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When I think about personal finance, I often think about efficiency. The obvious examples include buying in bulk, avoiding finance charges to optimize what you

When I think about personal finance, I often think about efficiency. The obvious examples include buying in bulk, avoiding finance charges to optimize what you get for your money, paying insurance up front when the payment options charge extra, and just plain having fewer subscriptions to keep monthly expenses lower and easier to track. All of this efficiency increases financial stability. I suppose if we argue that I'm only referring to optimization and not efficiency, then perhaps it's not a great argument.

ghaff 6y ago
The two are certainly related but it feels like optimization is a bit different. Maybe the efficiency equivalent for personal finance would be an example like keeping your bank balance at a minimum and immediately transferring any spare cash to paying down a mortgage or otherwise into a fairly illiquid investment because thet's where the best returns are. But now if you have an unexpected expense you have to scramble to come up with funds.
- neogodless 6y ago
  Ah yes, I think that makes it more clear. In this case, efficiency might be automating bill payments, but then you don't catch price changes, and depending on your other systems in place, you might miss overdrawing your account.
  - ghaff 6y ago
    The colloquial words may not be the best. It seems like it's a distinction between optimizing things for which there is essentially no meaningful downside except maybe a bit of thought and time. Versus setting things up so that they're the most efficient system in the current environment but may not handle unexpected events well and therefore might not be the best choice.
bschne 6y ago
It increases your financial stability under the assumption that your life situation evolves in a predictable way. Say you need to cover unforeseen medical expenses, or you develop an allergy to one of the foods you bought in bulk (sorry, that one was a bit contrived), etc. - well, then you'd suddenly wish you'd held off on buying that pallet of canned soup. On the other hand, if you only buy your food day to day, that is certainly more like JIT logistics, prevents waste & storage space needs, etc., but it screws you if you can't leave your house and the stores get closed due to some... ahem... what might possibly happen that forces you to stay inside. So it's always a matter of your frame of reference, I guess.
mcguire 6y ago
Rather than stability, think of it as robustness or flexibility. Past a certain point, efficiency is an enemy of robustness. Buying in bulk is cool. If you buy a big package of paper towels, it's cheaper and you don't have to worry about running out. The fact that you have a cabinet full of paper towels isn't a big deal. But suppose you find a really great deal on a semi-trailer load of towels and stock up. Now you have your guest bedroom full of paper towels. The next week, your cousin Edgar's house burns down; you'd like to offer him and his wife a room to stay in temporarily, but you have all this paper in the way. You have lost some flexibility. A bigger problem is, say, corporate supply chains. With just-in-time supply, you don't have to store inputs and can focus on producing outputs; it's very efficient. But then there's a pandemic or a fire in a factory somewhere, and the supply chain falls apart. Now your outputs are perhaps in greater demand, but you can't take advantage because you have no inputs. You're out of business for the duration. You can't flexibly respond.
- rdtwo 6y ago
  Just in time is synonymous with always late. Might work well with simple fungible goods but breaks down on complex stuff
  - unilynx 6y ago
    complex stuff like building cars?
    - rdtwo 6y ago
      I think but you’d have to ask insiders if it works for them or inspite of it. In my industry it the latter where product arrives late and there is enormous recovery costs that are rarely mentioned or properly accounted for, everybody up top just sort of pretends it’s not routine when it actually is. Typically these sorts of things don’t make it out to the general public in press releases though. Holding a bit more product and some spares would have been far cheaper then the constant recovery effort.
      - 6y ago
tonyarkles 6y ago
> paying insurance up front when the payment options charge extra Depending on the cost of the insurance, that sounds to me like a drop in stability: you have infrequent periodic large payments to make instead of frequent smaller payments to make. If you had an unexpected expense arise near the time of the large insurance payment, your financial situation could get temporarily bad; if instead your insurance was small payments on a monthly basis, the unexpected expense would be easier to ride out. [Note that I pay all of my large expenses in lump sums instead of in small trickles, but that's mostly psychology on my part not efficiency or optimization]

ghaff 6y ago

The two are certainly related but it feels like optimization is a bit different. Maybe the efficiency equivalent for personal finance would be an example like keeping your bank balance at a minimum and immediately transferring any spare cash to paying down a mortgage or otherwise into a fairly illiquid investment because thet's where the best returns are. But now if you have an unexpected expense you have to scramble to come up with funds.

neogodless 6y ago
Ah yes, I think that makes it more clear. In this case, efficiency might be automating bill payments, but then you don't catch price changes, and depending on your other systems in place, you might miss overdrawing your account.
- ghaff 6y ago
  The colloquial words may not be the best. It seems like it's a distinction between optimizing things for which there is essentially no meaningful downside except maybe a bit of thought and time. Versus setting things up so that they're the most efficient system in the current environment but may not handle unexpected events well and therefore might not be the best choice.

bschne 6y ago

It increases your financial stability under the assumption that your life situation evolves in a predictable way. Say you need to cover unforeseen medical expenses, or you develop an allergy to one of the foods you bought in bulk (sorry, that one was a bit contrived), etc. - well, then you'd suddenly wish you'd held off on buying that pallet of canned soup. On the other hand, if you only buy your food day to day, that is certainly more like JIT logistics, prevents waste & storage space needs, etc., but it screws you if you can't leave your house and the stores get closed due to some... ahem... what might possibly happen that forces you to stay inside. So it's always a matter of your frame of reference, I guess.

mcguire 6y ago

Rather than stability, think of it as robustness or flexibility. Past a certain point, efficiency is an enemy of robustness. Buying in bulk is cool. If you buy a big package of paper towels, it's cheaper and you don't have to worry about running out. The fact that you have a cabinet full of paper towels isn't a big deal. But suppose you find a really great deal on a semi-trailer load of towels and stock up. Now you have your guest bedroom full of paper towels. The next week, your cousin Edgar's house burns down; you'd like to offer him and his wife a room to stay in temporarily, but you have all this paper in the way. You have lost some flexibility. A bigger problem is, say, corporate supply chains. With just-in-time supply, you don't have to store inputs and can focus on producing outputs; it's very efficient. But then there's a pandemic or a fire in a factory somewhere, and the supply chain falls apart. Now your outputs are perhaps in greater demand, but you can't take advantage because you have no inputs. You're out of business for the duration. You can't flexibly respond.

rdtwo 6y ago
Just in time is synonymous with always late. Might work well with simple fungible goods but breaks down on complex stuff
- unilynx 6y ago
  complex stuff like building cars?
  - rdtwo 6y ago
    I think but you’d have to ask insiders if it works for them or inspite of it. In my industry it the latter where product arrives late and there is enormous recovery costs that are rarely mentioned or properly accounted for, everybody up top just sort of pretends it’s not routine when it actually is. Typically these sorts of things don’t make it out to the general public in press releases though. Holding a bit more product and some spares would have been far cheaper then the constant recovery effort.
    - 6y ago

tonyarkles 6y ago

> paying insurance up front when the payment options charge extra Depending on the cost of the insurance, that sounds to me like a drop in stability: you have infrequent periodic large payments to make instead of frequent smaller payments to make. If you had an unexpected expense arise near the time of the large insurance payment, your financial situation could get temporarily bad; if instead your insurance was small payments on a monthly basis, the unexpected expense would be easier to ride out. [Note that I pay all of my large expenses in lump sums instead of in small trickles, but that's mostly psychology on my part not efficiency or optimization]