Managing Uncertainties in Your Money Matters
A line is always drawn between the people who take risks and those who
avoid them. Between the two is always a vivid line depicting success
or failure. It is worth noting that risk-takers don’t just take risks but they
do so with a smart level of preparedness and caution. They arm themselves with
a proper risk management strategy.
Understanding Risk Management?
While you spend substantial time creating wealth,
you need to be aware that there are a number of happenings that can quickly
wipe out the wealth you have created or even curtail your ability to create
more wealth.
The whole process of identifying the risks we face,
quantifying their probable effect on our money matters as well as taking
appropriate steps to mitigate them is what is referred to as risk
management.
At a personal level there are four broad ways of
dealing with the risks, namely; Risk Assumption, Risk Avoidance, Risk Reduction
and
Risk Assumption in which, after assessing the risks you face,
you go ahead to say, “I know that risks exist and am aware of their
possible consequences. I am willing to continue in what I do while I wait and
see what will happen. I accept the risks and their impact should they occur”.
You cannot otherwise continue in our wealth creation endeavours without this
fundamental realisation, the alternative is you stay in bed all day with the
attendant consequences.
Risk Avoidance which infers that you do not engage in a venture
because of the possibility of unfavourable results. Night driving exposes us to
a lot of uncertainties on the Kenyan roads thus there are persons who have
chosen not to drive at night at all costs. Unprotected sex outside marriage is
a risky lifestyle which can be avoided to eliminate the risk of diseases.
Engaging in motor racing or contact sports is riddled with uncertainties
because of the possibility of accidents which you can avoid by not engaging in
such sports. Do you see areas you can practice avoidance?
Risk Reduction or risk control has two aspects; prevention and
mitigation.
·
Risk prevention or pre-loss minimisation - It entails all the
activities you can engage in to reduce the frequency of occurrence of the loss
causing event or ensuring if the loss occurs it will not be severe. That is why
you would hire a watchman to deter thieves by raising an alarm, early enough before
they cause any damage. You would also burglar proof your house and business to
make it difficult for burglars to succeed in their evil schemes. You install
panic buttons and alarms to cause others to come to our aid at the earliest
opportunity when you are in trouble. I suspect you keep a cat at home to deter
rats from paying you a visit or even living in your house. Lifestyle experts
opine that a good lifestyle lined with exercises and good dietary habits will
help keep away ailments and their cost implications.
·
Risk Mitigation or Post loss control is all about
minimizing the quantum of loss and is built around loss minimization steps.
This explains why we need fire extinguishers at our businesses and our homes so
that in the event of a fire, then the fire can be extinguished before it causes
extensive damage. Fire blankets, sprinklers and hydrants come for the same
purpose depending on the scale. Having a first aid kit at home, in the car or
at the business premises is the right step to ensure prompt attention before
getting the attention of medics.
SEASON 9 WEALTH CREATION MASTERCLASS_C.O.M.E & S.E.E SESSION F.E.E.D.B.A.C.K
“I came
here when I was 50-50 but now am 100%. It is a good way of spotting things on
my blind financial spot.” Brian Kabugi Njine
“The class was good and an eye opener. For me I will surely join
the full program to learn more.” Milkah Mugure Kinyau
“Good information, very inspiring.” Martin Muya
The subject of loss prevention and mitigation is
the speciality of risk managers and their services might be
necessary as we manage uncertainties on our money matters.
· Risk Transfer, as we assess the
uncertainties that we face, there are times when we realise we cannot be able
to deal we the risks and the best way out is to ask somebody else to shoulder
our risks for a fee. This is the established practice of insurance.
Government has made it compulsory to transfer some of our uncertainties such as
third party liabilities caused by a motor vehicle, consequences of work place
injuries to employees and challenges that would arise in the event of
professional negligence for some cadre of professionals. You might want to
engage your insurance professional as you manage the uncertainties within their
ambit.
In my next post, we talk about what we could put into practice to
effectively manage risks or uncertainties. We shall look at the importance of
setting up an emergency fund, a Contingency fund, or a personal safety net. Do
you already have one or you are standing on a superhighway expecting vehicles
not to hit you?
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