Many people get excited about doing projections and seeing their wealth rise exponentially over the years on paper. Use a higher projection rate you get a steeper graph and a better result. It’s exciting stuff! Start to talk about risks and managing them, and it is human nature to start to “glaze over”. Yet, when developing strategies, concentrating on managing risks is crucial.
Have a think about the risks that you are subject to. How are you managing them? Are they being managed at all?
For example, have you considered the risk of:
- becoming sick and not being able to work
- dying and not having funds to adequately protect your family
- losing your job and not having sufficient access to funds to see you through 6 months
- rates rising on your debt
- rates falling on your cash investments
- a bank calling in a loan
- not having enough liquidity in your asset base
- inflation on your cost of living
- over paying for assets and not being able to weather a downturn or flat period
- not having an orderly succession plan for your business
The exciting part of planning is the upward sloping graph. I believe managing risks is a crucial component of planning and ultimate success. Focus on managing your risks and the upside will look after itself. So, I’ll say it again. Risk Management, what is it good for? Absolutely everything!