in Personal

What Ive Learned About Risk

Thus far in my life, Ive typically played things safe whenever I had a choice with one or more risky options. Over the last year or so, Ive been trying to re-orient myself to better deal with risk. I certainly dont think there is anything wrong with playing it safe – the big benefit is that it allows you to feel more in control (notice I didnt say be). On the other hand, it also limits your potential in many ways. It has taken me quite a long time to realize this – Im not sure exactly what figured out to change my perspective other than the new experiences that come with joining the real world after college (plus some experiences near the end of college). So – I thought I would share my observations about taking more risks in case it helps anyone else re-evaluate his or her stance on the issue. Here are the three keys to taking on healthy risk:

Dont be stupid.
When you have a choice between two options, dont blindly choose to take the extra risky choice. It may be that those decisions work out to be the best you could have made, but there are going to be very few times when you have so little time you dont have the option to think through the impact of those decisions. Dont seek out risk for the sole purpose of being risky – youre probably not going to get the outcome you expect. When you have a choice, just think it through.

Never overestimate how much control you have over anything other than your own choices.
Whether you choose to play it safe or be on the risky side, youre probably not in control as much as you think. One of the few things in this world that you have the power to control is your choices – beyond that, you can only hope things go as planned. Youll never figure out how to 100% guarantee that 20% yearly return in the stock market year after year, youll never control who loves you and who hates you, youll never even be able to completely predict exactly what youll be doing an hour from now. This point should be pretty obvious with risky choices since thats part of the definition of risk, but from my experiences, even safe bets are still just that – betswith no 100% promise that youll get the outcome you expect.

The fact that you cant control something doesnt mean you should let it control you.
You should also remember that the world isnt out of your control as it might seem sometimes. Even if the only things you are in complete control over are your choices, you still have a very powerful tool. If you know youre taking on a risk and you can tell what the possibilities are (both good and bad), then plan for each. You shouldnt expect bad to always happen, nor the good, but you shouldnt be surprised when either one happens.

A recent example of all of this from my recent experience involves my health insurance policy I recently signed up for at work. (I blogged about this not too long ago so if you read that post, this part will probably be a repeatjust FYI.) Basically, I had the choice of signing up for 1 of 3 different plans (or none at all). The plans range from nearly ~$100/mo which covers everything at 100% with no deductible to a ~$4/mo plan that covers 80% of most things after a $1500 deductible. I havent really been sick much at all over the last couple of years – in fact I cant remember any time Ive been to the doctor in quite a long time other than once a couple of years ago for a spider bite. Now for the last 6 years, Ive pretty much been in the classrooms or labs at college most of the time and done very few dangerous things – I have the typical college student diet so thats probably not all that great, but it hasnt been a problem thus far at least. In the past 2 months though, the situation has changed to where I own a house now and have many more opportunities to get hurt, Im 6 years older, tons of stress in changing to a whole new lifestyle in a different state 350 miles from basically everyone I know, and all of that good stuff.

So from my point of view, the safe bet would have been to pay the $100/mo in case anything happened. If nothing happened, then I would lose quite a bit of money. If something did happen, everything was more or less taken care of. Naturally, the $4/mo plan was the most risky – if I didnt use it, I would be able to save up quite a nice chunk of change and wouldnt feel like my money was wasted. Of course, if something happened, itll hurt (physically and literally).

My choice was the $4/mo plan. BUT, what I did was think through how I would handle it if I DID have to use it. I decided to put the deductible and + the remainder of the out of pocket maximum into an ING savings account. If I dont need it, its already stashed away and earning interest. If I do have to use it, its right there an will be back in my checking account within just a couple of days. I went into everything understanding that I might have to use every bit of this savings at any point if something happened. And if I had to do that, Id have to refill it to the same level by the next year if I want to maintain this insurance.

Well – the unexpected happened. I tripped in my garage and broke my foot. I had to drive myself to the emergency room, get some crutches and all of that good stuff, go see a specialist, have surgery to put in a couple of screws to hold the bone in place, and Im still waiting to see what else Ill have to do. Now I dont have the bills yet, but I would be very surprised if I dont burn up my stash by the end of the year. The good thing though, is that Im not caught off guard. I hadnt planned to use the money on anything other than medical expenses, I had already thought about the possibility of something like this happening, and now Im adjusting my plan according (mainly to divert funds to refill this account ASAP). I still stick by my choice though – this was one of the times when taking the risk cost me quite a bit, but because of the choices I made to plan for the good and the bad, it didnt really impact me (at least financially – not being able to walk for 6 weeks is a bit of a physical impact).