Personal Finance and Risk Part 2

From our last post (Get it Here), we were able to pin point that everybody is a Risk taker, and I believe that most of us would have by now know the category we belong too, but by and large, research as shown that most people belong to the Neutral Risk takers. But can I ask this sincere question, most people say they do not like to take risk at all, but yet their vehicle insurance is third party, meaning you will have to pay for your own vehicle repairs in case you are involved in an accident. And yet you claim you are risk neutral or risk averse.

Let us look at Risk management:

RISK MANAGEMENT

In the world of finance, risk management refers to the practice of identifying potential risks in advance, analyzing them and taking precautionary steps to reduce/mitigate the risk.

A standard model of risk management is applicable to personal finance risk management, which includes:

Step 1: Identify the Risk: you cannot achieve this if you have not thoroughly taken your time to study the situation.

Step 2: Analyze the risk: This takes you to studying about the situation, ask question from people and the internet, enquire always it adds to wisdom. One thing common to people that have being duped is that they thought they are keeping secret and therefore they did not seek advice.

 Step 3: Evaluate or Rank the Risk: This is based on your personal risk evaluation, ask yourself questions such as: Can I bear this risk? In case of eventualities what are my options? etc.

Step 4: Treat the Risk: act based on your evaluation of the risk, do you need to take insurance, do you need to bring in more people to do the investment to limit your risk etc.

Step 5: Monitor and Review the risk: you need to monitor and review the situation at intervals so as to be on top of the situation.

“A ship is always safe at the shore - but that is NOT what it is built for.”

― Albert Einstein

To become better, to achieve greater heights, we need to take risk, yes calculated risk.

I remain your friend and Personal Finance Coach Babatunde Ayorinde, follow me on twitter @pistis03,

And if you like to engage us to speak in your program or for adverts send us mail at babat09@gmail.com.

Thanks for reading, invite you Family, Friends and Foes to read the blog, as we move ahead to our financial freedom.