If you’ve ever gambled, you probably have set a stop-loss order. You tell yourself something like, “Alright, if it’s not my night tonight, I will only allow myself to lose $100.” Therefore, once the $100 is gone, you’re done.
Another example, is when you go to a bar and only bring about $20 in cash and your I.D. This way, the credit card isn’t coming out at 2:30 right before the bar is about to close.
This is a pretty simple concept taken from the stock market. In investing, you place a stop loss order to protect your gain or minimize your loss. For example, you bought a stock for $20 and now the price is $30. To protect your gain, you can place a stop-loss order at $30. Therefore, if the price of the stock declines to $30, a market order is place and your stock would be sold.
This post isn’t about placing a stop-loss order on a stock, it’s about using this concept in your life.
Placing Stop Loss Orders in Life
Let’s say you want to take some time off to travel. However, in the back of your head you feel you don’t have enough money.
Instead of worrying about not having enough, place a stop loss order. If you saved $10,000 to travel, set your stop-loss order to return home when you have $3,000 left. This should be plenty of money to get you home and on your feet in little time.
There’s no limit to the amount of stop-loss orders you can set. Let’s say you want to start your own business. You have saved $10,000, which you think will last 6 about six months.
Place a stop loss order to get a part-time job, when your savings reaches say $4,000. Place a second stop loss order, to return to work full-time, at $2,000 of savings.
This simple strategy, can reduce a lot of the financial worries you might have when you’re making big decisions in life. It has worked great for small decisions, why not extend it to the big ones?
What other areas of your life can or have you used this concept? Has it worked?
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@Financial Samurai – I think it’s going to remain pretty stagnant for a while, I feel the market is overpriced a little.
I have to admit, I just don’t read financial news day in and day out to give much more than a random guess, though.
Stop loss does sound like a good idea instead of digging yourself deeper and deeper in a hole.
What are your thoughts on where the market goes this year?
Good idea
That was a great post I wish I would of known this back when I was a gambler. Just kidding but I do know I will apply this to some parts of my daily life. Thanks RJ
Ha no such exotic insurance offering. (:
At first I thought this was going to be about some sort of exotic insurance offering but it was must more interesting. It could be applied to time, as well, especially when you are negotiating with others. For example, ask the boss to try a new working arrangement, whatever, for a predefined amount of time after which, if she doesn’t like how it is working, she can exercise the stop order. Or with the spouse, if you want to try something off the template like, say, move to Costa Rica. After six months (or so much money) if she doesn’t like it she can exercise the option.
@ERE – Yeah true I guess.
@Sunil – Thanks Sunil. Any examples where you have used this concept? I would be interested to know.
Thanks for writing the article.
I have used the stop loss order method since I was about 17 without even realizing I was doing it all along. Still do it on a daily basis, and it works wonders.
Since a stop loss order liquidates the position, changing “on your life” to “in your life” in the title might suggest a less deadly outcome 😉