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Everyone needs a disaster management plan: Life Hacks by Charles Assisi
We can’t predict the future, but we can plan so as to ensure good outcomes in case a crisis occurs. That, in essence, is optionality, a simple but elegant way of life.
What would you do if you lost your job tomorrow? Who would you be able to turn to for help? How would your family tide over the crisis?
If you can answer those questions with some degree of confidence, then you have acted on sound management principles, and built optionality into your personal life. You may not know the term, but it informs how most of us conduct our days, our decisions, our lives.
“What, specifically, do you mean by optionality?” I asked Haresh Chawla via text recently. Now, my familiarity with optionality comes from textbooks: ‘The option an investor retains to make additional investments in an asset they hold after their initial investment’, that kind of thing.
I’ve known Haresh for many years — from his earlier stint as CEO of the Network18 group to his current role as a partner at the private equity firm True North Ventures — and I’ve often turned to him for advice, both professional and personal.
“Let’s examine the optionality,” he’d often say. But I had never asked if my textbook understanding of the term differed from his value-driven approach to the idea.
He replied to my text soon enough. “When you start work on an idea, you must create multiple pathways for the idea to grow as well… While the value of creating those pathways may stay dormant, it will accrue to you whenever it is due.” That may sound complex, but it’s actually a simple and elegant way to look at life.
A few weeks ago, for instance, I was listening to my friends, the father-son duo of Vijay and Shravan Bhat, talk about personal finance. Vijay is an advertising veteran and Shravan is a journalist.
Vijay was talking about how, when we’re young, we believe our paycheques will largely go only one way — up. But Vijay fell off the income cliff thrice over two decades. He managed to survive those falls because he had figured out early on that the belief was a flawed one. So, over the years, he had worked to build optionality into his life. He had created what he calls his ‘three cushions’.
Cushion One was savings for the big things that mattered, like Shravan’s education and the family’s health.
Cushion Two was all about earning goodwill. It helped him find gigs and new jobs when he needed to.
And Cushion Three was figuring out the ‘enough point’ for the family — in engineering parlance, the margin of safety. It was a lesson he learnt early on in life.
He knew exactly what the family would need in order to maintain a certain acceptable lifestyle, and together they worked even in good times to ensure that they would be able to live within those boundaries if and when necessary.
So he always saved so that they wouldn’t have to scrimp where it mattered. Prudent investing allowed him create a surplus that saw the family through tough times. What Vijay was doing was exercising the optionality that he had created when all was well, until he could find ways to carry on or new pathways opened.
Optionality percolates into others areas of life as well — such as decision-making capability. Rory Sutherland, vice-chairman of Ogilvy (UK), discussed this recently in a conversation with the Wall Street guru Shane Parrish on the Farnam Street Blog.
As a thumb rule, Sutherland explained, people forgo good decisions in favour of defensible ones. ‘What is everyone else doing’ tends to be more of a guiding principle than ‘What do I want and how can I get it’ or ‘What’s best for me and how can I make that happen’. The reason we do this is so that, if things go wrong, they can then be blamed on overall sentiment.
This offers only the illusion of safety, of course, because the impact of your personal decisions remains confined to you and yours. Something to think about as we go about making all-new decisions in this whole new world of ours.
So, what would you do if you lost your job tomorrow? And what can you do today, to make it easier for you to answer that question in the future? That’s all optionality is — simple, elegant, but mission-critical.
