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Handling Future Uncertainty
Alex writes in:
I am 26 years old. I have paid off all of my student loans and am looking forward to the future. I have some big plans and dreams for my future. I want to eventually start up my own consultancy and have a plan for doing it.
Here’s the problem. I know exactly how to financially and professionally prepare for that goal, but it’s way off in the future. A lot of things can happen between then and now. Even the best laid plans get sidetracked.
I’m trying to figure out how to balance things. How do I balance the uncertainty of the future with the need to build up to something?
This is a challenge that all of us face. Anyone who takes on the challenge of planning for a great financial and professional future is facing down the prospect of real uncertainty, whether they acknowledge it or not.
So, how does one deal with that uncertainty? Before I get started, it’s worth noting that there are a lot of philosophies on how to handle this. Those philosophies have a lot to do with the person’s risk tolerance and their own financial security. A person with a ton of financial security and a lot of risk tolerance is going to have different viewpoints than a person with little security and poor risk tolerance.
My own viewpoint is one nested in a sense that your own choices – how you invest your time and spend your money – make all the difference regardless of what misfortunes cross your path. Here are four pillars supporting that idea.
Cash Handles a Lot of Problems
The more money you have in your investments and in the bank, the less likely it is that your life is going to be seriously disrupted by unexpected events. Yes, some terrible events can always pierce any veil, but the more resources you have directly under your control, the harder it is for everything to come falling down.
This is why people usually recommend a cash emergency fund as a first step for financial turnaround. It creates stability in a way that credit never can. Cash is there for you, period. It can’t be taken away by a stolen wallet or a bank cutting a line of credit. It reduces uncertainty.
The more you accumulate in your savings and investments, the less likely it is that a crisis will disrupt you. Unemployment for a short period becomes less disruptive, then eventually not disruptive at all. Changes in the marketplace and in the specific circumstances of your life become less disruptive.
Not only that, cash in hand can change purpose just as you do. If you have $100,000 saved for a big dream, that’s great, but if that dream changes, you still have $100,000 saved for whatever that dream might become. However, if you’ve spent ten years building education, skills, and certifications for a field that you become disenchanted with, that’s a much more fragile investment.
The most important step you can take toward any big future dreams that you may have is to start saving for it now.
Your Skills – Especially Your Transferable Ones – Cut Through Uncertainty
Think about the skills that are in demand in almost every field. Public speaking. Presentation skills. Organization skills. Communication skills. Project management skills. Those kinds of things look good on a resume for almost any kind of job, and they also serve you well in freelancing and running your own business.
You are always better off developing a diverse skill set with strong skills in a lot of areas than developing one single world class skill and letting the others wither on the vine. The more skills you have that are strong enough to help you make money and to encourage others to pay you money, the better you’ll be no matter where your path leads.
How do you build skills like this? Take every single opportunity to polish them. Step up to the plate to lead, to speak, to present, to organize projects. Whenever that chance comes your way, raise your hand. If you don’t know what you’re doing, learn via a trial by fire and come out the other side. Each time you do it, you’ll get better at it and you’ll also be building true resume fodder.
I’ll use my own example. At my previous job, I was primarily involved in software design, but there were elements of technical writing, project management, presentation, and public speaking involved. Looking back, the software design was somewhat useful, but the specific elements of it weren’t really very transferable. What really mattered were the presentation and public speaking and technical writing skills that I built. They’ve been useful.
If you’re unsure about the skills you’ll need for your goal – or if you need any at all – take a look at your destination. What are you going to be able to need to do when you reach that destination that you’re not capable of doing right now? Those are the skills you’ll need when you get there, so start building those skills now. This is doubly true if those skills work well for other goals, too.
Having a High Standard of Living and a Lot of Bills Causes Uncertainty
When people find success, they often lock themselves into a situation with a high standard of living that gulps down a lot of their money. They drive an expensive car, live in an expensive house, and eat lots of expensive foods.
The thing is, those expensive cars and expensive home and expensive foods (and other expensive things) are gobbling up the cash that they need to achieve their other goals in life. A person driving a Honda can put a lot more into savings than a person driving a Lexus, and they can both get from point A to point B.
If you want to achieve your dreams, adopt a lower standard of living – at least in terms of your spending. That doesn’t mean living a miserable life. It just means recognizing that choosing to spend twice as much for a 10% improvement in quality usually doesn’t add up to a winning proposition.
My usual approach toward this is to look at how I actually spend money. I keep track of my expenses (I like to use the You Need a Budget software package) and I review them regularly. What I ask myself is whether these expenses make any sense. Were there lower-cost solutions for the things I needed to buy, like energy? Did I actually get any lasting value out of my more optional purchases?
This kind of review gives me constant pointers about smarter ways to spend my money. This allows my family to have the things that bring us joy while still saving and approaching our financial goals.
Put the More Flexible Parts of Your Plan First Whenever Possible
Whenever you have a big life goal for yourself, there are always parts of the plan that are more flexible than others.
Let’s take, for example, our dream of owning a home out in the country. Sarah and I have always dreamed of a rural life that would allow us to do some small-scale agricultural things as well as give us plenty of room to explore and wander in the woods around us.
There are a lot of pieces that go into that. Saving the money to make it happen. Discussing what our respective needs and wants are regarding this country house. Looking for the right property. Building on that land, if needed. You get the idea.
The thing is, some of those elements – saving the money and having discussions about it – are still helpful even if our lives change and our goals change. The time invested researching properties that specifically match our needs at the moment? Designing floor plans for our family’s needs? Those kinds of things aren’t nearly as useful.
So, our attention (for now) is focused on those elements that are more transferable. We’re saving money. We’re talking a lot about what we need and what we want in terms of long term housing.
We’re not searching for properties very much. We’re not making specific housing plans. Those things are very specifically tied to that big goal and they don’t have to be done right now, so we’re waiting on them.
You should apply that same philosophy to your own goals, whatever they may be. Identify the elements that you can and should be working on right now and the ones that can be put off, as well as identifying the elements that can easily transfer to other goals and the ones that can’t. Focus your energies primarily on the things you can do now that transfer well to other goals. That way, if your goal doesn’t come together the way you want, you still have elements you can use for whatever becomes your next goal.
Whenever you’re planning a long term goal, you’re always passing through a lot of uncertainty to get from where you are to where you want to go. Not everything will go perfectly.
However, by being smart about how to approach the goal, how you spend your money, and how you build your skills, you can survive lots of uncertainty and change in direction for your goals.