The Fragility of the “Financially Successful”
By Diego Alcalá There is an idea formulated by Hyman Minsky that I would like to discuss today: stability breeds instability. The longer the good times last, th
By Diego Alcalá · Mon Oct 12 2026 · Investing
By Diego Alcalá
There is an idea formulated by Hyman Minsky that I would like to discuss today: stability breeds instability. The longer the good times last, the more confident we become, the more risks we take and the more debt we accumulate, until that very confidence plants the seeds of the next crisis. Minsky was talking about entire economies. I believe the idea also applies to individuals.
That is why I talk about the fragility of the “financially successful,” with quotation marks deliberately included. Much of what we call financial success quietly creates the exact conditions for our next fall. The successful person is not fragile despite their success. Often, they are fragile precisely because of what they did with it.
Earning a lot can make you reckless
I have already devoted an entire article to how winning erodes prudence: recent success inflates our sense of skill and pushes us to take more risk just when we should be taking less. I will not repeat that argument here. I simply leave it as the starting point for this discussion.
Success is a terrible adviser. It whispers that we are invincible at the very moment when we may be most exposed. That psychological recklessness can become a tangible financial weakness. That is the fragility I want to explore today.
Permanent decisions built on temporary income
The most common structural mistake of the financially successful is making permanent decisions with temporary income. A great year arrives, a winning streak develops or a business takes off, and the almost automatic reaction is to raise our standard of living to match that peak. A larger home and its mortgage, cars, schools and recurring expenses all grow to meet the new income.
The problem is that income tends to vary while commitments remain. I have already written about the hedonic treadmill, so I will only underline the trap. Without moving into a discussion of different schools of thought about what matters in life or what truly brings satisfaction, I think we can agree on this: every new fixed expense raises the floor, the minimum income you need to avoid feeling that you are moving backward.
A high floor built on temporary income is a fragile structure. It holds up perfectly while everything goes well and falls apart when a bad stretch arrives. We all know someone who has lived through that situation. Raising your standard of living is easy and feels deserved. Lowering it can feel humiliating to some people, as though it were a personal failure. That is why this ratchet tends to move in only one direction.
Your income peak is not your normal income
Underneath all of this lies a mistake in perception. We tend to treat a good period as the permanent new normal. Psychologists call it recency bias. We project what has just happened into the future. If the last three years were good, we assume the next ten will be too. There is a reason people say that life takes many turns.
But the economy moves in cycles. Businesses are born and disappear every year. Lean times follow abundant times, not as a punishment, but as part of the system's rhythm. Overestimating prosperity and underestimating the next difficult cycle is not optimism. Nor is it manifestation or positive energy. It is forgetfulness. In finance, that forgetfulness can cost us our wealth.
Buy the umbrella while the sun is shining
The best time to protect yourself is precisely when protection seems unnecessary. When everything is going well, building safeguards can feel excessive, even paranoid. When everything goes wrong, it can be too late. You do not arrange protection against a fire when the house is already burning.
In the biblical account of Egypt, Joseph interprets Pharaoh's dream: seven years of abundance will be followed by seven lean years. The lesson is to store grain during the good years so that you can survive the scarcity. In one sentence, that captures the heart of serious wealth planning.
The decisions you make during prosperity, how much you keep, how much debt you avoid, and how much liquidity and protection you build, determine how you endure a crisis. It is not mainly the decisions you make once the crisis has arrived. By then, many of your options have already been shaped by earlier commitments.
The fragile successful person does the opposite. They consume the grain from the abundant years, convinced that the abundance will never end. The robust successful person stores reserves, protects what they have and reduces dependencies while they can, even when it feels unnecessary and others laugh at their caution in prosperous times.
What this means when you invest across a border
For an international investor, including a Canadian considering a business or property in the United States, I would apply the same question before making lasting commitments. Am I building this plan around an income level that I can reasonably sustain, or around the best period I have recently experienced?
The excitement of a successful venture can make it tempting to expand both the investment and the lifestyle it supports at the same time. Yet the source of the income and the commitments attached to it still need to be considered separately. Buying in another country does not turn a good year into a permanent one.
I am not suggesting a particular reserve amount, debt level or investment product. The point is to examine what the plan depends on. If it requires everything to continue going well, the appearance of success may conceal a structure that has little room for a difficult year. The cross-border setting makes this a useful conversation to have before committing, rather than after the choices have narrowed.
Financial success and financial strength are different
Being financially successful and being financially sound are not the same thing. Confusing them is dangerous, even though it is a mistake in perception that we make every day. Success measures what you have today. Strength asks how much of it would survive a bad year.
Some people look successful while standing only one difficult stretch away from losing everything. Others live quietly and could weather years of trouble without falling apart. The difference is not simply how much they earn. It is what they did with those earnings while things were going well.
And you? If your best recent year were actually a peak rather than your new normal, would your finances and your lifestyle hold up, or would they collapse?
Diego Alcalá · October 12, 2026
This article is educational commentary. It is not financial, investment, tax, legal or immigration advice, and it does not promise any particular result. Individual decisions require an assessment of the circumstances involved.
Cover photograph: grain silos in Prosper, Texas, by Ranch9613, Wikimedia Commons, released under CC0 1.0. The photograph illustrates the article's metaphor of storing grain during abundance.
