Some of the worst things in my life never even happened.
–Mark Twain—
WORST CASE THINKING AND THE BOSS FROM HELL
I had lunch with a friend the other day. She wanted to talk about routine financial things.
And we did–for a while. Then she grew thoughtful and confessed the real reason for the visit– she was sick and tired of her boss. The man was making her miserable and did so every single day.
She went on to explain further. Nearly all her day-to-day interactions were barely civil. The most basic tasks involved micromanagement and drama. In addition, the office was a toxic cesspool of people backstabbing and jockeying for positions. She said the situation was so intolerable she might need to quit just to maintain her mental health.
And while she explained all this to me, her voice shook at times–and we are talking about one of the most resilient people I know.
I can relate to bad situations at work and what the consequences are. Unfortunately, that kind of thing can eventually cost you your health and sanity. But no matter how bad it is, you need to keep paying the bills.
ASKING A WORST-CASE QUESTION
So, after about half an hour of hearing her describe her nasty, insecure, narcissistic boss, I finally asked, “if you quit now, how would your finances look?” Put another way, I was asking, “if the worst happened and you lost your job, what would that look like, and what would you do?”
That was a loaded question for her. I know she has done a phenomenal job of managing her money. And she has never backed down from a fight either, so the idea of surrendering would not occur to her. Still, she needed to look at her financial worst case: what if she quit or was fired and no longer had that income? After all, we are both of that certain age, and long pauses in income or outright retirement are things you must consider.
So, we talked about that further. My friend can probably quit and be fine.
But it pays to be certain.
GETTING HELP FROM A FINANCIAL PLANNER
That is why I also requested that she confirm her financial situation with a qualified independent financial planner before taking any action. When considering a significant lifestyle change, it is essential to get an unbiased opinion. Maybe two.
WHY ASKING A WORST-CASE QUESTION IS NOT NEGATIVE
By now, you may be questioning the premise. After all, it is not pleasant to be thinking about losing a job, a spouse, or your health and making it the centerpiece of how you look at your finances. No rational person wants to think about that and think about terrible things that might happen.
But when we have near-misses or confront major changes, it forces us to act and think about things, including difficult consequences. And, if we are wise, we think about those worst-case scenarios long before they happen–and at a point when we can solve them.
So, looking at a worst-case is not negative. Instead, it helps let you know if you are prepared and can do anything about the significant risks in your life.
Here is what the approach accomplishes:
- It helps define the problem—and to just identify a threat or problem ALWAYS makes me feel better. You put a name to an issue, and that is half the battle.
- It puts a “floor” on fear—if you are looking at a worst-case, there is no further “down” to go. And it nearly always turns out that the worst case is manageable and not so bad.
- It helps to clarify the risk you can live with, what aspects of a worst-case are unacceptable, and what action needs to be taken.
- It makes you realize that even in the worst case, you have alternatives.
Of course, this approach is different than the way most people operate. Most people assume examining a worst case is negative, destructive thinking. After all, to focus on the negative gives only half of a picture. It forces concentration on everything that goes wrong and nothing that might go right.
But denial is worse. By pretending that there is no problem, you can convince yourself that a risky or dangerous situation does not exist. So, when reality bites, it bites hard. Deniers don’t take action to protect themselves, and they don’t plan.
WORST-CASE THINKING IS JUST ONE TOOL IN THE ANALYTICAL TOOLBOX
Before proceeding with this post further, I do not want to leave you with the idea that worst-case analysis is the only available tool to diagnose and analyze financial issues. Other ways of identifying current and future financial problems are to:
- Find Gaps—seeing which needs, risks, and aspirations are not being addressed
- Analyze Trends—identifying which trends will be a potential future problem
- Note Inadequate Progress– toward goals, aspirations, and other aspects of your life.
These strategies are only a fraction of the ways to identify potential financial issues. But a detailed description of each is beyond the scope of this post.
THE FINANCIAL PLAN APPROACH—CHANGE AND HOW WORST-CASE THINKING FITS IN
I have always advocated making a financial plan for yourself.
These general financial planning steps illustrate a standard procedure to deal with issues and challenges. In addition, they show how a financial professional might address a plan for a specific client.
STEP ONE: FULLY UNDERSTAND AND DESCRIBE YOUR BASELINE—KNOW THE ISSUE CONTEXT
It is best to be organized when answering a worst-case question or even more basic ones. So, having a complete picture and information is an excellent place to start.
The reason: having partial information gives only a half-formed image of your resources. That, in turn, can mean you never consider viable alternatives when you try to solve a problem or address an issue.
Probably the best, most essential piece of information to understand your baseline is to have a net worth statement. For example, my net worth increased fivefold when I developed one and then tracked my progress over time.
Many financial professionals require you to start with a statement of net worth that summarizes savings, investments, businesses or business investments, and real estate before consulting with you.
You must also have a working knowledge of your past actions. These can include a review of recent income tax returns.
Finally, take the time to understand what kinds of changes will occur in the future. Will your income change? Will new taxes affect you? List the coming changes in your life.
STEP TWO: DEFINE THE PROBLEM
Defining an issue requires some thinking on your part. And sometimes, you cannot fully define a problem without getting outside help, as in the next step.
However, if you can, you define the problem using worst-case thinking and other techniques I noted before.
One of the most critical elements in dealing with fear and discomfort is first figuring out what your concerns really are. We sometimes distract ourselves by focusing on finances when, as in this case, the underlying issue is interpersonal and with the boss. But the personal and financial are often woven together. It is not always easy to separate them. And one often influences the other.
Ideally, by the end of this phase, you have a general idea of your to-do list.
STEP 3: GET SOME UNBIASED ADVICE FROM A FINANCIAL PLANNER BEFORE YOU DO ANYTHING
I will be writing a post about this subject soon. For a description of qualifications to look for when hiring a professional, see here. Make sure the planner is also a fiduciary, which means they are required to work in your best interest.
Bottom line: I try to use financial planning professionals with solid professional qualifications and engage them on a fee-only basis. And note: financial planners are not the same thing as financial advisors at all.
Planners can look your information over. And they can help you think about financial risks, possibilities, and other factors you never considered. Planners can also identify gaps and risks that you may not have considered before the risks become an issue.
STEP 4: FIGURE OUT YOUR ALTERNATIVES TO SOLVE OR MITIGATE THE ISSUE
Here is where a financial planner can provide invaluable assistance. Professionals know a full range of actions that might apply to you and your concerns: retirement savings, college planning, gaps in future income, etc. And they know which vendors provide products that are best suited to your needs.
STEP 5: LOOK AT THE IMPACTS OF EACH POTENTIAL ALTERNATIVE
Again, planners can help in this phase of the planning process too. They can lay out some alternatives and tell you the financial consequences of each. Then, fully informed, you can choose the best one for you.
STEP 6: ACT ACCORDINGLY
This last step is up to you. But action is nearly always better than remaining passive.
THE PROCESS CAN HELP YOU TO COUNT YOUR BLESSINGS
Sometimes when you look at all the worst-case possibilities that never happen, it forces you to be grateful. You turn fear and risk on its head. You realize that blessings happen all the time. By contrast, worst-case events are rare.
Disclaimer: consult with a financial fiduciary before taking any steps outlined here. Not all advice is suitable for your circumstances or investment style.
Photo by Elisa Ventur on Unsplash License