Understanding The Future

A special word

In Canada there is a special word that means the day after the day it rains. Monday.

It has not been so true lately, but it never seems to rain on work days. Could be just a perception problem.

Another special word

This one relates to our difficulty in predicting the future. We all have the problem and none of us like it. We know we will the entirety of our remaining life in the future and we don’t love surprises about things that matter.

The special word, RISK.

Risk is a synonym for “I don’t know the future.” Risk is everywhere, so we should learn to accept it as a fact and plan towards getting what we need regardless of its presence.

Risk Management

There are three simple choices.

1) Avoid.

Once we understand what the uncertainty arises from, we can do something about it. The problem is we are not well attuned to risk. We tend to overestimate the likelihood of good things happening and underestimate the likelihood of bad. Smokers will ignore the bad news because 1 in 200 is not so likely. Their next move is to buy a lottery ticket with a one in 20 million chance of winning and think through what they will do with the money. People should pay more attention to the base rate and build their future plans accordingly. Lotteries are easy to avoid. They are merely voluntary tax.

2) Minimize the risk you cannot avoid.

When you know the base rate, you can have some insight into methods to minimize. People who are in reasonable physical shape live a little longer. What is more important is they live productive lives longer. I long ago decided that since death is inevitable, the key would be to die healthy. I think many could improve the odds of that by exercise and eating better and avoiding stress and laughing and refusing to compare themselves to others.

3) Understand the meaning

If the risk is small enough to afford, you have no risk. You might have a nuisance, but that will go away. It is like a bad haircut. Six weeks later the annoyance and problem is gone. A similar risk is one that is affordable if you reverse it. Like buying a car. If you don’t like it, sell it and buy another. The loss is small enough and the lesson valuable. Non-reversible risk is much more problematic. When faced with uncertainty, see if your plan B could be reverse it and walk away. If not be thorough.

4.) Risk you cannot afford to keep

These risks are nearly always insured. Insurance has premiums no one likes paying, but the premiums are more affordable than the loss. Given two bad choices, always pick the one you can afford. No one paying premiums to cover the right risk is insurance poor. People make a simple mistake in thinking. It is not the insurance that costs the money, avoiding the risk costs the money.

Working with the future

Identifying risk, understanding its nature and cost, assessing mitigation and acting to make the future more predictable is the work of an adult. Don’t overlook risk while pursuing something else.

I help business owners, professionals, and others understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.

In previous careers, I have been a partner in a large, international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

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