Updated on 06.17.13

Some Thoughts on Predicting the Future

Trent Hamm

So many personal finance choices are based on what might happen in the future.

Will the stock market be strong? Or will it fall again?

Will the dollar retain its value? Will we have high inflation? Or perhaps even deflation?

Will Social Security remain intact? Or will I receive little or no benefits from it when I retire?

Will my health remain good? Will I have children? Will my children be healthy?

Will I get that job that I dream of? Or will I be jobless for a while?

All of these questions (and countless other ones) involve predicting the future – and we simply cannot know exactly what the future holds. No one does. We must make some guesses about the future.

The Optimist and the Pessimist
Most people tend to be optimists about their future. They believe that they will retain the good things they have in their lives now and will add more good things to their life in the future. “I’ll buy this today on credit because I’ll be making more in a year or two.” “I can save later for retirement because I can always ride the stock market to victory.” “I’ll do that later on, when I’m in my seventies and have plenty of money.”

Some people are pessimists. They tend to believe that the worst is just around the corner and they plan accordingly. Misers are in this group, as are people who live so in the moment that they can’t hold down a steady and consistent life.

I don’t think either side of that coin is a good place to be.

The Realist
Instead of believing that the worst is about to happen or the best is about to happen, I usually ask myself a very simple question.

If a worst case realistic scenario occurred, would I be able to roll right through it and keep on trucking?

I stick to things that might actually happen. What if I were suddenly severely injured? What if a strong bout of inflation occurred? What if everyone stopped reading The Simple Dollar?

If I can’t explain clearly how I would get through that scenario, I come up with a plan for getting through it.

Fortunately, most scenarios in my life are covered. In that event, I plan ahead for that optimistic future.

What can I do today to maximize the chances of that best possible future for me, where I’m completely financially independent of anything that might happen?

In other words, I start out as a pessimist. I look for the scenarios that might actually happen and shore myself up against them.

Once the reasonable scenarios are covered, though, I become an optimist. I put plans in place to maximize my chances of great things happening in my life. In fact, I usually am always an optimist, as I always look for ways to maximize the doors available to me.

To put it simply, I use my money to cover the worst case scenario and I use my energy and talents to build the best case scenario.

It’s Out of My Control!
Yes, many unexpected major events are very much out of our control. That doesn’t mean that we throw up our hands and do nothing about it. That also doesn’t mean that we focus on nothing but that disastrous scenario.

Most of the steps that prevent the most common disasters from befalling us are simple. They mostly involve investments of money, some minor, some larger.

A healthy emergency fund.
Some extra food and water on hand.
Debt freedom.
Life insurance, health insurance, and if you have significant income, long term care and long term disability insurance.
Some form of retirement planning.
Estate planning, including a living will.

On the other hand, most of the steps that pave the way to greater things simply take investments of time and energy.

Eat a better diet.
Get some basic exercise.
Practice good hygiene and grooming.
Learn something new every day.
Practice your communication skills.
Build new relationships and friendships all the time (this is perhaps the most important one).

All of those things are things you can control. You can make the choice to do each of those things – or not to do them.

However, those things build into protection from the problems in life as well as avenues to success in life.

Events might be out of our control or unforeseeable, but methods for protecting ourselves from those events – or priming us to reap the rewards of those events – are things we can do every single day.

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  1. lurker carl says:

    I would not want to know the future even if someone could predict it. Hope for the best but prepare for the worst.

  2. Nicole says:

    I like the following quote:

    “God bless the pessimists, for they have provided us with back-up systems.”

  3. wanzman says:

    This, to me, is the hardest part of personal finance. So much of my plans today depend on what it is that I believe I will want/need in the future.

    As a younger person, my plans and dreams for the future seem to change very frequenly, so it can be hard to plan ahead financially.

  4. cathleen says:

    I tend to be too optimistic. My husband is the opposite, at least in that respect so we tend to balance one another out. Fortunately, we don’t fight!

    We’ve been married long enough now that we’ve been in lots of different financial situations and we’ve learned a lot along the way.
    I have to say when we were newly married we made too much money and didn’t appreciate it, we expected it based on our education, training and our location.
    We then owned an (eventually) successful business which we sold and then we were unemployed for a long time. Neither of us had ever been unemployed in our lives! Eye opener.
    Now we both have new, awesome jobs and I’m feeling very optimistic, tempered by realism. Full circle :)

    We are now savings 45% of our monthly income. I can sleep again at night. Priceless.

  5. What I’ve learned in this past year is that in my lifetime as an earner my income will go up and it will go down. When it does I won’t always be expecting it. A few years ago I was given a $10,000 raise completely out of the blue!
    I don’t want to be tied to how much I make.
    I’m now looking at what’s the least amount of money I can live on rather than ‘how much money do I need to earn to cover my expenses’. Surprise, the future is not predictable!

  6. almost there says:

    Peak oil will come to pass as seen in the rear view mirror when oil becomes scarce. I can’t convince me spouse to better position ourselves with water land and growing food, though I did put half our IRAs in energy mutual funds. The book “The Long Emergency” is a good one to peruse.

  7. My only thought on predicting the future is that you can’t.

    I foucs on the things that I can control and let God take care of the rest.

    This may be a little naive, but a much less stressful way of thinking.

  8. “To put it simply, I use my money to cover the worst case scenario and I use my energy and talents to build the best case scenario.”

    I love that line. Much of personal finance is about preparing for the worst.

    As a lawyer, I help clients enter into business relationships with each other. When the start the relationship, they love each other, otherwise they would not be partnering. But, my job is to help them to plan for the worse. You have to plan for the worse.

  9. Moby Homemaker says:

    Nice peice, Trent.
    I have to admit, a year into unemployment–it is very difficult not to be a pessimist. Although, I have to believe my situation has about bottomed out…so the optimist routinely shows his head.
    I try to have an attitude where I never get too high–or too low. It has kept me sane throughout this ordeal.

    Did I just realize that I am a “realist”???

  10. annk says:

    Anyone who is optimistic is either a fool or in denial. By 2019, publicly held federal debt will exceed 100% of the gross domestic product and we will be bankrupt.

  11. Jeannette says:

    Looking ahead to envision the things that may happen that could negatively affect your life is hardly being a pessimist. To me, that is being realistic. Something more people need to be, IMHO.

    The optimist is often so full of expectation and unrealistic thoughts–not to mention outright denial– that they are really and truly shocked and unprepared for what could happen because they never seriously dwelt on the way things can change in real life: Lose job, become chronically ill, have a stroke, get wiped out in your savings, etc.

    My biggest issue with so-called optimists is that many of these folks are the ones who then expect everyone else to bail them out. Over the years, they never listen to others who caution them to prepare for certain things. Their attitude? Someone else will deal with this. (this is very common in families, especially dysfunctional ones)

    It’s hardly pessimistic to do as much as you can to prepare for the future, when your options may be more limited and your resources (physical, mental, emotional, financial, etc.) are also more limited.

    And by the way, tough stuff can happen at any period of life. Ask a 20-something widow with young children whose life is ruined because her husband had no life insurance, she never worked and has no skills because she made a life choice–supported by her husband’s income–to stay home and work in the home (without compensation). Even if she gets some SS for those kids, it won’t be enough.

    Or the 50-something spouse/life partner who is dumped and left financially handicapped, regardless of whether they work or not.

    And people can get seriously ill at any time in life and be unable to work, and yet still not be eligible for SS disability.

    You do the best you can with what you have, but not everyone is going to have enough to save to cover all the possibilities. Not with the low incomes most people have, even with frugal living.

    and the other thing: Some of the stuff that will happen in the future is literally beyond our imagination of the worst-case scenarios. That is the nature of life. You cannot anticipate everything.

  12. SLCCOM says:

    Regardless of whether or not you have assets to protect, it is CRUCIAL that EVERYONE have long-term disability insurance. The stay-at-home spouse will need to have her/his work done by paid help. The income-earning spouse needs to have that income come in.

    My advice is for every person to get a good disability policy with their first real job, and make sure that you keep it all your life. Go to the food pantry for help if it is a choice of disability insurance or food. Increase the coverage as your expenses increase.

  13. Courtney says:

    I’m curious as to how you would recommend one go about buying LTC or LTD insurance.

  14. kristine says:

    almost there- I am right there with you! Sobering book. I am saving up to buy arable land with water rights, and get an ecopod.

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