Posted by Todd Smith
Today I want to help you make better risk decisions in your personal and professional life. I’ll share a framework for decision-making that can be used whenever you are faced with an opportunity or decision in which the true outcome, state, result, or value is unknown.
I’m referring to risks where there is a lack of complete certainty and where several possible outcomes could exist—at least one of which is undesirable. For example:
Understanding the Role of Risk in Life
Most of society is divided largely into three groups of people:
1. Those who are afraid to take risks, live a very conservative life, and retire not much better off than when they began.
2. Those who take bad risks and suffer the consequences.
Sadly, the evidence of bad risks and the decisions that follow are all too common. I have had friends who were millionaires, and lost it all as a result of taking unnecessary risks. I also had a friend lose his life in a deep-water scuba diving accident. In his quest for the thrill, he risked a great deal and left behind a widow and two teenage daughters.
3. Those who plan well, take calculated risks, and win.
If you desire to live a successful and fulfilling life and retire with enough money to enjoy your retirement years, you must take calculated risks. This includes risks in your relationships, risks in your career, and risks in your investments.
While taking smart calculated risks is vital to reaching your goals in life, remember that taking bad risks and losing can set you back, sometimes significantly. It may help, however, to remember that taking smart risks is as simple as making wise decisions.
A Framework for Good Decision-making
I’ve learned a lot in my life from observing others and through my personal experiences—both good and bad. Therefore, when I consider taking a risk in any area of my life, here are the questions I ask myself:
1. What are the risks? Be honest. Don’t let your emotions prevent you from carefully considering all possible risks. This is where the landmines exist.
2. What are the odds of one of the risks coming true? Be truthful. Use real data whenever you can by doing research and talking to others.
3. What are the rewards? Be realistic. Can you really quit your day job and devote ten hours a week to something and make $100,000 a year? (Probably not.)
4. What are the odds of those rewards? Be sensible. Find out how many others have done something similar and how they have fared.
5. What other options do I have? Be creative. Don’t limit yourself. Consider all possibilities.
6. Do I need to make this decision today? Probably not. Take the time you need to do your research and explore your options.
After you finish answering these six questions, remove the emotions from your decision and ask what your gut is telling you. Also, never forget about the wild card risk; you don’t know what you don’t know!
The next time you find yourself making a decision that involves risk, I urge you to review this lesson. Print it out or save the podcast where you’ll remember it.
If you take your time and make good decisions using the advice in this lesson combined with your own life experiences, your odds of making good decisions the next time you are faced with a risk will be dramatically improved.
Achievement, Career, Decisions, Leadership, Responsibility, Self Control
Todd Smith is a successful entrepreneur of 34 years and founder of Little Things Matter. To receive Todd’s lessons, subscribe here. All Todd’s lessons are also available on iTunes as downloadable podcasts.
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