Your Backup Plan Sucks

Most people don't have a plan. They have a subconscious hope that nothing changes and that things will just stay the same.

Interest rates keep climbing. The cost of diesel keeps climbing, which means the cost of everything that rides on a truck, a ship, or an airplane keeps climbing, which is pretty much everything. There's war in the Middle East. There's political uncertainty. There's a plague in Russia, a coup in Brazil, and every time you pick up your phone to check Facebook or Twitter, there's something new to worry about.

And most of the people I talk to and work with handle all of that stuff the same way: they keep doing exactly what they did last year. To be fair, I don’t blame them. If I didn’t know what I know, I probably would too. I mean, what happens over there is over there, I like to focus on my little world over here, at least that's what they say.

And listen, I don't know what happens next, you probably don't either. Nobody does (well, I'm sure somebody at the upper levels knows kinda what's going to happen next, but you and I aren’t on that notification list). The questions I want to talk about in this one revolve around what kind of plan you have in place if and when something breaks.

Rest assured, friends, something will break, it always does. Maybe it's your biggest client, or your car, or your health for a month, or your internet in the middle of a deadline. Small and medium breaks happen to everyone, every year. The people who come through them fine, sometimes even better, are the ones who decided some of their next moves ahead of time.

There's a system for that. It comes from the military, it has four words, and today I'm going to show you how to use it on your money, your health, your family, your home, and your business. By the end you'll have a list of things you can do right now that cost very little and protect a lot.

Where PACE Comes From

The system I'm talking about has an acronym, and that acronym is PACE. It stands for Primary, Alternate, Contingency, and Emergency. In the military and first responder systems it's a communications plan. A team out in the field has to be able to talk to each other, and they can't afford to have one dead radio end the conversation.

So, before they go, they agree on four ways to communicate, in order. The Primary is the normal way, the radio or communication system they expect to use. It's the everyday use method. If that goes down, they move to the Alternate, which is the next method they've already picked. If that fails, they move to the Contingency. And if that fails, they use the Emergency method, which is usually the simplest, most basic way to get a message through.

Here's the important part about this system, especially when we apply it every area of our lives and business; the real value of this kind of system and planning is that, when the radio dies, nobody just sits around and tries to figure out what to do. The order was decided before the mission, when everyone was calm and thinking clearly. When the pressure hits and things go sideways, they don't have to think. They just move to the next step in the plan.

Here's the thing, decisions made under stress are usually bad ones, unless you've planned and practiced what to do in those situations ahead of time. Decisions made ahead of time, when you're calm, are usually better ones. Especially when we consider that things going perfectly and as planned is rare in almost every situation.

An easy and relatable scenario, which happens to me at least 3 or 4 times per year is the internet going out. How many times has your Comcast or cable internet service gone out right in the middle of trying to finish an assignment before the deadline? It happens to me or somebody on our team almost monthly. What do we all do? Switch to your cellphone hotspot and keep working.

That would be an example of a primary system, your normal daily internet service going down for whatever reason, so you switch to the alternate system, which is your cell service hotspot. The question from there is, do you have a contingency and emergency version of that if, for some reason, your cell service doesn’t work?

So, let's translate the four words into plain language for your life and business.

The 'P' in PACE stands for Primary and it's how things normally work. It's the paycheck, the client, the car, the internet, the routine.

The 'A' is for Alternate and it's what you use when the Primary stops working. It does the same job, just in a different way.

The 'C' stands for Contingency and it's what you do when both of those are gone. It might be slower, it might be less comfortable, but it gets you to the same destination.

By the way, one of the reasons I teach this is because almost every one of you has some kind of alternate for most things. If the lights go out at night, you've got flashlights, headlamps or candles. If your power goes out, some of us have generators and large battery backups that allow us to keep working for a few hours.

But almost nobody thinks past the alternate. Very few people have taken the time to think through what their contingency and emergency plans might be for a variety of situations in their lives and businesses. That's what makes this easy acronym so valuable.

The last letter, the 'E', obviously stands for Emergency and it's the last resort. It protects you and it buys you time to think, to move, to escape, and to continuing existing until you can figure out next steps, whatever those might look like.

Four layers, activated in order based on failure of the previous system, and decided ahead of time. That's the whole system and you can use it on almost anything.

The Same-Failure Test

Now, here's where most people go wrong, and it might be the most important idea in this whole episode: a backup only counts if it would not fail for the same reason the primary did.

Let me give you an example, and maybe this is you. Picture a guy who backs up his computer every night. It’s a great habit and something we set up to do automatically every day at 3am. But the backup drive sits on his desk, plugged in right next to the computer. A fire, a flood, a burglary, a power surge, and both are potentially gone at the same time. He thinks he has two copies of all of his files, but he only has one location and that location is vulnerable to certain disasters that would take out both. The backup hard drive cannot technically count as an alternate to the primary system, which is your computer hard drive.

If they can both be taken out by the same thing, it's not a true backup.

Here's another one, and this one should hit home for all of my appraiser colleagues. If you have five or even six clients that account for all of your business and think that makes you diversified, but they're all in the same industry and affected by the same influences, you're not diversified. That's five or six clients with one point of failure.

Heck, tell me you have 18 clients, but they'll all get obliterated the same when interest rates rise, if you don’t have an alternate and a contingency backup to keep cash flow and income coming in, what happens to your life and business. And don't roll your eyes and tell me that, because it hasn’t happened to you yet in over a decade that it's not likely, just look around you because it's happening to a lot of people now in real estate, lending, and appraisal with interest rates and cost of living items on the rise.

Everyone who laughed at the idea of having an alternate source of clients if and when the market factors change is not laughing now.

Imagine a couple with two credit cards and one checking account, all at the same bank. The bank has a problem or freezes the account for a fraud review, and suddenly all of their money is locked up at once. When the primary goes down, you must have 3 other ways to survive.

In every one of those cases, the person believes they have a backup. What they really have is the same thing with a different label on it. I'll say it again: a backup only counts if it would not fail for the same reason the primary did.

So, here's the test. I want you to write these four questions down, because we're going to use them on everything in this episode, and I recommend you start using them for every area of your life. Teach them to your staff, your children, and everyone you care about because it can literally mean the difference between life and death in some instances, getting paid or not getting paid in others.

Question one: What is the one thing that hurts the most if it fails?

Question two: What is my backup, and would it fail for the same reason?

Question three: At what point do I switch to my first backup, and is that written down somewhere?

Question four: What do I do if my backup fails?

Question one forces you to look for your single point of failure in everything. Every person and every business has one. It might be a client, a person, a piece of equipment, a bank, a skill, or a paycheck. Most people have never said it out loud, but once you give it a name and throw some light on it, you can do something about it.

Question two is the same-failure test. If your backup depends on the same person, the same power, the same client, the same influences, or the same institution as your primary, it's not an alternate yet.

Don’t get me wrong, I'd love for you to have 10 main clients over 5, but if all of them will be affected by the same market forces, you simply don’t have a backup.

Question three is the one almost nobody answers. At what point do I switch to my first backup? They have a vague idea they'd do something if things got bad, but they've never said what or when. "If things get bad" isn't a trigger. A number on a page is a trigger. A specific scenario is a trigger.

The fourth question is simply a continuation of question three, but it pushes you to imagine what your contingency and emergency plans will be if the first backup fails for whatever reason.

Take the broken internet scenario I mentioned at the beginning. You switch to your cell phone hotspot, only to find that maybe Verizon or AT&T are down too. Or maybe you've used up your data sharing for the month. What's the backup to the backup? It's probably as simple as calling the nearest Starbucks or bookstore to see if their wifi is up and running and taking your laptop there to work?

Oh, you can't work on your laptop because you don’t have the software loaded on it? Great, we've just uncovered a weakness in your system under that specific scenario. Figure out your alternate and contingency plans under that scenario and fix it. It's literally that simple. Don’t wait until the system fails for you to figure out how you're going to solve it.

Remember, for this type of system to be of real value, it's not good enough to just have a backup that replaces the non-working thing. That's good, but it's not good enough if the thing that caused the first level of failure would also cause the backup to fail.

If an internet outage causes all internet everywhere to go out, which includes your hotspot, your wifi, your cable, your fiber and every other means to getting online, it's ok to write that one off because you’re simply not getting on the internet until it's fixed.

But, if the reason you can't connect can be overcome by your next level of backup, that's what the plan should include.

Things Are Fine

Let's talk about why most people don't do this.

When things are working, you simply don't look at them. The clients are paying. The bills are getting paid. The car starts. The internet just works. The body feels good. Nothing is telling you to worry, so you don't.

That's human nature, and I'm not criticizing it. But it means the moment you most need a plan is the moment you feel the least need for one. The time to create your PACE plan is exactly when you don’t need it. You don’t put your seatbelt on at the moment of an impact. You put it on before you even leave the driveway in anticipation of a potentially catastrophic accident.

Think about an owner-operator trucker, or any small business with one or two great customers. Those customers represent 50 percent of the revenue, they pay on time, and everyone loves them. It feels like the best thing in the business. And it is, right up until that customer gets acquired, changes vendors, or cuts their budget. Then half the income is gone in one phone call, and there's no Alternate in place, because there was never any reason to build one.

If you're an appraiser, you know exactly what I'm talking about. One or two lenders or one management company that makes up most of your work. I'm not judging that, because that's how the work is structured for a lot of people. I'm just asking what happens the day that source changes the rules or goes away.

Notice what that story usually sounds like when things go pear shaped. Nobody says, "I saw it coming and I just made a bad decision." They say, "I never saw this coming." That's the whole problem. You don't get to schedule the failure in advance. The only thing you get to schedule is your preparation for a variety of scenarios.

I've said on this show for years that you dig your well before you're thirsty and PACE is how you dig it.

The Five Areas

Let's walk through five areas of your life and apply PACE to each one. I'll keep this practical. For each area, we'll talk through the four layers of PACE so you can get a better sense of how they might apply for you.

I also want to set a standard before we start, because some of you are already picturing a bunker and a basement full of canned beans and rice. That's not what this is. I'm not a fan of labels, and I'll let you call it whatever you want. Here's my rule: if it costs very little today and saves you real pain later, it's in. If it requires you to rearrange your life around fear, it's out. Think of it as putting a spare tire in the trunk or a flashlight and some extra batteries in your glove box just in case.

Finances

When it comes to the finances category or your life, your 'primary' is income that you trade your time for, and it covers your expenses with some room left over.

Your 'Alternate' is a cash reserve. The common range is three to six months of basic expenses, and if your income swings up and down, lean toward the higher end. Add to that a second income stream. It doesn't have to be big. A small second source of income can change how you feel about the first source and it also changes how you see the world because you know you have some backup, however small it may be.

Your 'Contingency' plan has two parts, the first of which is a written list of what you'd cut, and in what order. Unnecessary subscriptions first (think Netflix, Hulu, coffee of the month), then some things you'd miss but could live without, then the bigger items. Write it now while you're calm, because when you're scared, you'll cut the wrong things.

Second, a line of credit that's set up while your finances are strong. Banks love to lend money to people who don't need it, and they get very careful with people who do. They often want $2 of collateral for every $1 they loan you. Open it while you look good and treat it as something you hope you never touch.

Your 'Emergency' layer is hard assets you could sell or borrow against, and a short list of people to call. Your accountant, your banker, a mentor who's seen a few cycles. Know their numbers now and know who you'd call if shit hits the fan for you financially.

Remember the main rule and failure test: If your checking, your savings, and your credit all live at one institution, that institution is your single point of failure. Having access to money in more than one place costs you almost nothing. If what caused the first and/or second failures would also cause the other layers to fail, you don’t really have a backup system.

If you want more on the financial side, I did a whole episode on financial prepping that will be linked in the description, so I won't repeat it here.

Health and Wellness

When it comes to your health and wellness, your Primary is the routine that keeps you working and living with vitality. Sleep, intentional movement, and eating reasonably well.

Your Alternate is a minimum version of that routine for the weeks when everything goes sideways. Ask yourself what the smallest version is that still counts. Maybe it's a twenty-minute walk and a decent breakfast. Decide it now, so a chaotic week doesn't turn into a month of nothing.

Your Contingency is insurance coverage and work coverage. First, your insurance, reviewed once a year, including what happens if you can't work for a while. Second, and more important for anyone who runs their own business, who covers your work if you're out for a month? If the honest answer is nobody, that's your single point of failure.

I deal with this one all the time with coaching members, especially appraisers and agents. If you’re a one-person business and all your income relies solely on you, not only are you probably doing a lot of $10 per hour work, you’re also your single source of failure. If you can't work, where does the income come from? What happens to your clients when you can't service them?

You don’t need answers today, but you need answers.

Your Emergency layer is one place, physical or digital, where your family can find your medical information, your insurance details, your medication list, and the people to call, and in minutes and not hours.

Friends, this is general planning and nothing more. I'm not giving anyone medical or financial advice here. We're simply talking about having systems in place in case of something going sideways.

Family and Household

Let's talk about your family and your household. Your Primary is how your family normally runs. Communication, a shared calendar, everyone knowing where everyone is, how to get in touch in an emergency.

Your Alternate is two people who could step in. For a day or two, who could take the kids, watch the pets, or check on a parent? Two people, not one, and apply the same-failure test. If both of your backups live on the same street and work the same shift, they fail together. Two is one and one is none.

Your Contingency layer will be the documents and access. Wills, trusts, insurance policies, account information, passwords. Somebody other than you needs to know where they are and how to get to them. I've seen families go through a hard time made much harder because one person handled everything and nobody else knew where anything was.

Your Emergency layer is a call order and a meeting place in case phones or power are down and it doesn’t have to be complicated. Who calls who, and where does everyone go? Schools have run fire drills for decades for exactly this reason. They know that in a real emergency, nobody thinks clearly, so the plan has to already be in everyone's head when there is no emergency.

Home

Your Primary is the normal setup. Power on, the internet is working, the car starts.

Your Alternate is a backup for the things you'd miss first. Internet and power go out together more often than people expect, since your home internet needs power to work. So, your Alternate is a phone with some backup portable battery packs that are fully charged. Same thing with getting to work. If you have one car and it breaks down, what's

Your Contingency layer is a few days of the basics. Water, food, any medications your family depends on. A few days, not a few months. And always keep your gas tank above half tank. With fuel prices where they are currently and likely going up, that one habit covers a lot of situations. A storm, a shortage, a price spike, or a long day where you can't stop.

Your Emergency layer is a bag in a closet with the essentials, and a plan for where you'd stay if your home wasn't livable. Friends, family, or a hotel you've already picked out.

That's it. No bunker. I'm talking about a few hundred dollars and an afternoon, tops. And again, we're not talking about nuclear fallout, we're talking about a massive storm, a flood, a house fire. Anything that creates chaos and an interruption to your normal flow and routine.

Business

Your Primary is your main source of revenue.

Your Alternate is a second way of getting customers that doesn't depend on the first. If 80 percent of your work comes from one source, this is the most important thing on your list. It doesn't need to match the Primary in size, but it needs to exist, and, if it's going to fail, it needs to fail for a different reason.

Your Contingency is knowing what else you could sell, and to whom, if your main source dried up. You don't have to necessarily launch it. You just need to know what it would be. What's the adjacent service you could offer and who would buy it?

Your Emergency layer is the big-picture options. Partner with another firm, sell the business, or take on part-time income to bridge a gap. These are hard to think about, which is exactly why you think about them now when you don’t need them. Remember, that’s the whole point of all this.

Then there's the operational side of the business. Your files backed up in two separate places that wouldn’t fail for the same reasons and in the same place, like a house fire. You should have a written playbook of how your business runs; good enough that someone else could handle a normal day. If you're the only person who knows how anything works, you are the single point of failure for your own company.

I suggest that you list your top five clients or customers, and next to each one write what percentage of your income they represent. A good rule of thumb is that any one source above 25 to 30 percent deserves an Alternate. Whatever the numbers turn out to be, write them down and think through how you solve for that before you need to.

The Hard Truth

Let's be honest about what's probably going to happen.

Most of you are going to listen to this, nod along, agree with everything I said, and do nothing. I know that because it's what most people do with almost everything useful. I've been giving away valuable, free information and strategies for almost 2 decades and people still reach out to me only after shit hits that fan for them and they hadn’t taken any action on the things they knew they should have.

There are two primary reasons this happens. One, humans are inherently lazy and optimistic when it comes to their routines. Humans love their patterns and routines and taking extra time to plan for contingencies is extra.

The second reason is that planning for trouble feels negative and it feels like you're inviting bad luck, or admitting you're worried, or being pessimistic. So, people naturally put it off.

And I get it. I'm not a doom and gloom guy. I see opportunity everywhere I look. But here's what I've noticed over a lot of years of doing this, the people who plan for trouble are the calmest people in the room when trouble shows up. They don't panic, because they already know their next step. They know where the exit is. They know steps two, three, and four. You can drop them in the middle of a strange place with no clothes and by the end of the week they'll be wearing a suit and selling insurance.

They're also the people who can say yes to opportunities when they arise. When a great deal or a big chance shows up, they can move on it, because they're not worried about what happens if it goes wrong. They already know how they'd recover.

Oh, and as a side note, guess when great opportunities often reveal themselves? When everyone else is panicking because they didn’t plan for something.

So, you can call it fear if you want. I call it limiting your downside so you can go after the upside with confidence and backup.

The other thing to say is that nobody is going to do this for you. No one is going to call you and say, "It's time to write your cut list." The only person who will ever make you do this is you, and the only time it's cheap and easy is right now. Hope is not a plan and getting saved by someone else should never be your strategy.

Triggers and Testing

Two last things that turn this from a nice idea into a real plan.

First, triggers. Remember question three, at what point do you switch? You need an answer, and it needs to be specific. Here are some examples.

"If my largest client drops below a certain share of my income, I start working on my Alternate that week."

"If my cash reserve drops below three months, the cut list goes into effect."

"If I'm sick or out of commission for more than a week, my backup person takes over these three things."

Write the plans and the numbers in while you're calm. When the moment comes, you won't be arguing with yourself about whether it's bad enough yet because the decision's already made.

Second, testing. A plan you've never tested is a guess. Airline pilots spend time in simulators rehearsing things that almost never happen, like an engine failure. They do it over and over so that if it happens for real, their hands already know what to do.

You can run a version of that yourself. Pick one week and pretend your Primary layer fails. Your biggest client is gone, or your main income source stops. Then look at your plan honestly. How long could you last? What would you do on day one? Where would the first new dollar come from? Most people are surprised by what that exercise reveals for them, and they're glad they found out now, with no real stakes.

Fall Well

I want to bring this back to martial arts for a minute.

One of the first things you learn in almost any martial art is how to fall. Before you learn anything impressive, before you learn to throw or strike, you learn how to hit the ground safely.

That's a strange place to start, and there's a reason for it. When you know you can land safely, you train harder. You try things you'd never attempt if you were afraid of getting hurt. Knowing how to fall is what lets you push.

PACE works the same way. A plan doesn't make you timid, nor does it attract chaos and doom just because you took time to think about it. It makes you willing to take bigger swings, because you know what happens if you miss. You've got a backup and some alternatives if things go south.

So, here's your assignment, and it's just one thing. This week, pick one of the five areas. Finances, health, family, home, or business. Ask the four questions. What's the one thing that hurts the most if it fails? What's my backup, and would it fail for the same reason? At what point do I switch?

Find your single point of failure, then build one Alternate. Once you have an alternate, you can start thinking about a contingency to the alternate should things get really bad.

Do that, and you've done more than most people will do all year.

Do more, be more, live more, give more. See you on the next one.