What are Risks?
It’s never enjoyable to think about risks.
However, if you get the big picture and you really understand risk management, you will actually feel more secure and more relieved.
Do you know that almost everything you do involve risks?
When you cook your breakfast, you have the risk of accidentally getting burned by the hot oil you use to prepare your meal or you could cut yourself with a knife.
When you go to work, you have the risk of being caught in a vehicular accident.
When you eat unhealthy food, you have the risk of developing unwanted lifestyle diseases that might end your life prematurely.
I know that risk management is one of the most boring topics in personal finance (the tight contender is the topic about taxes), but can you think of the losses you would incur when you don’t handle risks?
Here are the risks that you should consider if you want to master personal finance and become wealthy:
- Risk of Asset Loss
Losing your assets because of misplacement, robbery and permanent and irreversible damage are considered as risks.
- Risk of Losing the Use of Your Property
This is somewhat different from losing your assets. Some examples are losing your property because of extreme flooding, accidental fires, earthquakes, hurricanes, volcano eruptions and other natural disasters.
- Risk of Losing Your Means to Create More Assets
If you have a job or a business, there is always a risk of having a permanent disability. Obviously, this may stop your from performing your duties and eventually lead to loss of earning a source of income.
- Risk of Losing Your Life
Ultimately, no one can avoid this risk. But, premature or sudden deaths is a risk that you should consider.
What Do Risks Mean to You?
If you have an idea of the sport basketball, you know that there are two teams competing with each other and having an end goal of getting more points than their opponent.
Now, imagine that your basketball team is only focusing on the offense.
Meaning you just play to shoot the ball in the basket and nothing more.
What do you think is missing?
In personal finance, defense would relate to risk management.
You want to be sure that when you suffer the risks mentioned above, you can still earn money or at least replace the potential income that you would be losing.
So what’s the best defense strategy in personal finance?
You need insurance to protect your dependents if ever something unfortunate happens.
You need insurance to protect your income-earning capability if ever you suffer a disability and lose your means to do your job.
You need insurance to protect your assets like your fully-paid home. If ever it gets burned, you want to make sure that you have the insurance that protects your home and gives you the means to repair your home.
I understand that we discussed about having a safety fund, but remember, if ever you suffer a permanent disability, your safety funds will not last for more than a year.
Still, not all risks are covered by insurance.
Read about the Four Sure-fire Ways to Handle Risks to know which type of risks do insurance companies cover.
I hope you have understood the importance of Risk Management in building wealth and protecting your assets.
Let me know if you have questions or comments by leaving a reply in the comment section below.
To our success in all areas of life,
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