Risk management is your daily activity. From crossing the road carefully to applying the brake in your vehicle all are your risk management efforts.
We are good at managing smaller and foreseen risks. When it comes to unforeseen and distant risks our approach is casual.
There are five risks which you should manage for a happy and sustainable life.
- Life Risk
You cannot prevent death but you can certainly manage consequence arising out of your death for your family members.
Adequate life insurance is very important. You have life insurance policies because your friend who is an insurance agent wanted it for achieving his target.
You have not assessed your life risk from a financial perspective. You have not evaluated the adequacy of the insurance policy based on the money required to support the life of your beloved family members in case of sudden demise of the earning member i.e. You.
Having an adequate life insurance policy should be one of your top financial risk management priorities.
- Health Risk
You are particular about servicing your car at regular intervals, but when it comes to your periodic health servicing, you ignore, delay and do only when your doctor wants you to. This shows your misplaced priorities. This shows your casual attitude towards your own health management.
Fitness first should be your (& your family’s) life mission. The success of this mission will make you ready for the success of all the other missions in life.
When you start your regular fitness routine, you have managed one important risk in your life.
“Take care of your body. It’s the only place you have to live.” Jim Rohn
Thereafter if the destiny strikes and you or your family members have to undergo any treatment in the hospitals, having a health insurance policy is managing financial risk for your healthcare.
With health treatment cost skyrocketing, an adequate health insurance policy for the family members is necessary.
- Debt Risk
This is another risk you need to manage. In a time when loans are available for everything i.e. from education to home to car to foreign tours to television, the new kind of risk has emerged.
Repayment of loans is important financial obligations. Non-repayment of loans is a risk. The risk is of repayment burden on the family members in the event of a sudden death of the borrower.
Inability to fulfill the future obligation is a risk. It has serious financial as well as legal consequences.
Manage this risk by having a life insurance policy of the matching amount of the loan every time you borrow. This will save your family members from any financial as well as legal consequences on your sudden death.
Life insurance policy amount will take care of your repayment obligations. Your family will be relieved of the repayment stress.
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- Career Risk
This is an apparently non-financial risk but it can become a financial risk if you do not keep upgrading your education and skill sets.
Yes, the career market has become very competitive. Secondly, technology and new business models are making people redundant quickly.
There is a famous saying by the famous economist, Peter Drucker that people will have three careers in their lifetime. Therefore what he says in the following quote is significant.
“Knowledge has to be improved, challenged, and increased constantly, or it vanishes.”
― Peter F. Drucker
Manage your obsolescence risk by continues knowledge acquisition. This is the only way to stay relevant.
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- Asset Allocation Risk
This is another risk you need to manage. Keeping all your eggs in one basket is risky. Keeping asset allocation lopsided is also an unhealthy practice.
Asset allocation means investing your total investable funds in various assets. Your investment can be divided into real estate, equity shares, mutual funds, life insurance policies, bonds, fixed deposits, and other such assets.
Asset allocation according to your risk profile is important.
You are a risk-averse person. But your investment is in equity shares/equity-linked mutual funds. You are running a high risk as equity shares are high-risk investments.
You are young and are willing to take a risk. You want a higher return. More of your investments should be in equity/equity-linked mutual funds.
Each of asset class is associated with some levels of risk. Some are highly risky, some are with low risk, and some are fully safe. Higher the risks higher are the chances of return. Lower the risks, returns would be lower. You have to allocate your assets according to your risk profile and return expectations.
“The difference between success and failure is not which stock you buy or which piece of real estate you buy, it is asset allocation.” Tony Robbins.
Ideally, your asset allocation has to be properly balanced but skewed towards your risk appetite.
Manage these risks. This is an ongoing process. Remain agile in managing these risks as you remain agile while crossing the road.
Share your views on risks one should manage.