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“A man who does not think and plan long ahead will find trouble right at his door”

Confucius – Chinese Philosopher.

That’s a great pearl of wisdom from a couple of centuries ago. The problem is, nowadays we don’t have to plan too far ahead to find trouble. Trouble has a way of finding us when we least expect it. So the trouble is what I’m going to talk about in this post.

But let’s replace ‘trouble’ with a more sterilized term – ‘risk management’.

What is risk management and why is it so important?

Risk management is “the process of analyzing exposure to risk and determining how to best handle such exposure.”

That sums it up perfectly. While you are going about the business of accumulating wealth you need to:

  • Be able to identify personal risk areas that could cost you money – like dying unexpectedly
  • Then you need to put in place measures to insure that if the unforeseen becomes a reality you can bounce back from it – like life insurance

Now that I think about it, scrap what I just said. Listen, even if you’re just trying to keep your nose above water every month, you need to think risk management.

Not insuring the most important asset in your life (if you’re not sure which asset we’re talking about – it’s you) is probably your biggest risk.
Why is it that someone will spend R2,000 a month or more on insuring a car – which is really just a hunk of shiny metal anyway – but won’t part with some cold hard cash to insure themselves?

  • I’ve spoken to people earning R90,000 a month, spending R3,000 a month on car insurance and complaining because I’m asking them to spend R500 a month on life insurance.
  • Then I have people earning R10,000 a month who’re willing to spend the same amount on life insurance.

Have you ever thought of what would happen to all your assets if you were unable to work any longer?

Would it be a case of:

  • Goodbye house?
  • Goodbye cars?
  • Bye bye to everything I’ve spent the last 20 years building up?

Okay, let’s assume that death isn’t on top of your list, What about things like:

  • Cancer?
  • Heart attack?
  • Becoming disabled?
  • Retrenchment (Yip, you can even take out life insurance for this)?

Always remember to ask yourself this.

  • Can I run the risk that none of this will ever happen to me?”.
  • ” I’m the money making machine – so what’s (or who’s) my backup plan?

The definition of risk management.

Risk management is “The process of analyzing exposure to risk and determining how to best handle such exposure.

The process of analyzing exposure to risk.

How would you do this? Sit down and look at the “what if”scenarios.
The nature of my job means that I travel frequently. I’m on the road 50% of the day.

  • What if I’m involved in an accident?
  • What if I die in that accident and can’t provide income for my family?
  • What happens to the house because my wife doesn’t work?
  • What if I become disabled and can’t work again as a result of the accident?
  • Does the company provide cover? Is it enough? What if I resign and don’t qualify for life cover anymore?

Asking the tough “what if” questions is the first step to working out your exposure to risk. What is next?

Determining how to best handle such exposure.

What would be the best way to go about handling this exposure to risk?

  • Perhaps you need to get off the road and behind a desk?
  • Maybe you need to buy a car with an airbag?
  • Perhaps you need to take out enough life insurance to pay off your debts?
  • Perhaps you need to take out life insurance to replace your monthly income at least until the kids are out of the home?

I would love to hear your ideas on personal risk management, so feel free to leave a comment below.

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