Updated: Dec 15, 2019
Calculated Risk Formula
What was the biggest risk you have ever taken? Was it something thrilling and exciting like skydiving or mountain climbing? Or was it taking a chance on a relationship or business without prior knowledge?
A risk is the possibility of losing something of value. It is to take a chance without being in full control of the outcome. Generally, we make decisions by determining how likely something is to happen, and judge the value that the outcome has for us.
Sometimes we can focus too much in the pleasure of the reward of taking the risk. And at other times, we can fear the possible pain or loss and not take a risk. Emotions can either help or hurt making a decision based on the source of the emotion.
One of the first big risks I took was when I bought my first property at 22. I bought a two family building with a condemned bar attached. As soon as I closed on the property I became a home owner, landlord, and rehabber all at the same time.
My plan was to rent out the two units and rehab the bar into another one bedroom apartment, for me to live in. The project was projected to take four months to complete. I had my plans drawn up, budget in place, and my contractor lined up. As the project got going, I started running into additional things that needed to be done, that costed more money and took additional time to get done. From underground pipes that needed to be replaced, to waiting for building permits and special orders to come in.
Long story short, my project that was supposed to take four months to get done, ended up taking ten months to get done! I had miss calculated the knowledge, time, and money it would take to successfully get this project completed. But was the risk worth it? Absolutely! I learned the renovation process, how to be a landlord, and was able to sell this property for a profit and buy another one.
Is their a "sweet spot" in taking risks and making decisions? What's the formula to making a "calculated risk"?
Here are three things that I learned from my experience in taking this risk:
1. Having the proper knowledge is key. Before you make a move, whether it be starting a business, new career, or relationship, make sure that you have enough information and experience to successfully meet the goal. I think that the famous investor Warren Buffett said it best, "Never invest in a business you don't understand".
2. Be realistic about the time it will take to see results. This is by far, the biggest thing to consider. You can learn and gain experience as you go, but time is a limited commodity that you can never get back.
3. Determine the financial sacrifices that may have to be made and how long you can go before you see financial gains or improvements.
It is my suggestion that the riskiest thing you can do is to take no risks. But we must take calculated risks that include much research and preparation.
Be inspired by the reward of making a dream a reality by taking calculated risks!