What is Risk in Financial Management?

Wise Bread Picks

Over time, I've learned that the best way to manage my money and financial health is to be acutely aware of the relationship between financial risk and monetary return. We all want to optimize our returns yet many of us forget that by doing so, we may be taking a lot more risk than we should.

By managing our risks, we are better equipped with addressing unpredictable scenarios that can wreak havoc with our finances. Risk isn't a bad thing, just as long as it's controlled or "calculated". So let me share a few strategies that I employ for keeping risks in check:

1. Know yourself.

To know yourself well is the cornerstone of many a financial lesson. With every mistake I've made I've filed the experience in my memory bank to remind myself not to repeat it. That was true when I tried to short the market during heavy volatility, and when I got involved in MLM marketing without realizing how lousy I was with sales. More lessons I've learned: understanding your risk profile and capitalizing on your strengths can increase your chances of success.

2. Keep your skills up to date.

At work, it's not a good idea to become too complacent, especially when you work in a competitive, dynamic industry. As the cliche goes: "nobody's indispensable." My takeaway? Develop skills and keep them honed in order to stay valuable in your field. Also develop skills to manage aspects of your life that will allow you to stay flexible and self-sufficient.

3. Carry the right amount of insurance.

Have you got the right amount of insurance? Many people take the massive risk of not having any auto insurance coverage, while many more are skipping out on health insurance or other important coverage. Unfortunately, sometimes there's not enough in the budget to cover premiums. But if you can afford it, make sure to keep policies up to date and sufficient for your circumstances.