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
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“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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