Personal financial risk is anything that exposes a person to the possibility of losing something of value. These risks can take many forms including loss of employment/income, losses on investments, theft as well as many others. Academics believe these personal risks can be classified into one of these major categories:
- Risk of injury and/or premature death
- Risk of living too long (longevity risk)
- Risk of involuntary unemployment
- Risk of poor health
- Risk of insufficient funds in retirement.
- Risk of liability for causing losses for others
- Risk of damage to one’s personal property
It is also believed that we have four ways to manage personal risk. We may be able to avoid risk, share risk, assume risk and/or transfer risk to someone else. As an example, we might be able to avoid the risk of being struck by a car by electing not to cross the street. Likewise, we may decide that the probability of a particular occurrence is so low (or of so little consequence), that we decide to live (assume) with it. Transferring and sharing risks usually involves others, most often an insurance company. Sometimes we may choose to assume or share a risk, but at the same time, take steps to mitigate it. Maintaining a good diet and exercising are good examples of risk mitigation actions associated with our health.
This quarter, we’ll delve into the many aspects of personal risk. We hope we will motivate our readers to consider the myriad of risks they encounter in their lives and make a conscious effort to manage them. Perhaps the worst form of assuming a risk is being unaware of it, because this circumstance leaves everything up to chance.
If you would like to learn more about these and other wise financial planning moves, please contact us through our Level 5 Financial LLC website or via phone at 719-323-1240. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.