As a wise accountant once told me (i.e. my CPA mother), all financial decisions should be first weighed against one thing: The Pillow Test. What do bedding and money have in common you might be wondering at this point. I had the same question, when I first heard it, but after many years of managing my own personal finances, I have come to fully understand and appreciate its simplicity.
The Pillow Test is a simple measure of a person’s capacity for handling risk. Plainly put, if a new financial transaction is going to cause a person to lose sleep, the investment or venture is most likely not worth the time, regardless of its potential. This measure of one’s tolerance for risk is not only a litmus test for going into new transactions; it can also serve as a wake up call for getting out of transactions. In other words, if money woes are creating sleepless nights, it might be time to consider unwinding some financial risk, because the best test is how well you rest.