Some of the big risks may be beyond our control, but we at least attempt to manage risk in our everyday lives. We sanitize our hands, slather on sunscreen and wear seat belts in our attempts to minimize risks. But we don’t always do the same for financial risks. Maybe the thought of managing that financial risk is too intimidating. We treat financial risk like some kind of toxic wasteland, on which we dare not tread, and leave it to the so-called professionals. But we ignore it at our peril.
Photo credit: Play Risk Online
A few financial risks you should think twice about before ignoring:
Is your money tied up in account that is difficult to access – or an account that could penalize you if you withdraw some of the money? Of course, there’s a trade-off here– when your money is tied up in an investment, it grows but it may be difficult to access. For example, when you need your money from an investment account, it might not be the correct time to sell or liquidate those holdings, but if you need the money you really don’t have a choice. On the other hand, if your money is very accessible, it might not be earning a great deal of interest; savings accounts are easy to transfer in-and-out of but typically earn less than 1%. It’s a savings Catch-22, if you will. One solution is to place a portion of your savings in a high-yield account that you plan on withdrawing from years down the road. Take the other portion and place it in an account that will grow, but it still readily available and accessible penalty-free.
“I don’t need the insurance right now” – famous last words. I am not advocating you go out and buy every type of insurance that exists; trust me, there’s a lot out there. Get the insurance you need and avoid putting it off. When I was between college and my first career, I went without health insurance for a while—as many kids do. Nothing happened to me, but say I’d gotten in a car accident and sustained serious injuries—I’d probably be in debt to this day. I’ve also seen first-hand what can happen when a family doesn’t have life insurance. Evaluate the insurance options out there, obtain what you feel is necessary, and sleep easier at night.
I played hockey in college and had teammates who only exercised their upper bodies, disregarding the fact that ice hockey is a total body work out (you can’t ice skate on your hands… at least not very effectively). We do this with our financial workouts too. We add too much weight to one area and completely forget about the others. Maybe your retirement savings are great, but you haven’t saved a dime for your rainy day fund or your child’s education – there is an endless amount of scenarios where unbalanced savings occur. Make sure you are handling each area of your finances with the attention it requires.
And that’s it for now. Go forth, and manage risks! When you’re scared about managing your finances, and we all are, remember:
“All courses of action are risky, so prudence is not in avoiding danger, but calculating risk and acting decisively. Make mistakes of ambition and not mistakes of sloth.” – Machiavelli