The vast majority of people want a stable income to sustain their standard of living. Big fluctuations, especially those on the downside, are usually unwelcome. As a result, there’s a tendency to see risk as a negative, especially when it comes to personal finance.
But the perception of risk that you have is irrelevant. Risk, like the weather, is something that we just have to deal with in our day to day lives. It’s in the nature of the economy itself to be risky, and everything we do could potentially backfire. That new job you just landed? It might be automated away in five years. That government bond you just bought? The government could default on its debts if the national debt gets too high. That house you just bought? It could be flooded, or we could have another housing crisis, causing you to lose all your equity.
The good news, however, is that we can improve our relationship to risk. Here are some of the ways to improve yours.
Update Your Skills On A Regular Basis
It’s no secret that the economy is changing and that new skills are required today compared to yesteryear. It’s a good idea, therefore, to regularly update your skills based on what’s relevant. Skill demands in practically all positions are changing all the time: leaders need to be more network-oriented, IT professionals need to understand the cloud and AI, and there is a demand for people with data skills. Keeping an eye on the skills you have versus what your industry needs can keep you one step ahead of the game.
Diversify Your Income Sources
Whenever you take a job, you place a bet on that particular industry being able to sustain your finances. But, as anybody who has built substantial wealth will tell you, that’s not such a good idea. Single income sources can quickly dry up in the event of a recession, and that can leave you and your family vulnerable.
Generating multiple income streams might sound like a major challenge, but it’s something that most people can fit into their timetable with a little effort. Sure, your primary job will take up the majority of your day. But there are all sorts of opportunities for moonlighting in the evenings and at weekends.
Learn From Your Mistakes
Sometimes things work out as you planned, but most of the time, they don’t. The world is a messy place, and it’s hard to understand all the variables, and their interactions, in advance. For instance, a lot of people get into trouble pursuing financial schemes, like multi-level marketing, in the hope that they’ll make a lot of money from it. Unless you’ve had an original idea yourself, it’s unlikely that you’ll generate massive amounts of cash in the near-term. It’s better to capitalize on your strengths to increase the probability that you will succeed.
Insure Against Big Risks
Taking out insurance is one of life’s major annoyances. You have to buy an expensive policy that in all likelihood you’ll never need to claim on. But in the unlikely event that things do go wrong, you’ll be thanking your lucky stars that you had the foresight to protect yourself. Some things in life are too risky not to protect. No matter how healthy you are, you could be struck down by injury or illness at any time. Your expensive new sports car could hit a pothole and end up in a ditch. And lightning could strike your home in a one-in-a-million chance occurrence.
Few people expect the worst to happen but you should always be prepared in case it does. Do you have gaps in your medical coverage? Speak to a health insurance broker before it’s too late. Are you a small business owner? Make sure your enterprise is adequately protected.
Consider all the top risks in your life and make sure they are insured against the worst case scenario.
