Welcome back to G.R.O.W Weekly. For the second installment, I’ll be discussing the financial concept margin of safety and how it can improve your lifestyle. Check it out!
I think we can all agree that living with a healthy savings account is more comfortable than living paycheck to paycheck.
The same is true with investing - investing in companies that are currently below what they are estimated to be worth is more comfortable than investing at higher valuations.
The “safety net” in these situations is what’s referred to as the margin of safety.
When it comes to investments, the margin of safety is the difference between the estimated value of a stock and what you actually purchased it for (below the market value).
You can also use the margin of safety concept in everyday life situations to help you live more comfortably.
Using It to Your Advantage
In the book The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness, Author Morgan Housel explains that leaving room for error (or a margin of safety) is vital to any plans you make.
Morgan mentions, “Planning is important, but the most important part of every plan, is to plan on the plan not going according to plan.”
One of the best ways of planning for things to go wrong is to leave yourself “room for error.” You can do this in several ways:
Saving additional money
Being patient with investments
And having flexible plans
The problem most people have is that they develop a plan, and the first thing that comes in their way, they abandon it. This is generally the result when things outside of our control come in the way of our plans.
Marcus Aurelius wrote in his book Meditations - “You have power over your mind - not outside events. Realize this, and you will find strength.”
This is an important idea - You can only control so much that happens in your life. For the rest of it, you need to be able to accept and adapt in order to continue on your mission.
For example, if you have a goal of saving money - Be prepared for unexpected expenses like car repairs or a medical bill. If you have a hard time planning for such events, it may be best to utilize a tool like a financial planner to help you track your expenses and visualize the money flowing in and out of your account.
Tools like these can help you stay on track with your budget and allow you to build the margin of safety you’re looking for.
Thank you for joining me for the second installment of G.R.O.W Weekly. I hope to see you next week!
Also, if anyone wants to learn more about a specific financial topic or interested in personal/ professional growth, drop me a comment below, and I’ll try to work it into an episode of G.R.O.W Weekly.