How to Use Your Circle of Competence to Make Better Career Decisions (Even When Everyone Else Thinks You’re Crazy)
I almost lost $50,000 because I thought I was smarter than I actually was.
It was 2019, and cryptocurrency was everywhere. My colleague Jake had just bought his third Tesla with Bitcoin profits, and every conversation at work seemed to revolve around the latest altcoin that was “going to the moon.” The FOMO was real, and I was drowning in it.
Against my better judgment, I dove headfirst into day trading crypto. I spent weeks learning about blockchain technology, reading whitepapers, and joining Discord servers full of twenty-somethings who seemed to have cracked the code. Within three months, I’d blown through my emergency fund and racked up credit card debt.
The painful truth? I had stepped completely outside my circle of competence – the area where I actually knew what I was doing – and paid the price. That expensive lesson taught me one of the most valuable frameworks I use today: understanding and respecting the boundaries of what you truly know.
What Exactly is Your Circle of Competence? (A Simple Explanation)
Your circle of competence is like a spotlight in a dark room. Inside that bright circle, you can see clearly – you understand the nuances, the patterns, the cause-and-effect relationships. You know what questions to ask and what red flags to watch for. Outside that circle? You’re essentially stumbling around in the dark, making decisions based on incomplete information and wishful thinking.
Warren Buffett, who popularized this concept, describes it as “knowing the perimeter of your knowledge.” It’s not about being the smartest person in the room – it’s about being honest about where your expertise ends and your assumptions begin.
Think of it this way: a skilled carpenter knows exactly which tools to use for which job, can spot quality lumber from across the room, and can estimate project timelines with uncanny accuracy. But ask that same carpenter to perform surgery or argue a legal case, and they’d be the first to admit they’re out of their depth.
The magic happens when you recognize and operate within your circle while deliberately expanding it in strategic areas.
How to Put Your Circle of Competence into Practice: A Step-by-Step Toolkit
Step 1: Map Your Current Circle of Competence
Start by honestly assessing where you have genuine expertise versus where you’re just confident.
The Exercise: Create three columns:
- Green Zone (High Competence): Areas where you consistently make good decisions, others seek your advice, and you understand the underlying principles
- Yellow Zone (Developing Competence): Areas where you have some knowledge but still make mistakes or feel uncertain
- Red Zone (Low Competence): Areas where you rely heavily on others’ opinions or gut feelings
Meet Sarah, a Marketing Manager: “I realized my Green Zone included content strategy and brand positioning – I could spot a weak value proposition from a mile away. My Yellow Zone was data analytics – I knew enough to be dangerous but often misinterpreted results. My Red Zone? Anything involving legal compliance or technical SEO. This mapping exercise saved me from making a costly mistake when I almost signed a partnership agreement without legal review.”
Your Turn: Take 10 minutes right now to list 5 areas in each zone. Be brutally honest – your future self will thank you.
Step 2: Establish Decision-Making Rules for Each Zone
Create clear guidelines for how you’ll approach decisions in each competence zone.
Green Zone Rules:
- Trust your judgment but still gather diverse perspectives
- You can move quickly on decisions
- You’re qualified to teach others
Yellow Zone Rules:
- Seek expert input before major decisions
- Test small before going big
- Focus on learning and building competence
Red Zone Rules:
- Always defer to genuine experts
- Never make solo decisions with significant consequences
- Invest in education before investing money or reputation
Meet David, a Software Engineer: “When my startup needed to hire a CFO, I recognized this was firmly in my Red Zone. Instead of trying to wing it, I connected with three successful startup founders, hired a recruiting firm specializing in finance executives, and brought in a board advisor with finance background. The hire was expensive but perfect – she helped us raise $2M six months later.”
Your Turn: Write down one specific rule for each zone that you’ll follow in your next big decision.
Step 3: Create Your Competence Expansion Plan
Deliberately choose 1-2 Yellow Zone areas to move into your Green Zone over the next 12 months.
The Framework:
- Choose strategically: Pick areas that align with your career goals or personal interests
- Find mentors: Identify people who excel in these areas and learn from them
- Practice deliberately: Seek out low-stakes opportunities to apply new knowledge
- Track your progress: Set measurable milestones to gauge your growing competence
Meet Lisa, a Product Manager: “I chose to move ‘basic financial analysis’ from my Yellow Zone to Green Zone because I kept getting stumped in budget meetings. I found a mentor in our finance team, took an online course, and started doing monthly P&L reviews for my product line. Six months later, I was confidently presenting ROI projections to our executive team.”
Your Turn: Pick one Yellow Zone area and commit to one specific action this week to start building competence.
Explore more about more mental models here.
Applying Your Circle of Competence in Different Professional Scenarios
For Making a Big Career Decision
When considering a job change, promotion, or career pivot, your circle of competence becomes your North Star.
Green Zone Career Moves: These feel natural and build on your existing strengths. You can evaluate opportunities accurately and negotiate confidently.
Yellow Zone Career Moves: These stretch your abilities in manageable ways. Seek mentorship, negotiate for training resources, and be upfront about your learning curve.
Red Zone Career Moves: These require careful consideration. Can you bridge the gap quickly enough? Do you have support systems in place? Sometimes the answer is “not yet” – and that’s okay.
For Dealing with a Difficult Project
Project challenges often arise when team members operate outside their circles of competence without realizing it.
The Strategy: Before each project kickoff, have team members identify which aspects fall in their Green, Yellow, and Red zones. This prevents the “I thought you knew how to do that” disasters and helps allocate resources appropriately.
The Result: Projects run smoother, deadlines are more realistic, and team members feel more confident about their contributions.
For Improving Your Personal Habits
Your circle of competence applies beyond work – it’s equally powerful for personal development.
Example: If you’re in the Green Zone for meal planning but Red Zone for exercise physiology, don’t try to design your own workout program. Instead, leverage your meal planning skills while hiring a trainer for the exercise component.
The Biggest Mistake to Avoid When Using Your Circle of Competence
Here’s my contrarian take: The biggest mistake isn’t overestimating your competence – it’s underestimating it.
I see this constantly with high-achievers who’ve developed impostor syndrome. They place areas where they’re genuinely skilled in their Yellow or Red zones, leading to over-consultation, decision paralysis, and missed opportunities.
The Fix: Get external validation for your competence areas. Ask trusted colleagues, clients, or mentors where they see your strengths. You might be surprised to discover your circle is larger than you think.
Remember: Confidence within your circle of competence isn’t arrogance – it’s responsible leadership.
Your Top Questions About Circle of Competence, Answered
How do I know if I’m truly competent in an area or just overconfident?
Look for these indicators of genuine competence:
- You can explain concepts simply to others
- You can predict outcomes with reasonable accuracy
- You recognize patterns and exceptions quickly
- Others regularly seek your advice in this area
- You know what you don’t know within the domain
What if my circle of competence is too small for my career goals?
This is actually a great problem to have – it means you have clarity about what you need to develop. Create a systematic expansion plan, focusing on one area at a time. Remember, even Warren Buffett started with a small circle and grew it deliberately over decades.
How often should I reassess my circle of competence?
Conduct a formal review every 6-12 months, but stay alert to real-time feedback. If you’re consistently wrong about something you thought you knew, that’s a signal to reassess. Similarly, if others start seeking your advice in a new area, you might be developing competence without realizing it.
Can I operate outside my circle of competence if the stakes are low?
Absolutely! Low-stakes scenarios are perfect for experimentation and learning. Just don’t confuse a lucky outcome with genuine competence. One successful crypto trade doesn’t make you a trading expert (trust me on this one).
What’s the difference between circle of competence and comfort zone?
Your comfort zone is about emotional safety – what feels familiar and non-threatening. Your circle of competence is about actual skill and knowledge. Sometimes you need to step outside your comfort zone to operate within your circle of competence, especially when it comes to sharing your expertise or making tough decisions.
The Community Builder: Your Conclusion & Call to Conversation
Your circle of competence is your secret weapon for making better decisions, building credibility, and avoiding costly mistakes – but only if you’re honest about its boundaries.
But the real learning begins when we share our experiences. I have one question for you:
What is one specific challenge you’re facing where you could try applying this framework?
Maybe you’re considering a career change and aren’t sure if you’re ready. Perhaps you’re struggling with a project that’s outside your expertise. Or maybe you’re like I was in 2019 – tempted to venture into territory where you’re more confident than competent.
Leave a comment below. I’m building a community of strategic thinkers, and your story could be the spark that helps someone else avoid their own expensive lesson or finally make that leap they’ve been contemplating.
Remember: knowing what you don’t know isn’t a limitation – it’s the foundation of all wisdom.
