Step 87: Play the What If.. game

Step 87 of the 100 steps mission to financial independence: Play the What If... Game
Step 87: Play the What If… Game

Being prepared for adverse financial situations is an important step to take on your way to financial freedom. Without wanting to sound demotivating (or even morbid), the “what if..” game forces you to think of unwanted but possible situations that might happen and that would set you back on your journey to financial freedom and in some cases would have far bigger consequences than just the financial effects.

We’ve already established the importance of an emergency fund for those times you have a big unexpected one-off expense you need to pay and you should also be well on your way to getting together a 3-6 month living fund in case you (or your partner) lose your main source of income and need to make ends meet until you find another job or income.

Whereas the emergency and living funds prepare you to financially deal with the consequences of a financial setback quickly and efficiently, the “what if…” game prepares you psychologically for any behavioural changes you might need to make to adjust to smaller or bigger changes in your life that might require you to adapt on a longer term.

So let’s get playing…

What if… your income goes down by $100

Let’s imagine that for whatever reason from this month onwards, you monthly income decreases by $100 (maybe your taxes go up, your salary goes down, you lose a bonus, your union makes a deal to cut wages in order to keep jobs.. whatever the reason). So the question is: what will you do if you lose $100 in monthly income? Where will you cut in your expenses? How do you adjust your budget? What stays and what goes? Do your savings take a direct hit? Can you cut out those monthly salon appointments? Will you mown your lawn yourself again and take your gardener’s hours down?

What if… your income decreases by 50%

Now let’s take this one step further and say that from next month onwards your monthly income decreases by 50%. Half of your income you’ll need to say goodbye to. (whatever the reason: your hours are cut, your contract isn’t extended and your new job is only 50% of your old contract.. ). Where can you cut now? Should you get rid of your second car? Will there be no more eating out? Cancel that holiday you were planning? Of course the 3-6 month living fund might help but the less you cut, the quicker this fund will run out of course.

What if… you lose your job 

Of course we all hope this won’t ever happen, but you never know (how is that 6 month living fund coming on?). Or you might have your own company and it might go bust. Or all of your clients might all decide to take their business elsewhere. Then what do you do? Can you still pay off your mortgage? Can you make your minimum payments on your debts and still pay for food and shelter for your family? Do you need to start an immediate side hustle babysitting or teaching? Will you end up eating into your long-term savings?

What if…you lose all your savings

What if you have all of your savings in the stock market, and just before you retire, or retire early or take a short break from work, the market plummets and you see your portfolio lose 50% of its value in the case of just a few months. Or the bank that has all your savings goes bankrupt and your money goes down the drain with it. These things have happened and they will happen again. Nothing is certain and be careful not to put all your eggs in one basket as before you know it that basket drops and you are left with nothing but broken egg shells.

Play “what if…” before any big purchase

That new $30,000 car you were looking to buy at $600 a month seems like a good idea now but what if (insert scenario) happens? Will you still be able to make those payments? Even though you can afford it today, that doesn’t mean you’ll be able to afford it next year, or the year after, or in 3 years’ time.. Before you commit to any big purchase, make sure to think things through and decide how well you are protected in the case of specific events that might happen.

Of course you never know if any of the above will happen (and if so: when they will happen), so even though you can’t predict these factors, you can certainly be prepared if they do happen. Keep asking yourself these questions and add your own questions that are applicable to your situation. Write down your answers and adjust your expenses, savings or investment strategies accordingly. Make sure you review your insurance, asset allocation and income plans regularly.

There is no need to become pessimistic about the economy or your finances, but some realism is absolutely needed to ensure you don’t fall victim to unrealistic optimism that might make you think you’ve got it all under control. As the market does what it does, regardless of how much you have your finances under control..

Step 87 – Play the What If… Game – in detail:

Before you ask, yes I do think you should get your notebook or digital note taking app out and record the answers to these questions. I’ve said it before but will say it again: I’m a big believer in writing things down to make it more real and to put together an actual plan. Here goes:

  • Get out your notebook.
  • Write down at the top of a new page: What if I lost $100 of my monthly income?
  • Answer the question. Make sure to FIND $100 in your budget and write down each item you’d scrap with the corresponding amount until they add up to $100. Of course you can just take $100 out of your savings contributions. But go back and calculate how this will affect your savings over time!
  • When ready, write down the next question: What if I lost 50% of my monthly income?
  • Again write down the answer until you’ve been able to adjust your budget completely.
  • Remember you can use your funds if you have to, but you want to avoid building up any more debt where at all possible! (I presume you’ve got this pretty clear by now).
  • Write down the question “What if I lost all of my monthly income?”. Try and answer this one. Of course if you have a living fund you might need to rely on it here. But how long will that last? “What if I lost all of my monthly income and my living fund ran out?” is a good follow-up question.
  • You can play this game with anything, so continue with other questions that seem appropriate:
    • What if I can’t find a tenant for my rental property for 2 years?
    • What if I lose 50% of my savings?
    • What if I become chronically ill and can’t work anymore?
    • What if my partner suddenly passes away?
  • Review your answers and decide how well you’re doing in all of these areas. What adjustments do you need to make in order to better prepare yourself for any of these scenarios? What can you do today that you shouldn’t until tomorrow?

The what if game is not a very uplifting game, but it is an important one to play now and again. I hope you can appreciate even more that having the right insurance, legal documents and more than 1 income stream will be huge if you ever find yourself in any of these scenarios. So put your pen to paper and write down how to protect yourself, how to diversify and how to provide for your family even in extreme adversity. Then take action in those areas in which you are not doing as well as you should in order to be prepared for any of these events.

Read more about my 100 steps mission to financial independence or simply decide to take control today and join us on our step-by-step quest on how to make your finances work for you, starting with step 1.

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