Which would you choose: Thirst or Hunger?

If you were stranded on a desert island for two weeks with the choice of food or water, which would you pick?    Your answer to this question will vary depending on when it is asked.    When this question was asked at a gym before the workout, the vast majority said food.  Asked after the workout, more than 50% changed their answer to water.   Why?   Because they were thirsty.  How we feel at the time of the question dictates the answer. This is a very dangerous psychological hiccup because short term feelings dissipate, but financial consequences of the decision last a long time.

About a year ago, I did a financial plan for a lady who was outsourced (fancy term for fired) from her job.   All her income disappeared overnight.   Her original retirement plan (which is now sitting in the garbage can) was to work until she qualified for Medicare, retire and start social security.   Now she has no job, a mortgage, and no medical insurance.  She is at her weakest.  The financial factory proposed buying an annuity to give her a guaranteed income.  Her current state of mind wants comfort and the annuity creates the perfect illusion.  However, the emotions of the termination will pass.  She would regret the decision a year from now when she realizes that she gave an insurance company a check for most of her assets and it’s gone forever.  Fortunately she was able to look beyond her short-term emotions and avoided a decision she would grow to regret.

Your life is dictated by the random, the extreme and the unpredictable.  When this happens, give yourself time to think.   If you are forced to decide in a hurry, try to think about whether you will be thirsty or hungry in a week or a month or even a year.   It is your only defense against making a bad decision.