take-home pay (gross income after taxes) saved.

Savings rate Years until retirement is possible*
0% You will never retire
10% 51
30% 28
40% 22
50% 17
60% 13 ← where I want to aim to be
80% 6
100% Working for fun!

* Assuming 1) starting with a net worth of $0 and 2) earning 5% return on investment during saving years.

To afford retirement in 13 years, I need to save 60% (live on 40%) of my take-home pay. Sounds simple enough (at least in theory).


Expenses

From when I started university in 2017 til I promptly moved back home after COVID took over the world, I’ve lived in residence. When I’m not at res, I’ve lived at home. In short — I know nothing about what my real world expenses would look like.

But I can Google. And plan.

Budget Living in Toronto

These numbers are from a combination of real budgets from people on r/PersonalFinanceCanada and any expenses I have had. I’m going to err on the side of caution and make liberal estimates. Better over than under estimated in this case.

Expense Monthly Budget
Rent $1,500 ← upper end of the $1-1.5K range w/ roommate
Groceries $300
Dining out $200
Phone $60
Internet $70
Subscriptions $30
Transit pass $140
Travel (Uber, etc) $100
Entertainment $150
Misc. $450 ← whatever else
Total $3,000/month

In total, that’s $36,000/year of expenses. This obviously leaves a lot of room to save.

Let’s assume this lifestyle remains the same in retirement.

The Point of Financial Independence

Assuming a 4% safe withdraw rate (i.e. annual rate of return post inflation), I’d be able to cover those expenses yearly if I started with $36K / 4% = $900K.

This means if I had $900K saved a time of retirement, I can theoretically live off the interest earned off this at $36K yearly for the rest of my life.

The logic aka perpetuity:
Say I start the year with $900K. It earns 4% interest that year. By the end of the year, that money has grown to 900K * 1.04 = *$936K. I withdraw the $36K to live on, leaving me with $900K. Rinse and repeat the next year, effectively infinitely earning $36K a year.


Income

Based on the chart above, to be retirement ready in 13 years, I need to be living on 40% of my income. For 17 years, 50%.

To hit those target percentages, I can focus this effort on increasing savings or increasing income. Ideally, I want to optimize both. But for now, let’s assume I don’t want to compromise this lifestyle; how much do I need to make to sustain $36K yearly?

Income Needed for $36K Yearly Expenses at Different Rates

Spending rate = % of take-home pay I’m living on = 100% - savings rate.

So if $36K expenses is spending 40% of my take-home, I need $36K / 0.4 = $90K.

Spending rate Take-home needed Approx. pre-tax income (Ontario)
60% $60K $81K
50% $72K $100K
40% $90K $130K

Side note: as an example of the effects of increasing savings, let’s say I saved an extra $500 a month for a total yearly expense of $30K. For this to represent a 40% spending rate, I’d need a take-home of $75K, meaning saving that extra $6K results in $15K less income need to hit the same target retirement year.

Understanding Compound Interest

Okay, so if I save X% of my income, what does it actually look like year to year.

These scenarios correspond with the table above:

Using this online calculator, what my investments could look like before tax.

Assuming 5% return compounded annually with a starting balance of $0.Assuming 5% return compounded annually with a starting balance of $0.

The investments pass the target threshold of $900K at 22 years ($24K/year), 17 years ($36K/year), and 13 years ($54K/year).

Beyond the % or amount of savings, there’s another factor to consider: time. That’s when the power of compound interest really starts to shine.

Snapshot of investments around the year they pass the $900K thresholdSnapshot of investments around the year they pass the $900K threshold

Obviously these calculations are very rough but by adding 4 years to my timeline — from 13 to 17 years — compound interest would do approx. 8% more of the work for me, saving me tens of thousands in out of pocket contributions.

Much to think about.


Before I started really thinking about finance, these numbers and goals seemed far and beyond reach; power comes with demystifying the math and making a plan that I eventually want to turn into an automated savings system. A few back of the envelope calculations later and I’m much better off than when I began.

Of course, there are a lot of variables at play in real life and money, or even financial independence, is not something I ever want to compromise a fulfilling life. I often find myself contemplating the value in chasing money beyond the point of covering my needs and reasonable wants but the answer I’ve settled on is that it can afford a sense of freedom that I want to provide my family, myself, and hopefully others.

Cool cool, now time to shift focus to software developer new grad offers.

Some Resources That Inspire Me

Here are some sources of real life experiences I enjoy keeping up with:

December 1, 2020 · finance

Don’t Let Sunk Costs Sink You

You can’t ask a tree to blossom
If it isn’t spring
Don’t leave the house at midnight
And expect the birds to sing
If you’re lookin’ for a reason
You needn’t even try
Sometimes it’s time to let a good thing die


TLDR: Don’t be afraid to give up something you don’t need just because of what it’s cost. Forget what you’ve already lost and maximize for the future.

In my economics class last semester, I learned the concept of sunk costs. I’ve been both subconsciously and consciously applying it to my life since and its applications have impacted me far beyond the classroom.

What Are Sunk Costs?

This is how the Corporate Finance Institute defines it:

A sunk cost is a cost that has already occurred and cannot be recovered by any means. Sunk costs are independent of any event and should not be considered when making investment or project decisions.

Basically, past investments shouldn’t impact your decision — only present and future value.

How It Plays Out in My Life

These aren’t new or revolutionary applications but ones I’ve noticed personally in my life. Who would’ve thought econ would be so philosophical?

I’ve found taking the extra time to think about motivating reasons that are unrelated to the sunk costs has been illuminating and freeing.

Easier Said Than Done

Clearly, it’s not to say that we should give up on first sight of inconvenience or that powering through a rough patch is meaningless. On the contrary, I personally find myself honouring commitments I’ve made to a fault.

The sunk cost fallacy explains this — it’s the human tendency to misvalue opportunity costs and over value sunk costs.

We have a tendency to continue investing in something that isn’t working and/or hasn’t been working in hopes that it will eventually make up for our past losses, even when all signs point to an undesirable outcome. It’s important to shift focus to what really matters — the true value that can be derived in the present and future — and know when to walk away before your debt gets worse.

November 28, 2020 · life

The Backwards Logic of Backward Time Travel

But now I know you can’t change the past
Way too young to know the reason why


Journal entry from Oct 18. I was innocently thinking about time travel when I was smacked by a thing I now know is called the time travel paradox.

So Vera Blue, that is why you can’t change the past.

These notes are just a chaotic stream of thoughts — I was going to try to write it up but honestly, doesn’t look like there’s much more to it than this. Still, much to think about.

November 27, 2020 · life

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