Don’t avoid risk, embrace it.

How many of us are guilty of allowing fear to keep us from doing potentially great things?

 

ME! I’M GUILTY OF THAT!

 

I wrote last week about my desire to add a two bedroom rental unit to the side of our house. About 10% of you thought it was a good idea in theory. The other 90% of you thought it was too risky.

 

  • What if I couldn’t find renters?
  • How would this effect Baby Ninja if he is raised in a major construction zone?
  • Where would we get the money?

Of course, these are all things worth considering, and believe me I have. It is my families well-being on the line after all. There is definitely risk in adding a $100,000 addition to our house

But there is also risk in NOT exploring this idea.

  • Our cash savings continues to depreciate since the interest it earns wont keep up with inflation.
  • I forfeit the potential to earn $700/mo profit on a $100,000 investment.
  • Our house will remain less marketable since we only have one bathroom.
  • Etc, etc, etc.

You get the point. 

Whether my accessory dwelling unit idea comes to fruition remains to be seen. I got a ton more calculations to do and people to meet with before I can fully wrap my brain around it. But I’ll be darned if I’m going to let some risk paralyze me from doing potentially great things.

A reader of MMM said it best…

Risk cannot be completely eliminated and trying is a fool’s mission. Focusing on eliminating it in one area pushes it into another. I can completely eliminate the risk of flying by never getting on an aircraft (unless one then falls on my head). But that elimination shifts the risk to train, boat, car or bicycle risk. Eliminate all of those and I’m stuck at home, statistically the place most accidents happen. Life is not certain. Ying and yang are the norm. Understanding the risk inherent in anything and that of the alternatives can then inform our choices. That’s about all you can do.

Preach. 

How do you account for risk when you make your financial decisions? 

5 thoughts on “Don’t avoid risk, embrace it.

  1. I am risk averse on topics where my knowledge is lacking. So I just research those areas until I feel more comfortable with them. When I have knowledge of a situation I tend to take on higher levels of risk. I am still fairly young and have time to recover.

  2. I’ve been paralyzed with risk since I lost a lot of money on the dot com bust. Since then, my wife and I have amassed an emergency fund equivalent to 5 years of expenses. From that I felt able to start risking my money into more lucrative investments. Nothing more empowering than a stack of money in your bank and/or safe. Well maybe a gun too.

  3. I agree with the emergency fund thing, and I think risk when you’re in a lot of debt isn’t smart, but I’m usually for it. It’s exciting and when you think of the possible negative outcomes (the noise, the renters search etc) I think in this scenario they’re outweighed completely by the positive outcomes. Extra sustainable income, increased equity and experience in being a landlord. They set the entire financial trajectory on a steeper angle and that’s a big win.

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