You must take risks to live an extraordinary, deeply-meaningful life. I am a huge believer that taking the right smart risks can act like a turbo-booster to help you get what you want out of life. But the risks have to be extremely smart risks. Dumb risks turn into pain, frustration, and regret. Smart risks turn into the awesome results that you fantasize living in your dreams.
So what are smart risks, and how can you tell the difference between a smart risk and a dumb risk? I developed a system that helps me evaluate which risks that are smart to take. Every time I am encountered with a new idea or opportunity, I go through this mental checklist to help me evaluate the associated risk. If the risk passes the checklist, I jump into the opportunity head first and try to turn it into gold. If the opportunity fails my checklist, I avoid it like it’s a massive skull-eating monster that is trying to bite my head off and chew it a little bit.
HERE IS THE RISK CHECKLIST I USE TO EVALUATE STUPID, AND SMART, RISK:
Question #1: Is it Legal?
Question #2: Is it Ethical?
Question #3: Can I Afford it?
Question #4: Will I get Hurt?
Question #5: Do I Want to Do it?
Question #6: Can I Achieve my Purpose in Life if I don’t do it?
Taking smart risks has been my biggest secret weapon to create everything good (wealth) that has happened to me in the last 5 years. Smart risks are what led me to meet my wife; start my first business; manage my money on my own; buy an investment property; and start this blog.
To build a life you dream of living, first create a lifestyle that allows you to feel safe taking risks. Second, improve your ability to determine which risks are smart for you to take, and then take them. Now that I’ve explained why smart risks are an important ingredient to create wealth, let’s dive deeper into my risk checklist so I can show you how I target the right smart risks, and how I avoid stupid risks.
My Risk Checklist:
Question #1: Is the Risk Legal?
The first question I analyze when I am thinking about taking a new risk is: “Is this risk legal?” I ask this question first, because I have learned that no matter how rich, powerful, or successful a risk can make me, going to jail because the risk is illegal is NEVER worth it for me! If I realize right away that the risk I am pondering puts me in a dangerous situation on the wrong side of the law, I immediately turn it down. Even if the risk seems like a golden opportunity where there’s virtually no chance I could get caught, I remind myself of the shame and embarrassment I would feel if I was put in handcuffs because of it. Ruining a reputation that takes a lifetime to establish is NEVER worth any payout, no matter how tempting or lucrative the risk may seem.
In conclusion: If the risk is legal, it’s a potentially smart risk, and I go onto the next question. If it’s illegal, it’s a stupid risk and I run like hell.
Question #2: Is the Risk Ethicial?
The second question I ask when evaluating a new opportunity, is: “Does the risk fit within my ethical standards?” I am 37-years-old, and I have learned that even though my time alive seems long, it goes fast. I want to spend as little time as possible worrying about the choices I am making. So each time I encounter a risky decision I’m intrigued to take, I compare it to my values and ethics, and I ask myself, “Do I feel comfortable with the ethical ramifications of my actions and decision?” If I feel comfortable with the ethical decisions I’ll be forced to make regarding the risk, then I move onto the next step in my risk checklist. If I don’t feel comfortable with the ethical decisions, I swiftly move on and search for the next opportunity.
In conclusion: If I feel comfortable with the ethical decisions I’ll be forced to make, I deem it a potentially smart risk and go onto the next question. If I feel uncomfortable with the ethical questions I encounter, I deem that life is too short to feel like a sub-standard human being, and I move on.
Question #3: Can I Afford to Take the Risk?
Once I’ve determined that the risk is legal, and ethical, I start evaluating the financial impacts it may bring upon my life. (If it is a risk that doesn’t have anything to do with my finances, such as: Asking a girl out on a date when I was single (a romantic risk), or committing to run a marathon (a physical risk), I bypass this step altogether.)
But since I am a guy who loves personal finance, financial investments, and building wealth, a lot of the risks I evaluate have something to do with money. When evaluating a financial risk, I always ask myself this question: “Can I afford if the risk turns sour, and I lose all the money I put into it?”
Ultimately, I ask myself this very important question because even if I lose everything, I don’t want to hate the life I have to live. Life is too short to hate any part of it. So if I deem that the risk may destroy everything I’ve built up over the last decade, than I may deem it too expensive to take. If I can’t afford losing, than I deem the risk is not worth taking.
However, if decide that I will only be uncomfortable, frustrated, and discouraged for a short time if the risk goes sour, than I could deem the risk worth taking because I am young enough to be able to learn and bounce back from it. But I have made the decision that no risk is worth losing everything and making me feel like I hate the life I am living.
In conclusion: If I can afford losing, than I deem the risk worth taking. If I can’t afford losing, then I deem it a stupid risk and look for a smarter risk to take.
Question #4: Will I Get Hurt?
If a risk involves physical pain, I often evaluate, how much pain am I risking? I can handle a little pain, but I can’t afford a serious injury. For example, before I do a roofing project on a house I own, I evaluate is saving a few hundred bucks worth it if I fall and have to pay a $6,000 insurance deductible?
Or if I am skiing in Colorado, and I see an awesome cliff line I would have loved to take in my younger years (and when my parents were paying for my health insurance), I evaluate if it’s a smart decision to make. At my age, I am willing to sacrifice some comfort, for some pain, if it brings me the results I crave. But I am no longer willing to risk a serious injury that could cost me tens-of-thousands-of-dollars in unnecessary medical expenses and weeks of loss of work.
In conclusion: If it’s just pain and comfort I am sacrificing, I determine it could be a smart risk to take. But if I am risking a potentially serious injury, or death, I deem it a stupid risk and look for a smarter risk to take.
Question #5: Do I Want to Take the Risk?
When evaluating an alluring risk, I always ask myself: “Am I contemplating taking this risk because I really want to take it? Or am I doing it because I feel peer pressure from others, such as my parents, my bosses, my family or my friends?” To build real wealth, it is vitally important that you only take the risks you want to take, to get the results you want to live, and then repeat those risks hundreds and thousands of times until you master the risks that will create your dreams. Taking smart risks can be extremely motivating because you will build self-confidence and independence as you learn about yourself, and learn how to master these risks to create your dream life.
However, on the flip side, there aren’t many more miserable feelings in life than feeling forced to take risks that other people want you to take. Taking risks for other people can lead you into a nightmarish existence, because if they go sour, then you’re the one who has to pay the consequences, even though you weren’t the one who wanted to take the risk. Before I take any risk, I ask myself: “Do I want to do it? Are the results important to me? Am I willing to become an expert by learning through the uncomfortable process of trial and error?” If I realize the risks are important to me, and I am willing to learn and grow by trying to turn a risk into a goldmine, then I take these risks.
In conclusion: a risk that you want to take, may be the beginning of a new life you want to live. However, a risk that you don’t want to take, may lead you into a life you hate, and living a life you hate to appease other people is one of the biggest mistakes a human being can make.
Question #6: Can I Reach my Purpose and Destiny if I Don’t Take the Risk?
Finally, I evaluate the risk, and the reward I hope to get out of it. I compare the risk and reward to my own mental position regarding the risk. I ask myself: “Why do I feel like it is a risk? Why am I hesitant to take it? Am I hesitant because of fear?” If I am only afraid of the risk because of fear, and it passes all of the above checklist, I ask myself this question to challenge myself: “What goals in life can I achieve if I can will myself to the other side of this risk?”
If I feel my purpose or destiny is on the other side of the risk, then I know it’s just fear holding me back, and unsubstantiated fear is often the enemy of living an extraordinary life. If all the other steps above make the risk look like a smart risk, then I can realize it’s only fear that is holding me back. If it’s only fear that is separating me from my dream life, than I realize part of my purpose in life is to overcome my fear and take the risk.
I personally believe that achieving our purpose is the most valuable thing any of us can do in our life, and often our purpose is sitting on the other side of our fear. Purpose is more valuable than money, because purpose can make you feel like you lived for something. Money can only make you feel like you worked for something. Enjoy taking risks. Because once you find your trail of smart risks leading you toward your purpose in life, there isn’t a life that will make you feel wealthier than walking down that trail.
Years ago, I was told some great advice from a very smart and successful man that has stuck with me. He said: “The doors of opportunity are always opening and closing in life. You don’t need to walk through every door of opportunity. You just need to walk through the doors of opportunity (the right risks) that are right for you. Find your doors, take your risks, and then find yourself along the way.”
Use this website to find your doors of opportunities. Then have fun taking the smart risks that are right for you, so you can become who you’re supposed to be.
In conclusion: Embrace the fact that risks are the opportunities that will lead you to who you’re supposed to become. Seek risks. Find risks. And then once you encounter risks, learn to logically evaluate each risk. Maximize the smart risks you choose to take, and avoid the stupid risks. Save your money along the way, and you will quickly find yourself on your path to wealth.
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Great post Bill! Risk is necessary for growth in life and all things that come with that (education, business, etc.)
You give a great framework for making decisions – thanks for providing this blueprint
Amen on skiing the cliff line, ever since I went head first over a forty foot cliff at Beaver Creek I’ve sworn off those things! Another thing people sometimes forget about risks are that they are cumulative. Taking a one in a thousand risk is very safe, once. But if you take one in a thousand risks frequently eventually your number will almost certainly come up.