We’ve all heard the old adage that money doesn’t buy happiness. While this may be true, money does tend to make the world go ’round. Understanding how money works and how risk management plays into it can help you stave off stress and unforeseen financial circumstances.
Walk into any bank and they’ll tell you that the number one item on their to-do list relates to risk management. What about finances on a personal level?
In this article, we’ll go over just that. We’ll explore 3 tips on how to manage risk and how it can help you accomplish your financial goals.
1. Have a Plan
It might seem entirely too straightforward, but having a solid financial plan in place is one of the best ways to practice financial risk management. Whether you’re saving for a house or investing in your kids’ college education funds, having a plan will help you keep your finances in order.
Once you’ve pinpointed which financial goals you want to hit, there are a variety of steps you can take depending on the goal itself. The first step in your financial planning journey should be to understand where your money is going. By doing so, you’ll know if you need to start reallocating more toward something like your savings account and less toward your monthly entertainment bill.
Other steps could include asking your employer if they’ll match contributions to your 401(k) and start padding out your emergency savings fund. A good financial plan will look different for everyone but having one is crucial to financial health.
2. Diversify Investments
A surefire way to minimize risk is to spread your investments out across a variety of industries and classes. A diverse portfolio is one of the best investment strategies you can make.
The ups and downs of the stock market are caused by various factors such as political instability, inflation, and raised interest rates. However, these factors are not dependant upon any one industry. Some examples of areas in which you can invest and grow a diversified portfolio include:
- Real estate
- International stocks
- Domestic stocks
- Corporate or government bonds
If diversifying your portfolio seems too cumbersome or confusing, financial advisors understand portfolio investments and can lend a guiding hand in your long term investment strategies. Firms like Morton Brown provide a wealth of financial risk management strategies to get you on the right track.
They can help you leverage your finances and minimize risk. You can follow here for more investment recommendation information.
3. Don’t Overextend Credit
Making sure you don’t take on too much debt is an investment strategy for your future. Excessive debt can get harder and harder to control the farther down the road you get.
There are a few ways you can avoid the dreaded trap of credit card or personal debt. Some examples for avoiding overextending your finances include:
- Stay within your limits of spending
- Pay with cash
- Try to avoid impulse purchases
- Compare prices when shopping
- Keep records of all purchases
- Avoiding financing your purchases
- Transfer balances to lower rate cards
That way you won’t have to worry about collecting debt you can’t handle.
Wondering How to Manage Risk?
Follow the above steps, and you’re already off to a good start! Everyone’s financial plan looks a little different. Understanding that risk is inherent in everything we do will help. By having a solid plan in place, you’ll be moving on from asking yourself “how to manage risk” in no time.
If you’re ready to get started on your financial journey, feel free to take a look through any of the articles we offer in our Finance section for more.