When you think about the biggest sources of stress in your life, what comes to mind? If you’re anything like us, we’re betting money lands somewhere near the top of that list. We all have bills to pay and things we want to do, and the threat of losing money can ruin lives faster than just about anything else.
There are several steps you can take to lower your financial risk and stop stressing so much about money. Read on to learn more about financial risk and how you can protect your investments and assets the smart way.
What Is Financial Risk?
Before we dive into all the different ways you can manage your financial risk, let’s talk some about what it is. In basic terms, financial risk is the chance that you might lose money on an investment of some variety. This can include everything from a business venture to shares you own in the stock market and more.
All of us will experience financial risk at some point in our lives. Whether that be worries about our house value going down, losing our jobs, losing retirement money, or going into debt, living in today’s society means taking on financial risk. Learning how to manage it can help you to maintain healthy finances throughout your life.
Asset Diversification
One of the best ways you can help to reduce your financial risk is by diversifying the assets you have. For instance, let’s say you have $1,000 to invest in the stock market. If you put all that money into one stock and that stock crashes a week later, you’re out your $1,000 and possibly more.
When you diversify your assets, you minimize the chance that one singular event will destroy your investment plan. While this should include investing in a variety of stocks, it should also mean investing outside the stock market. Put some of your money into things like real estate, government bonds, long-term savings accounts, and so on.
Automatic Saving
Automatic saving is another great way to reduce your chance of losing money on your stock market investments. In essence, this risk management strategy involves optimizing the amount of money you spend on stocks and maximizing your returns. The theory is simple – you buy stocks when their prices drop and sell them when they increase to a certain level.
Automatic saving can help to lessen your financial risk by lowering the amount of money you have to invest in each stock in the first place. Of course, these stocks could still trend down, but in general, if you hold onto a stock for long enough, you’ll make money on it in the end. Buying low and selling high can give you a larger financial cushion to support you during any crashes.
Additional Income Streams
One of the biggest sources of financial risk for most people is the chance that they might lose their job. As many of us discovered in the last two years, jobs can vanish in the blink of an eye, and it can be incredibly difficult to find work again. You may be left stuck without a paycheck for months while the bills continue to roll in.
One way to reduce the risk associated with losing your job is to cultivate other income streams. Smart investing can be a great way to set up passive income streams that can help to support you even if your main paycheck goes away. You may also consider writing an ebook or starting a website to keep cash flowing in from a variety of sources.
Debt Elimination
If you do happen to lose your job, you’ll soon discover that any debt you have is an enormous anchor tied around your ankle. Credit card debt, student loans, car notes, and mortgages are one of the most common financial problems and are a challenge to pay off under the best of circumstances. When you’re stuck between a rock and a hard place, there’s no way to cut back to make these payments more affordable.
If you carry any debt, work to eliminate it as soon as possible. You may want to start out by making the minimum required payments on all your debts and dedicating any extra money to paying off your smallest debt. When you get that paid down, roll the money you were dedicating to that expense into the next-largest debt and so on until you’re back in the black.
Retirement Planning
None of us wants to work until we die, and retirement planning is what makes our golden years possible. If you don’t start looking at those long-term financial goals, you’ll have to live with the financial risk of losing your income source for the rest of our life. A solid plan can make sure you can spend your last years relaxing and enjoying the fruits of your labor instead of trying to keep up with the rat race.
If your job offers a retirement plan, make sure you’re contributing as much to it as you can afford to. If they have a matching program, at least contribute the maximum amount they’ll match. And talk to a financial advisor about the best way to save for your retirement so you can maintain your lifestyle even after you leave your job.
Learn More About Financial Risk
Financial risk is an unfortunate fact of life, but you don’t have to be stuck with it forever. Work to diversify your assets and find passive income streams that can help to supplement your primary income. Set up automatic savings measures for your stock profiles, work to eliminate any debt, and start planning for retirement as soon as possible.If you’d like to learn more about how to avoid financial risk, check out the rest of our site at Bogart Wealth. We believe that when it’s time to plan for retirement, transfer your wealth to the next generation, or investigate your best options, you should ask tough questions. Contact one of our advisors today and discover why, at Bogart Wealth, there is no question about trust.
