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Risk Management
Definition
Risk management is the process of identifying, assessing, and mitigating financial risks to protect assets and income.
Explanation
Financial risk management strategies include insurance (health, life, disability, property), diversification, emergency funds, hedging, and asset allocation. The goal is to protect against catastrophic losses while accepting calculated risks for growth.
Risk management should balance protection and cost. Over-insuring wastes money; under-insuring exposes you to financial devastation. Regular risk assessment ensures adequate coverage.
Example
A good risk management plan includes health insurance ($500/month), disability insurance (60% income replacement), life insurance ($500k term), and a 6-month emergency fund.