When it comes to personal finance, there are so many things to consider in order to keep your budgeting, spending, and investing under control and working in a way that benefits you in both the short term and the long run. Here are a few ideas that can help you find your way through the dark when it comes to your personal finances and risk management.
Buying Insurance Vs. Managing Risk
Personal finance author Tim Maurer makes an important distinction when it comes to insurance coverage. In his article for Forbes Magazine, The Millennial Guide to Managing Risk, he makes the distinction between simply buying insurance and instead managing risk, and encourages the latter, not the former. This hints at an underlying principle that should be the foundation of all your personal finance decisions: what is the purpose behind your spending decision, and what potential drawbacks and benefits does it have for you?
When it comes to insurance purchases, you have to carefully weigh out the potential risks present in your current lifestyle and life situation and circumstances, and then make calculated spending decisions based on those risks. The biggest risk categories that can be insured for the average person include driving and car ownership, home ownership or rental, and health. When examining spending in these categories, it pays to minimize spending on risks that are easier or more reasonable to assume, and not scrimp on risk areas that have a higher potential for causing financial damage.
Investing in Insurance
Once you’ve determined the risk areas that merit your personal financial investments the most, it’s time to turn to a provider, such as Dallas insurance agents, who can help you to assess and cover your risk management needs. A professional can guide you in selecting the most cost-effective choices while providing coverage that adequately covers your risk profile.
When it comes to purchasing insurance, you can often find savings in unexpected places. It pays to ask your insurance provider about any possible discounts as well as whether you might save money by bundling insurance policies for different things together with the same agent. Many insurance agencies cover more than one category, so don’t assume that your car insurance agent doesn’t also offer homeowner’s insurance or other coverages you may need.
Build an Emergency Fund
One of the most common pieces of personal finance advice from nearly any financial guru out there is to build yourself a “rainy day” or emergency fund for unexpected expenses that pop up out of nowhere. While the task may initially seem daunting, especially if you are already just managing to budget your income to meet monthly expenses paycheck to paycheck, the risk management rewards are sufficient enough to make the effort.
Well-known personal finance expert Dave Ramsey is a strong proponent of the emergency fund for risk management. He advises what he calls a “3-6 Month Fund” as part of his seven baby steps to financial freedom. The premise behind this advice is to calculate what it would take you to live for anywhere from three to six months at your current level, and then work to save this amount in a special fund for emergencies such as job loss or illness. An emergency fund helps eliminate the possibility for accruing new debt.
Small Steps Lead to Success
Personal finance and risk management doesn’t have to be intimidating or overwhelming; it simply takes advance planning, research, and careful assessment of your current situation and needs. When you make smart choices about your insurance policies, consult with professionals for appropriate coverage, and build a special fund to cover you for unexpected emergencies, you already have the basic tools to set you up for a successful risk management portfolio.