There are many risks that we face that can have a financial impact. Risk management is the planning process that involves looking for ways to manage those risks and their financial consequences. An appropriate risk management strategy can play a significant role in helping to protect and create wealth.
There are 4 key areas in risk management:
The planning process involves two key steps:
- Risk Identification
The first step is to identify the risks that you and your family are exposed to. For the business owner this also involves looking at the risks associated with the business.
- Managing Risks
The next step is to put a "game plan" in place to manage the risks. In most cases the steps taken will not eliminate the risks; however, the key is to reduce the likelihood of them happening and/or minimize their financial impact.
For example, the death or disability of an income earner can impact a family's ability to maintain their quality of life should there be insufficient assets accumulated at that time. One way of managing the financial impact of those risks is through life and disability insurance.
Over time the risks you face, and their potential financial impact, will change. Therefore, it is important for risk management to be an ongoing part of your overall wealth management.
