How I plan for the worst-case scenario


Disclosure: This article is not intended to be financial advice and information should be taken as educational only. Read the disclaimer.

Have you ever made a decision that's financially hurt?

Maybe it was buying something you couldn't really afford or bought something expensive you thought you’d like but didn’t.

I know I've made a lot of calls over the years doing things I shouldn't have and it ending up costing me time and money.

It hurts.

It hurts because you want to get the best out of life . You want to earn money, save it, spend it and then all the good things you wanted to happen from it, do.

The thing is, often we only focus on the good things.

When we buy a house, we think about how wonderful the lifestyle will be, waking up in a new bedroom in a house that faces a certain way.

Or we buy stocks thinking we'll double our money and suddenly be stinking rich and retire early.

These are all the best-case scenarios. Few of us think long or hard about the worst case situations.

It's not even the worst case scenarios, even the half bad scenarios can take it out of use.

What if interest rates went up 1, 2%? What if stocks were flat for a few years?

What if everything we wanted to happen didn't.

This is where I introduce a process I use before I make the big financial decision.

(and I'm talking like buying a house, not buying a coffee).

It's called a pre-mortem.

Not a post mortem. A pre-mortem.

This is an analysis of why something could die (or fail) BEFORE it happens.

This is how it works.

I keep a document of all the ideas that pop into my head as a good idea.

I note down:

  1. What I want to do, including the plan to complete it
  2. What the costs and expenses of it all
  3. What implications it has to my lifestyle
  4. What I imagine being the worst thing that could happen
  5. Whether this decision is worth doing despite everything above

You should be able to make a much more logical decision based on the information you collect in a pre-mortem.

By the end of this process, I know pretty much straight away whether it's something I should pursue or go back to the drawing board.

It's like a big filter for your big decisions. Just one way to avoid that big mistake.

You can't foresee everything, but it's a way to play devil's advocate on your own financial decisions.

So next time you come up with that next amazing idea – take it through the pre-mortem cycle and see if it survives.

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Tim Ellis, creator of, helps people confidently invest and manage their money. Inspired by his own experiences, Tim is passionate about creating a financially secure future for his family and sharing his personal finance knowledge with others.