We say the only certainties in life are death and taxes, but you can also be certain nothing stays the same. This means you need to actively manage risk.
Alexandria Blaelock, author of Holistic Personal Finance: How to pay for the life you want says “Risks are basically things that can go wrong. If you want to manage risk, you have to first acknowledge that things can and do go wrong.”
Here are Blaelock’s tips to manage risk:
- Think about what can go wrong: Write down all the things that might stop you from achieving your goals. Include big ones like changes in government policy or businesses going bankrupt, to smaller things like losing your ATM card or getting short-changed. While you’re at it, write down all the things that might go really well too!
- Think about the causes: What might trigger the events you’ve just listed? For example, you might get short-changed because you or the salesperson are distracted. Or they might be thieves or just bad at maths.
- Determine the Likelihood and Severity: Some of the events you’ve listed are not very likely, and the impacts of some won’t be that severe. Getting short-changed is more likely if you use cash, and less likely if you use a card. The overall impact on your life is probably mildly irritating rather than devastating.
- Prioritise your risks: It’s not worth the time and effort of dealing with mildly irritating risks, but you should think more about what to do for the devasting ones. List them out in order of impact and get ready to manage them from the top down.
- Consider the best way to manage your risks: There are four main ways to manage risk:
- Avoidance: withdraw from the situation (e.g., don’t use cash).
- Reduction: reduce the possibility (e.g., check your change every time).
- Retention: accept the risk (e.g., it’s too small to worry about).
- Transfer: pass the risk or consequence to someone/thing else (e.g., take out insurance.
Alexandria’s tips to manage risk will help you save your time, money and health for you.
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