“Nothing is permanent about our behavior patterns except our belief that they are so” – Moshe Feldenkrais
I was a little shocked, but I was able to find a quote that aligns perfectly with the message of this article. This morning, I felt motivated to write this article because it finally hit me. If you are unhappy with the status quo of your financial situation or are on the fence about trying a new personal finance strategy, why not take risks and go for gold?
taking financial risks
Let me explain here, because I understand I ended the last paragraph on a vague note intentionally. In my personal experiences and I’m sure so many others out there, the fear of failure or uncertainty has prevented us from taking a risky position or pursuing a challenging financial situation. Have you ever had thoughts similar to these? “I don’t know if I want to commit so much capital to debt reduction because my post debt-payment cash balance will be so low” or “I don’t want to ditch cable and try cutting the cord right away, what if I hate living without live sports?” or “I don’t want to trade in my nice car and purchase a used, cheaper car because of X, Y, and Z reasons?” or “I don’t want to switch to a Traditional IRA and perform the infamous conversion later on because of the time/uncertainty in future laws that may unfold?”
I know I have had those thoughts about the extreme measures to improve my finance situation and each time I have come up with a reason for why I will not pursue the challenge. Some thought/mental roadblock has always popped into my mind and I was able to rationalize not taking the risk and going for it all. It sucks, I know.
But this is where the realization really hit me. Each one of the questions I posed above all are centered on positively impacting my financial position. They involve taking risks, doing something uncomfortable and a probably a little crazy to those who aren’t me or Lanny. But what is really the downside here? What do I have to lose by taking risks? Wait, you mean I took a risk to begin contributing to a Traditional IRA versus a Roth IRA, realize the benefits now, and the government potentially changes the rules preventing the conversion steps in the future (note: hypothetical change here)? Darn, that conversion piece of strategy didn’t work….but in the meantime, I saved a ton of money for retirement in my Traditional IRA account and save on taxes along the way. Why is the rule change or performing the conversion in the future holding me back from pursuing this strategy?
Similarly, why haven’t I tried cutting the cord yet when my cable contract expires? Whats the worst that happens? For two months, I don’t pay $40/month in cable and learn that I really miss having live sports at home. Because of this, I decide that I want cable again and cord cutting isn’t for me, so I price out packages and find the most affordable package. I potentially would take a risk, save $80 along the way, and learn that I am a person that enjoys having cable. The change isn’t permanent, so the downside of the risk is minimal.
That’s why I thought the quote at the beginning of the article is perfect. In terms of finances, nothing is permanent. You can recover from mistakes if you put your mind to it. How many stories are out there about people incurring a ton of debt, waking up, and paying it off in a very short period of time. If you want to try something radical, fight through the mental road blocks and go for it? Don’t be afraid to take that risks and shake up the status quo. As I have learned, most of the times, our fear of uncertainty is the only thing holding us back.
Examples of Financial Risks by the diplomats
Anyway, enough of my appeal to all of you. I wanted to provide you with a couple of examples on this website where Lanny and I have taken the risk (or are about to take a risk).
Example #1 – Lanny Maximizing 401k Contributions and HSA Account – We all know the story now and if you want the full background, check out Lanny’s three part tax strategy and his review of the strategy four months later where he discusses why he changed his investment strategy and the tax implications of it all. But here is the short and sweet version. Halfway through 2016, Lanny realized he was tired of paying taxes and was going to do everything possible to reduce his tax burden by the end of the year. With minimal amounts of pre-tax contributions and HSA contributions being made to date, Lanny faced the tough decision of sacrificing his free cash flow for the remainder of the year or maximizing his tax deductions by pouring as much capital needed into his Traditional 401k and HSA account needed to receive the maximum benefits. Obviously, he chose the latter.
For the last half of a year, his cash account balance was low. Extra expenses, extra trips were a battle if he wanted to incur them. He was swag-bucking like crazy to get an extra $25-$50 per month and I’m sure his girlfriend thought he was nuts when he celebrating getting that daily goal. He fought through it, made it through, and realized his goal. But here is why I bring this story up. He saw the challenge, saw what he needed to do to get there, and went for it. Was there a chance it wouldn’t work? Of course. But he took the leap and reaped the benefits for it. At any time during his 6 month battle, if he found out that allocating that much of his paycheck to 401k and HSA contributions were too high, then he could have easily reduced his contribution levels to a more manageable amount. Again, Lanny wasn’t taking a risk that would permanently altering his finances or leave him without options.
Example #2 – My Aggressive Student Loan Payback Plan – A few months ago I laid out an aggressive plan to pay off my wife’s graduate school student loans. This plan will see quarterly payments of about $4,000 to try her knock her debt our in six quarters, or by July 1, 2018. Until she gets a new job and unlocks the earning potential of the degree she just earned, finding a way to fit $4,000 into our quarterly budget will be one heck of a challenge. But you know what, we are going for it. Because why the heck not? We know it can be accomplished, but it may take a slight lifestyle change at our current income levels. If it doesn’t work, we will find a lower amount that better fits our budget. But if it does, we will reap the benefits. What do we really have to lose by aiming high and taking on this challenge?
Summary
Thanks everyone for hanging in there with me during my moment of inspiration! The bottom line is that there is nothing wrong with taking risks and being uncomfortable. One of my unofficial 2017 goals is to do more of this and get out of my own way. But we will have more, exciting things to come about this topic in the future. So everyone, stay tuned!
Are you typically risk averse? Have you had any bold, risky financial moves over the last few years that you want to share?
-Bert
I think taking risks when investing is a given, you have to have some form of risk tolerance overall to make it in this game. I have a higher risk tolerance, so I don’t mind investing in newer stocks to get massive gains over the long run, well that’s the goal anyway! Cheers
Couldn’t agree more and I’m with you with the higher risk tolerance. Especially at a younger age, it is easier to accept the risk of investing when you have time on your side. Let’s hope our goals deliver for one heck of an awesome early retirement party!
Bert
I am risking my millennial freedom by socking away 60% of my salary into accounts I may not even be able to use as I don’t want to stay in the US forever. I do not know what the future holds for me but worst case I either pay a penalty to withdraw my funds or I live in the US and enjoy my hardworking saving money.
In the long run, I don’t think paying the penalty is the worst thing to happen. I’m assuming the funds are in retirement accounts, so if you are retired with minimal income and lower taxes, taking a penalty wouldn’t be the worst alternative. Regardless, you are saving money and building up a nest egg to allow you the flexibility to adjust on the fly and pursue whatever you want to when money no longer is a concern.
Bert
Agree with you 100%. Its all about the mindset, if we apply the same mindset when we are trying to pay debt off as soon as possible, why not do it to save as much as possible?
Thanks D4F,
Exactly. Why not focus on the positive and push ourselves to achieve these goals that we know are best for us in the long run? Go for it, push yourself, and you will get it.
Bert
Change is fun! I risked my corporate hand cuffs for life in a startup (no personal capital on the line, only employee nr 00001…).
In return, my wife tells me I am more relaxed, I learned a ton of new things that were not accessible in my corporate role (do not step outside your kingdom kind stuff)
And as a bons, I decided to take 1 month parental vacation (that pays me a whopping 550€ in stead of full salary)
Amber Tree,
That’s freaking amazing. Good for you for taking the leap and going for it. How much fun was the start up? Did you feel so much more satisfied working for the startup than the corporate finance world. Isn’t it funny how making a change that is sucking the energy and life out of you can trickle throughout all your other relationships and interactions with others? Thanks for sharing your story!
Bert
I agree with Amber tree that change is fun. But it could also be hard to mentally go through. With all the pressure of over achievers and being successful, only the idea of failing something can be the reason to not do it at all. You guys made some great progress due to the choices you’ve made. And I think a lot of PF bloggers around here are doing the same as well 🙂
Life is all about making decisions. We currently decided to not pay off extra on our mortgage, which might strike as odd. But it fits in our plans to achieve FI much better.
Oh change can definitely be mentally exhausting. Just because it is fun does not make it easy and there can be a lot on the line with your decision. Overcoming the fear of failure is not easy and I’m still prone to having that weigh on a lot of decisions I wish I could make. The decision not to pay off your mortgage is not odd at all if that is what is best for YOUR financial situation. There is no one size fits all method to becoming financially free and you have to be flexible based on your life situation. Stepping off my soap box now!
Bert
You have actually really inspired me. I normally don’t turn on the TV unless it’s the weekend and even this past weekend I haven’t turned it on. I’m think after the Super Bowl I will cut the cord and be done with it. Like you said what’s the worst that can happen. I find out that I want TV back. Great article!!!
Mustard Seed,
Wow, I’m glad I was able to inspire you. It is very humbling. Promise that you’ll keep us updated on how life without cable is going. Good choice not to cancel it until after the Super Bowl, because this is going to be an awesome game that has the potential to be a can’t miss shoot out. One of the things I love about the community is how we all inspire each other and push each other to kick ass and do what is best for our finances!
Bert
Hi Bert,
Yolo! I totally agree that one should take risks as long as you can accept the downside scenario. Personally, I would never parachute out an airplane as the picture to this article shows, I think. The scenario of the parachute not working is to definite for me. Changing cable, life insurance, etc on the other hand… should be very doable. I for example wait for my annual refund from my insurance company and afterwards I will ditch them to go to a cheaper provider.
– DIB
DIB!
YOLO is darn right. That’s a fair point. If you take a risk, you have to understand it is a risk and know there is the potential for failure and a negative outcome. That’s the hard part, hitting that F it stage where you are willing to equally accept both outcomes of the risk. I would never jump out of a plane, I just thought it was a great image for the article!
Let us know how your insurance battle goes. We love to hear these kind of stories! Thank you so much for stopping by and the comment.
Bert
Nothing is permanent. My family used to be the super rich back in the day. When the war ended, we were on “wrong” side. Anyhow, I spend my life prepping myself not to get into my parent’s position, but I don’t know if I could have done better given their situation.
All I can do now is control my spending, build but a core that generate passive and semi-passive income, don’t live extravaganza, so that I’d get used to that lifestyle, then it’d be hard to taper off. heheh In case of sport channel, my husband (well, I guess I am too), enjoy college football, and all other sports, so we spend a lot of time in front of the TV together flipping channels. LOL 🙂 it the “luxury” that we probably don’t want to lose. Although, I’ve tried to say that my tenants helps cover part of the upgrades, to justify it.
Vivianne,
Woah, that is crazy. Would love to read more about your situation and what happened if you have written about it on your website. Please share links to articles if you have. I think you have hit the nail on the head. You are doing what you can to control your finances and prepare your self for a strong financial future. Live sports are the main reason I cannot ditch cable. I love watching all of my sports team whenever I can. Which college football team do you follow? You are talking to a Buckeye here! If cable is the biggest luxury you have, then you are doing the right things!
Bert
Truly love this post Bert! I like the quote and can relate to that very much! Nothing is permanent except maybe if you die… which is not going to happen when simply taking higher risks than usual. 😉
So if you feel it’s worth it, try it!
Cheers,
Mike
Thank you so much Mike. Really, really appreciate it. I read the quote many times when writing the article and connected with it each time. Sometimes we can be our own worst enemy and be the roadblock to our successes. It is finding the way to overcome these roadblocks, but that is the million dollar question after all, right?
Bert
True. If there’s one thing I’ve learned on my trip so far is the quote you wrote. The only reason why I keep myself from trying something new that I might be afraid of is if it implies a risk as high as dying! lol Otherwise, I’ve learned that it’s almost always worth it. If it was not, then lesson learned! 😉
It doesn’t mean to do anything without thinking though! But I doubt you’re that kind of person either! 😉
Cheers,
Mike
I love this post! It’s amazing how much people (myself included) overthink decisions we know will leave us better off on in the long run. As you pointed out, if it doesn’t work, just go back to your old ways. I don’t know if it’s a fear or change or just complacency but it’s crazy how few of us are willing to take these “risks”.
We should keep trying new things until we find what works for us.
Thank you so much Ninja Piggy! Couldn’t have said it any better. Why not take the risks and go for it all? What are we freaking doing here?? LETS GO!!!
Bert
It’s incredible how your mind can produce such a big road block, which is often the only thing keeping you from recovering if a big risk goes wrong. Overcoming this mental blockage is hard, but often the worst outcome is simple, like not having cable and wanting it back. Great post!
Here is one tip for handling the financial risk.
I personally started selling American stocks this January. This is because Mr. Trump’s exchange rate policy. He accuses Japanese Government as JG intentionally making JPY cheaper for several years. No offence, but that’s not true. Our government did nothing like that at all. However, Japanese rich people just wanted to buy American stocks for these years because we were confidend that America firmly recovered from Lehman shock. That is, we sold our Japanese yen, bought huge amounts of USD and American stocks. JPY went cheaper, USD stronger. Quite simple.
We Japanese investors are now aware that our current financial activity can make US-JAPAN relationship miserable, which we never want. And Mr. Trump won’t hear anything- whatever we say, it’s all backfire. The only way we can have is selling American stocks and rebuying JPY. No other option exists for us, unfortunately. Mr. Trump will be satisfied by that and only by that.
Because of such Mr. Trump’s exchange policy, not a few Japanese investors started selling American stocks last month, quietly and secretly. We don’t want any distraction in American stock market, so we are doing this slowly and gradually.
The same goes for China and Middle East, however, based on the different reason – retaliation.
I can be wrong, but if you see things from overseas, American stock market seems to be on the edge….
I hope this tip is helpful for rebalancing and maintenance of your portfolio.
God bless you.
Love the post and it appears to resonate with quite a few other people too, sweet!
I guess taking financial risk is important to me, particularly during the crash of August 2015, and of course the volatile year that was 2016. I shudder to think how much worse off I would be had I listened to the likes of RBS (Sell Everything call January 2016) and other ‘talking heads’…
By staying the course and investing additional capital, I got paid handsomely for financial market volatility.
Risk/reward applies to financial markets and career progression alike, and whilst the final outcome of my move to Continental Europe is still to be determined, it has certainly been rewarding thus far.
Best,
You’re totally right. You have to take risks to get places, or else you’ll never get anywhere. But there are ‘risky’ things and things that just make sense but aren’t a conservative approach. We are pretty risk averse with some of our money so we can be not-risk averse with the rest.
Tristan