Read Time: 4-minutes
Happy Saturday,
Here is this week’s edition of 6-Point Saturday — financial insights to help you make smarter money decisions.
Table of Contents*
*Clickable in the online version.
Point #1 — Your Money and “Second-Order Effects”
“In 1890, a New Yorker named Eugene Schieffelin took his intense love of Shakespeare’s Henry VI to the next level.
Most Shakespeare fanatics channel their interest by going to see performances of the plays, meticulously analyzing them, or reading everything they can about the playwright’s life. Schieffelin wanted more; he wanted to look out his window and see the same kind of birds in the sky that Shakespeare had seen.
Inspired by a mention of starlings in Henry VI, Schieffelin released 100 of the non-native birds in Central Park over two years. (He wasn’t acting alone – he had the support of scientists and the American Acclimatization Society.) We can imagine him watching the starlings flutter off into the park and hoping for them to survive and maybe breed. Which they did. In fact, the birds didn’t just survive; they thrived and bred like weeds.
Unfortunately, Schieffelin’s plan worked too well. Far, far too well. The starlings multiplied exponentially, spreading across America at an astonishing rate. Today, we don’t even know how many of them live in the U.S., with official estimates ranging from 45 million to 200 million. Most, if not all, of them are descended from Schieffelin’s initial 100 birds. The problem is that as an alien species, the starlings wreak havoc because they were introduced into an ecosystem they were not naturally part of and the local species had (and still have) no defense against them.
If you live in an area with a starling population, you are doubtless familiar with the hardy, fearless nature of these birds. They gather in enormous flocks, destroying crops, snatching food supplies from native birds, and scavenging in cities. Starlings now consume millions of dollars’ worth of crops each year and cause fatal airplane crashes. Starlings also spread diseases, including e. coli infections and salmonella.”
First-order effects, getting to enjoy birds similar to what Shakespeare enjoyed, are typically obvious. Second-order effects, the exponential increase in the starling population, are usually not anticipated. That's typically how it works:
The immediate result of a decision is clear, but the ripple effects rarely are.
And the same dynamic applies to your finances.
You stretch to buy the bigger house because you can technically afford the mortgage payment.
First-order: you own a beautiful home.
Second-order: your weekends disappear into lawn maintenance, Home Depot runs, and repair projects you didn't budget for, in time or money.
You keep making minimum payments on your credit card debt to have higher cash flow.
First-order: more breathing room each month.
Second-order: the timeline extends, total interest compounds, and 5 years later you're still carrying debt that's limiting your options.
You skip building an emergency fund because that money feels idle sitting in savings.
First-order: you're investing more aggressively.
Second-order: when the car breaks down or the medical bill hits, you're cycling back into high-interest debt, making decisions under duress, and losing ground.
To be sure, not all second-order effects are negative. Positive ripple effects absolutely exist.
For instance:
Setting up an automatic retirement contribution changes your money identity into someone who’s good with money. You then start learning advanced techniques to reduce your income taxes.
Paying off your student loans doesn’t just free up the monthly payment, it removes the mental calculation you run on every decision: ‘Can I really afford this while I have debt?’
But it's worth taking a few moments to consider the unwanted second-order effects before they become your reality. So let's look at 4 helpful filters to anticipate them.
Point #2 — 4 Filters To Avoid Unexpected Costs
The good news: you don't need a crystal ball to make a lot of progress here. A few mental exercises will take you a long way.
Filter #1: Ask Yourself: "And Then What?"
When you're considering a financial decision, ask yourself: "And then what?"
You're thinking about that promotion with a 25% raise. And then what? More income means more savings potential. And then what? But also 60-hour weeks instead of 45. And then what? Less time for the side project you've been excited about, or the fitness routine that's been working.
Filter #2: "Ooch"
Bestselling authors Chip & Dan Heath reference this term in their book Decisive. "Ooching" means running small experiments before making big commitments (thought to be a blend of the words “inch” and “scoot”).
Considering a move to a lower cost-of-living area? Spend a week or two there first: work from local coffee shops, navigate the commute, etc. You'll discover what you'll gain (lower housing costs, less stress) and what you might miss (your current community, walkability) before signing a lease.
Thinking about starting your own business? Start taking clients on the side while you’re employed. You'll learn whether factors like autonomy & project management outweigh the potential for marketing challenges & irregular income. All while preserving your emergency fund safety net.
Filter #3: Talk to Someone Two Steps Ahead
Many second-order effects are consequences someone else has already experienced.
Buying your first rental property? Talk to people who bought theirs a few years ago. They'll share both wins (relatively passive income, tax benefits) and surprises (maintenance costs, tenant challenges).
Going back to school for a graduate degree? Reach out to set up coffee with recent graduates. They can share whether the opportunities justified the investment and what trade-offs they didn't anticipate.
Filter #4: Seek Disconfirming Evidence
Take the decision you're leaning toward and actively look for its limitations.
"Buying a home builds equity" is true. But seeking disconfirming evidence means also knowing: you typically need 5-10 years to break even, unexpected maintenance costs are common (more on this in Point #4), and your cash becomes less liquid. Of course, it can still make sense overall to buy a house. But now you’re doing it with realistic expectations instead of overly optimistic ones.
Your Move: Which of these techniques feels most useful for your next financial decision?
One of the most common financial decisions with significant second-order effects:
Buying your first home.
First-order thinking is straightforward: “The monthly mortgage payment fits the budget, so I can probably afford this house.” But recent homeowners are discovering the second-order reality is more complex:
"We have five acres including a large field and then also large trees and bushes, as well as gardens wrapping the house - and basically my spouse becomes a full time landscaper and gardener for the summer and has little time for anything else.”
First-order: beautiful property. Second-order: one partner's entire summer disappears.
This homeowner learned about some of the downsides of owning a home with a pool:
"It was a great buying point at the time, and we used it a lot at first, but I used it maybe three or four times a year. It's a ton of upkeep, maintenance, and repairs. One day, I dove down into freezing cold water because I had a leak somewhere and lost 250 gallons of water... Know someone with a pool; don't own one."
Another first-time buyer on what they wish they would’ve known:
"How much a weekly mow, annual tree treatments and fall cleanup costs—because that should be factored into the budget, even if you plan to do it yourself. How much REMOVING a tree costs. What wisteria looks like." (Wisteria, by the way, is a beautiful flowering vine that can destroy your home's roof, siding, and gutters if left unchecked. It's basically aggressive home-eating vegetation with pretty purple flowers.)
These aren't isolated experiences. CNBC reported on a study showing that 90% of recent homeowners were unprepared for the true costs. When asked what they'd do differently, they said they wish they would have:
Purchased a home requiring less maintenance: 42%
Negotiated better price or contingencies: 33%
Purchased a less expensive home: 29%
Waited longer to buy: 27%
To be clear: homeownership has genuine benefits. Building equity, stability, the freedom to renovate, the pride of ownership.
But it's worth considering the second-order effects before you’re spending every Saturday as a full-time landscaper. This is where you can lean on the four filters from Point #2.
Point #4 — “The 1% Rule” for Home Maintenance
Since the most common homebuyer regret involves underestimating maintenance costs, here's a simple rule to help you prepare: the 1% Rule.
The 1% Rule means budgeting 1% of your home's purchase price annually for maintenance and repairs. Buy a $400,000 home? Set aside $4,000 per year, or about $333 monthly.
Some years you'll spend less. In others, you might draw down multiple years of savings all at once.
The key is to create a dedicated savings account labeled something like "Home Maintenance" so that this money doesn't mix with your regular savings or emergency fund. Then, set up automatic monthly transfers so you stay consistent. Instant peace of mind with some simple preparation.
Point #5 — Quotes of the Week
Which of these quotes resonates most with you?
“The first step was to think beyond the immediate battle. Supposing you won victory, where would it leave you–better off or worse? To answer that question, the logical step was to think ahead, to the third and fourth battles on, which connected like links in a chain.”
“Failing to consider second- and third-order consequences is the cause of a lot of painfully bad decisions, and it is especially deadly when the first inferior option confirms your own biases. Never seize on the first available option, no matter how good it seems, before you’ve asked questions and explored.”
Point #6 — My Questions of the Week
Consider a financial decision you're currently considering (e.g., taking a new job, buying your first home, etc.). What might be some of the second-order effects? Do they change the calculus of your decision?
Reply to let me know! I read every response.
Thanks for reading — I hope you found a helpful idea or two.
I’ll see you next Saturday with more.
Have a great weekend,
Benjamin Daniel, CFP®
Founder, Money Wisdom
P.S. Want to take control of your money, stop stressing about your expenses, & feel confident about your financial future? There are 2 ways I can help you:
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Disclaimer:
This material is not investment or tax advice. No responsibility for loss occasioned to any person or corporate body acting or refraining to act as a result of reading this material can be accepted by the publisher.
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