Keeping your Options Open

We’ve all had one of those discussions. What would happen if you were transported twenty years back in time? What would you do differently and how would it affect you today?  Typically, someone will say that they would invest all their money in Apple or bet everything on a particular team winning the Super Bowl, and they’d be rich today.

These discussions are fun, but I also think they highlight the benefits of one of the most effective strategies for life, a strategy that isn’t discussed much or actively pursued by many: optionality.

What the heck’s optionality?

By optionality, I mean keeping your options open, delaying decisions so as to maximize your future flexibility and trying to minimize decisions that close doors.

We can’t see the future, but we know from experience that random stuff will happen. Friendships will form and disintegrate, new people will enter your life, earthquakes, car accidents, and sicknesses will impact you and your family. Even your attitudes and opinions will change. Optionality gives you the maximum flexibility to respond to these unpredictable changes.

So, maximizing optionality is the closest thing we have to time travel. It both increases the number the opportunities that will arise (because you haven’t prematurely closed the door on the opportunity), and maximizes your flexibility to take advantage of those opportunities.

Don’t burn bridges

People do see optionality as a good thing. For instance, the “Don’t burn bridges” maxim recommends that you maintain optionality. It’s saying that even if someone isn’t useful to you now, you shouldn’t alienate them without a good reason because they might be useful to you later.

However, more often, our world discourages optionality because so much of business revolves around sales and marketing. If I’m selling a product, I want you to buy it this instant, not go away and think about whether you truly need what I’m selling or what other things you can buy instead of my whizzbang new gadget. I want you to make a quick decision that reduces your optionality for my own benefit.

Thus, while theoretically people seem view optionality as a good thing, in practice, maximizing optionality tends to be discouraged.

How to Maintain Optionality

One of the key ways to maintain optionality is simply to factor it into your decision-making process. Whenever you need to make a decision, think about whether you actually have to make the decision now, or if you can defer it until you have more information. Deferred gratification is a great strategy for improving optionality.

Secondly, think about which doors will be opened by the decision, and which doors will be closed. If more doors are closing than opening, you have to be completely certain that you care much more about the door you’re opening than the ones you’re closing.

Be greedy

Money, of course, has, high optionality. You can trade it for most things, even time.  If you don’t have a lot of money, a huge proportion of your life will be spent working, and most of the money you make at your job will go to the basic necessities of survival–food, shelter, and taxes. What’s more, if an unforeseen crisis hits (e.g. car accident, medical bills), you might end up having a bad outcome simply because you don’t have the money and flexibility to handle the unexpected costs.

Debt is even a bigger killer of optionality than poverty.  If you go into debt by spending more than you save today, you’re essentially saying, “the future is random, but my desire to spend money now is likely to be higher than my need to spend money some time in the future.” You have to be in pretty dire straits for that actually to be true.

Another obvious method of increasing optionality is education.  Typically, education will provide more opportunities in the future, to the extent that the increased optionality of the education will often compensate for debt taken on to get it. If you don’t think your education will open more doors than it closes, you should really question whether school is worth doing.

Once you start thinking about optionality, you’ll see it everywhere. Very often, you will be offered options and flexibility at a very low cost. When you see such opportunities, grab them.

Where’s the line?

The fact that having more money is better than having less isn’t exactly a brilliant insight, but I think it’s noteworthy because while people know this, they don’t act that way. To use an extreme example, when you buy that frappuccino, you’re probably not thinking that, ten years in the future when you get cancer, the money you are spending today might be enough to make the difference between a successful treatment and death.

All of this is not to say that nobody should buy coffee, buy a house (huge cost, high risk, less flexibility to move) or get married (permanently connecting yourself to someone else in sickness or health? Yikes!)  Rather, the point is that there’s a lot of value in analysing your decisions in terms of what doors they open, even day-to-day decisions like how much money to spend and how much to save. For big decisions like marriage, you should think through what you’re giving up to achieve these goals, and makes sure you’re happy with the trade-offs.

Thus, to make life easier, consider adding optionality to your decision process. By doing so, you’ll maximize the chance for good things to happen to you and your ability to take full advantage of the situation when they do.

On that theme, in my next post, I’ll talk about how to use optionality to get rich.