How to Balance Financial Risk

Balancing your financial risk will make financial planning less of a gamble.

There are few things as important in your life as your financial security. From tasks like managing your budget and day-to-day finances, retirement planning, and protecting your assets from theft, doing a poor job of handling financial risk can cause you many problems. Fortunately, with some simple planning, you can balance your financial risk and protect the financial well-being of yourself and your family.

Instructions

1. Take steps to secure your finances. When choosing passwords and user IDs for online financial accounts, don't make choices that would be obvious to a potential thief. When possible, eliminate paper statements for your financial records, and have them emailed to you instead. Don't use public computers or unsecure connections when accessing your accounts, and check your credit card statements and bank accounts every day or two to monitor any suspicious activity.

2. Manage your debt wisely. Try to avoid getting into debt, especially credit card debt, and pay debt off as soon as possible. Make your payments on time, or your credit card company can hit you with a higher rate, and try to make more than the minimum payment.

3. Set a monthly budget. While there are months that you will be under budget or over budget in certain categories, the budget will give you an outline to follow when spending your money. It will also assist you in doing your overall financial planning.

4. Invest your money, but diversify your holdings. Rather than keep your money in a savings or checking account with a low-interest rate (or none at all), make your money work for you. If your employer has a 401k plan, take part in it. Open an individual retirement account (IRA) to further help fund your retirement savings. Invest in individual stocks and bonds, or an asset like real estate, but follow the old saying and don't put all your eggs in one basket. Diversify your investment portfolio by investing in a wide range of stocks, bonds and mutual funds to help mitigate your risk. If you want to invest in assets that are more liquid (cash), look into something like a money-market fund, or CD. Do research into any investments that you make--the more you pay in costs like maintenance fees, the less money that you're earning, and you don't want to make any poor investments.

5. Build an emergency fund. Many financial planners believe that you should try to save up enough money to cover six months of expenses should you lose your job, but if you can save enough to cover a year's worth of expenses, this would be even better, as the money could also be used to help cover unexpected expenses, such as repairs to your car, or having to unexpectedly buy a new household appliance.

References

• Investopedia: 10 Tips for Achieving Financial Security
• Vanguard: 5 Lessons Every Investor Should Know
• Morningstar: How to Manage Your Financial Risk