The Cobra Effect and the Paradox of Saving Money vs. Accruing Happiness

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2 min read

During the British rule of colonial India, the British government was concerned about the number of venomous snakes in Delhi.

So, they decided to offer a reward for every dead cobra. Almost immediately, people were turning in cobras left and right, happily collecting their payments.

The plan seemed to be working. 

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That is, until citizens realized they could create their own income stream by breeding cobras.

Once the government caught wind of this, the reward program was put to an end, leaving breeders with snakes that could no longer be exchanged for money. 

When these snakes were set free, the cobra problem became even worse.

This incident lead to the creation of the term “The Cobra Effect”, which is when an attempted solution to a problem makes the problem even worse.

The Personal Finance Cobra Effect

I think the cobra effect can be applied to personal finance.

The end goal is happiness.

The attempted solution is to save as much as possible as fast as possible to achieve financial independence.

The problem comes when “saving as much as possible as fast as possible” negatively impacts our happiness, which is the real end goal. 

This can happen if you start saying “no” to every possible trip, dinner, concert, social event, experience etc. that costs money. By saying “no”, you can save more money of course. But if the end result is decreased happiness and future regret, is it worth it?

Avoiding Future Regret

I recently listened to a podcast episode where Paula Pant interviewed fellow millionaire real estate investor Emma Pattee and they talked about regrets they had on the road to financial independence. 

Emma mentioned that she once turned down an invitation to a bridal party in her 20s because she didn’t want to pay the travel expenses or the potential expensive dinner costs. She openly questions whether or not her drive to achieve F.I. as fast as possible caused her to say “no” to social events and gatherings that she later would regret not attending. 

Paula also shared that when her parents sold the home that she grew up in as a child, she didn’t go back to visit the house one last time because she didn’t want to pay for the plane ticket. She expressed her regret over that decision and how she would have happily paid for the ticket if she could go back in time.

Selective Spending

While it’s important to say “no” to shit you don’t want to do, it’s equally important to not deprive yourself of saying “yes” to things you do want to do while on the road to financial independence. 

I find the Derek Sivers philosophy of “HELL YEAH or no” to be a nice decision framework to follow. When deciding on whether or not to spend money or something, is your gut response HELL YEAH? If so, do it. If not, save your money. 

For me, I have never regretted spending on travel or experiences. Although I could achieve a higher savings rate and potentially a quicker F.I. date by saying no to these two things, I know I would regret saying “no” to them at some point in the future. 

This summer I’ve spent money on a weekend trip to St. Louis, a hiking trip to Red River Gorge, and several canoe trips. This weekend I’m headed to Ann Arbor, Michigan to visit friends. Next month I’m going to FinCon in Orlando. 

None of these trips and experiences are free, but they’re all things that are likely to create worthwhile memories.

I think it’s important to pursue a high savings rate, since it’s the number one factor that determines when you’ll achieve financial independence. But it’s equally important to make sure you’re not depriving yourself of potential trips, experiences, and memories on the road to F.I.


My favorite free financial tool I’ve been using since 2015 to manage my net worth is Personal Capital. Each month I use their free Investment Checkup tool and Retirement Planner to track my investments and ensure that I’m on the fast track to financial freedom.

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12 Replies to “The Cobra Effect and the Paradox of Saving Money vs. Accruing Happiness”

  1. Hey there! Great article-I always enjoy reading your stuff.
    Just a quick note I think the real estate investor you’re discussing might be Paula Pant- not Paula Plant.

  2. “HELL YEAH or no” is a great way to gauge if you should do something 🙂 . My current process is “Will I regret not doing this later?” so far that has worked, even in hindsight, but I’m going to try Derek’s method for a bit and see how it goes. I feel like I rarely feel a “HELL YEAH” though so I might do even less with this process 🙂 .

    1. I think the fact that you rarely feel a “HELL YEAH” is the point of Sivers’ approach – by saying “no” to most things, you have the availability to say “yes” to the “HELL YEAH” categories 🙂

  3. This strategy works when you have the money, but should be used carefully if it means debt. I wish I could have attended wedding of college friend but due to expense had to decline. I would have needed to take on credit card debt to go. I was in school at the time and while I regret not attending it was the correct decision.

  4. Hey Zach, this is a really interesting post. I love your posts on happiness and the philosophy of life. They really make me think.

    A couple years ago, I made the decision to work in an office even though I had an entrepreneurial streak. I felt like a 9-to-5 corporate job would be the fastest thing to help rack up a huge cushion of savings before venturing out to chase my dreams. In my bid to save as much as possible, I’ve made myself a little miserable at my job. Sometimes I wonder whether I’ll regret spending these few years working a job that doesn’t mean much to me.

    It’s interesting how the cobra effect ties with this as well – by trying to attain a financial foundation and to ultimately secure happiness, I’m unhappy at the current moment. But what gets me through the day is that my paycheck is stable, and that I’ve only got a couple of years left on my timeline. (I’m going to quit my job before reaching FI.) A little sacrifice for a decent financial foundation. What do you think about this?

    1. Hi Liz,

      So many factors go into this, but it sounds like you’re making some great moves. Steady W2 employment can provide an awesome base toward FI. Self-employment has bigger potentials and downfalls, depending on the nature of the work you’ll do and how long it takes you to become profitable.

      No need to stay all the way until FI–I didn’t. My W2 industry lit my fire, but my then-employer was toxic, so two years ago I decided to venture out on my own and start my own accounting business, taxes during season and consulting the rest of the year. It slowed down our path to FI, but we’re so much happier.

      One caveat, don’t leave because you’re unhappy at this moment. Resign in neutral times–if possible. I was given the advice to make big decisions slowly under HALT (whenever you’re hungry, angry, lonely or tired) circumstances.

      I can’t regret my ten W2 years (only 2 at that last place): they gave me the expertise and credibility to go out on my own, and a great base start on our FI journey (that I only discovered 4 years ago). I hope that your current W2 job, even though it isn’t in your passion zone, is giving you some skillset that will enhance your future entrepreneurial ventures. Best Wishes!

    1. I first heard Sivers say that quote on a Tim Ferriss Podcast and it has stuck with me ever since. I’ve found it to be an effective strategy!

  5. Zach,
    I enjoyed the story of the Cobra Effect. Definitely applies to some modern issues, especially in personal finance. Looking forward to meeting you at FinCon. Thanks for the recent shares.
    -RBD

    1. Always happy to share your writing, RBD! Keep churning out great stuff. And I’m looking forward to meeting you at FinCon as well! Let the countdown begin.

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