Video transcript
- So let's talk a littlebit about the different ways that you can manage risk. And it's generally gonnafall into a few categories. You can obviously try toavoid the risk altogether or reduce it. You could say, "Allright, that risk is there and I'm gonna retain the risk. And then how can I manage that?" Or you can actually transferthat risk to someone else. And we're gonna talk about all of those. So let's just pick aparticular type of risk. Let's just say, one risk, one financial risk is your loss of income. What happens if you lose your job? Or if you run a business, what happens if the business goes under or it has lower incomefor some period of time? Well, the first strategy is obviously to avoid that as much as possible or to reduce the probabilityof that as much as possible. So if you're at a job, tryto perform well at your job so if they're firing folksor if they're doing layoffs, you are a crucial employeethat they can't let go. That is a good way of avoiding or at least reducing your risk. You can't completely avoid your risk. Things happen in the economy. No matter how good you are at work, sometimes you can getfired, you can get laid off. So always keep that in mind. But obviously, we all wannareduce that as much as possible. Now that risk is there. You're not gonna be ableto completely get it. So to some degree, you are going to retain some of that financial risk. And if you're takingthat financial risk on, as we've talked about in the other videos, one of the best ways to protectyourself is by saving money. And I would say a combination: saving money and living below your means or having a very quick way of being able to live below your means if by chance you were to lose your income. Because if you do that,you have more time. You could live off of your savings, especially if you don'tspend a lot to live, and you have time totransition to something else. Now you can also transferthe risk to others and that's usually throughsome form of insurance. There is government unemployment benefits, but oftentimes that'snot going to be enough to cover your expenses. And there are other typesof unemployment insurance that you might be able to get that's a little bit less common for people to get unemployment insurance above and beyond that. So most folks are usually, whenit comes to loss of income, let's avoid it or minimizethe chances of that happening, but then also create a nest egg. There's other forms of risk that we've talked about like liability. What happens if someone sues you because you know there's a caraccident and you're at fault, or at least the judgedecides that you're at fault and then you owe them alot of money in a lawsuit? Well, once again, the best thing to do is to avoid or reduce. Now you can't avoid that risk completely unless you're willing to just not travel or not drive or anything like that. But you can reduce it bydriving safely, conscientiously, not texting while you're in the car so that you're veryunlikely to be at fault if there's any type of accident. You are a defensive driver. That's always should bethe first line of attack. But then on top of that, if you could retain someof that risk, obviously, and the best way to managethat is save money, et cetera, so that if something were happen, it's not gonna be the end ofthe world for you financially. And what many folks dofor that type of risk, and sometimes by law, in fact, in many states you have to have liability insurance. And so then you are payingan insurance company to transfer some or a lotof that risk of liability, it's usually capped to someamount, to an insurance company. And I recommend that as well, especially for things like liability. So once again, justalways have that in front. Okay, what are my risks? Where can I completely avoid them? Usually you can't completely avoid them, but you can at leastminimize them a little bit or reduce them. And then above and beyond that, since those risks are hopefullyjust going to be reduced, but they're still there, how much do you take it on yourself? And to manage that, you probablyneed to have some savings or how much do you transfer to others? And that's probably payingsomeone to ensure that, "Hey, if that thing happened that insurance company's gotmy back to a certain degree."
