Barbara O’Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension
This article describes small steps that people can take to create a margin of safety for their personal finances. According to author and productivity expert, James Clear, the term “margin of safety” is an engineering concept that is used to describe the ability of a system to withstand loads that are greater than expected. For example, imagine that someone is building a bridge and the maximum weight for a commercial truck carrying a full load is around 80,000 pounds. An engineer on the project will build a bridge that can safely carry vehicles weighing far more than the maximum weight, just to be safe. That additional capacity is known as the margin of safety.
A margin of safety is crucial, not only in the world of construction, but also in many areas of everyday life. Having a “cushion” helps people deal with unforeseen problems and deal with life's inevitable challenges. An example is shoveling a wide swath of snow from your driveway in case there's even more snow coming from a new storm. The way that people schedule their time is another example of margin. For example, if it takes 30 minutes on a day with “normal” traffic to get to work, you might leave 50 minutes ahead of time “just in case.”
As Clear notes, a healthy margin of safety improves the odds that you will arrive on time: “If everything has to go perfectly for you to be on time, then you're not going to be on time very often.” When there are delays, a margin of safety provides extra time to handle the chaos. When you arrive early, you can use the extra time to talk to coworkers, get some exercise, check email/social media messages, or do whatever else you want to do.
The “margin of safety” concept can also be applied to how people handle their personal finances. Below are five strategies to increase your financial margin of safety:
Want to take small steps to improve your personal finances? Take action today to build your financial margin of safety. Every small step makes a difference.
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