Being alive is already risky. Then we add the risk we choose. Trusting someone to drive you in a car, asking someone on a date, putting your money in the stock market. Risk is inherent to living. People who risk nothing, get nothing, and deserve nothing. People who risk everything almost always end up in ruin. So how do we be smart about risk in real life?
The first, and most important, thing to understand in risk management is that there is no painless path and there is no risk-free life option. Once you understand and embrace that reality you can be smart and disciplined about evaluating risk, choosing options, protecting your downside, and maximizing your upside.
The simple skill of risk management is only risk what you will accept losing, never take a risk that might destroy you, and always pay the price for your own risks.
Rule of thumb with risk and mistakes: make the small ones, avoid the big ones, learn from all of them.
Self-awareness
Build the practice of asking four questions:
- What’s bigger: the best case, upside scenario or the worst case, downside scenario of the risk?
- How bad would that downside actually be and could I live with it?
- What would I do if it happened?
- Could I recover from the worst case, downside loss and how quickly?
Self-discipline
Take a lot of minor risks, make a lot of minor mistakes. That’s the path of genius. Avoid most major risks, evade most major mistakes. That’s the path of impulsive broke fools.
Self-confidence
When you make decisions to take risks where the value payoff in success significantly outweighs the value loss in failure, fear diminishes, confidence rises, and obstacles seem like minor speed bumps.
When you make decisions to avoid risks where the value loss in failure significantly outweighs the value gained in success, you remove 50-80% of the obstacles that would block your path.
Do the work.
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