What Is Risk Management?
Risk management is the calculated approach to understand, evaluate, and tackle threats to your capital and future earnings. Whether it is evaluating investment opportunities or planning for retirement, risk management is pivotal in all spheres of personal finance.
It involves two primary components: risk assessment and risk mitigation.
The initial step is about pinpointing potential risks, either from current financial decisions or anticipated ones. It involves staying abreast of market changes, global events, or shifts in personal circumstances that might affect your financial health.
Once risks are identified, you formulate a game plan. This means deciding how much of that risk to accept, reject, or transfer and subsequently taking steps to mitigate its impact.
The Importance Of Risk Management In Personal Finance
Protecting Investments
Every penny you save, invest, or allocate towards a financial venture is a product of your hard work. Consider your investments as seeds planted for future growth.
Risk management functions as the fence that shields these seeds from external harm, ensuring that they have the opportunity to grow and thrive.
