Personal Finance Friday - Survive First Then Get Rich

I think there is a mistake many of us get caught up in with our money. We tend to think more about how to earn more money today or think about how it is being used and spent currently before we make sure we are first and foremost, financially safe in the long term.

Many of us tend to be optimistic about money. We may not say that or we may not even think we are, but our actions speak louder than words. We think everything is going to be just fine in the end, so why not buy that nicer car, or larger TV. And to be quite honest most of the time those assumptions turn out to be true and everything does works out. 

But! But!!!

Sometimes it doesn’t. This is what people call an Asymmetric risk. Asymmetric means lopsided. One side is bigger or greater than the other. The chances of financial ruin are relatively small, but the consequences would be devastating. There is a sort of saying in the finance world that kind of relates to this... “picking up pennies in front of a steam roller” in that scenerio you are fine, you are fine you are fine, and then you aren’t! one slip one wrong move and that slow moving machine makes the whole task a really dumb idea. Another parallel would be if you drive really recklessly. On any given occasion that you are driving recklessly, you probably get through it okay, but when that 1 in 100 chance comes up... you're not okay and the down side is much, MUCH larger than any tiny amount of time you may have saved in the past or fun you may have had speeding.

So my point is, think about the downside. This should lead you to keep an emergency reserve. It should lead you to at least be a little prepared for the unexpected financial need. It should lead you to spend some of your free time gaining a new, marketable skill. It should mean you have cash on hand, etc etc... It's all the "not fun" stuff, but if that 1 in 100 chance strikes, it could mean the difference between a bump in your financial road, and falling off a financial cliff.