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Keep a margin of safety when planning

2 min read

What is margin of safety?

  • Enduring volatility: There is a gap between what you can technically endure versus what’s emotionally endurable.
  • It is something this is part of plan which lets us live happily with a range of outcomes.

Benefits of keeping a margin of safety

  • It lets you survive to fight another day when the odds fall against you
  • Lets you stick around long enough to help you reap the benefits when the odds fall in your favor
  • Helps you endure volatility.

What are its various forms?

  • Frugal budget
  • Flexible thinking
  • Loose timelines
  • Avoid single point of failures
  • Save money for the surprises that life will throw at you.

Example of margin of safety

  • You could assume that the future returns you’ll earn will be one-third of the historic average. This offers a margin of safety if you have a run of bad luck

Not conservative

  • Different from being conservative; Being conservative means avoiding a certain level of risk
    • It is about raising the odds of succcess
    • The odds of success is increased by expanding the scope of what success means

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