Pessimists Make Better Financial Planners

in Financial Planning

Plan like a pessimist, live like an optimist I have lifted from Doug Hoyes’ book (amazon link) (although I have heard it elsewhere as well), and it is an excellent financial life motivational statement. You can’t live every day assuming the worst is going to happen, you will just make yourself miserable (I can assure you this is the case, from personal experience), however pessimism is the best way to view your financial plan.

If you are a pessimist in your investing and financial plans, you should be able to deal with downturns and the interesting “twists of fate” that we call life. Can you plan for all the things that can go wrong? Absolutely not, however you can take a few careful financial steps to  deal with problems that may arise in your financial life.

Pessimist and Optimist

Words to Plan By

The big one to deal with, is what if you lose your income (after the fallacy of infinite income)? So many possible reasons can cause this, but if tomorrow you had no more income, what happens?

  • Can you afford where you are living? For how long can your emergency funds keep you in your current living arrangement? If you have a mortgage, you can try to sell your house, but if you cannot keep up payments on the mortgage, you may not be able to sell it, before the bank forecloses. If you rent can you keep up rent payments for a period while you are without income?
  • Do you have any insurance to combat this lack of income? If it is caused by a catastrophic health issue, do you have disability insurance? Is it enough to keep you financially afloat? Is it through your employer? If you get sick, would your employer lay you off? Remember some companies self-insure, so if your employer goes under, and you are using their disability, you will end up like the Nortel folks on disability, out  in the
  • If you were laid off, is your résumé up to date and ready to use for job hunting? If not, why not? You should be looking for your new job before your old job disappears (ideally).
  • Dying can cause a large problem. Do you have life insurance? What happens if your insurance company decides you died of a pre-existing condition, and they won’t pay? Does your family even know about the insurance? Do they have cash available in accounts that won’t be frozen (when you die)? Lots of things to think about on this one.
  • What if your spouse dies? Do you rely on their skills to take care of your kids, or do you rely on their income to pay for your lifestyle? Partial loss of income can be as destructive as complete income loss, it just takes longer to ruin your

These are such a small slice of the whole picture. This is where your pessimistic side can come into play. Engage it  on this planning (and not  about all that stuff that keeps you awake at 2 AM in the  morning). Work hard on this plan, but  when it is done, enjoy your life you have planned as best you can to  deal with life.

In about a year (and every year) revisit the plan, and adjust it to reflect life changes as well.

My apologies to Doug Hoyes, a lot of these ideas are lifted from his fine book, which I have “read” (listened to the Audio Book), but these are important issues.

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{ 2 comments }

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  • Money Beagle October 4, 2017, 10:36 AM

    Interesting concept but I suppose it makes sense. Prepare for the worst and hope it doesn’t happen. It reduces your chances of being caught by surprise.

    Reply
    • bigcajunman October 4, 2017, 10:52 AM

      That is the concept. I use it as a Project Manager and on projects I am working on, it is safer that way. Understand the Optimist’s motivations but use your critical pessimistic eye to look for issues and problems.

      Reply

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