How many times have you thought seriously to list out Life’s BIGGEST RISKS and have done some type of worst case planning?
Let’s talk about the 10 biggest risks that we may have to deal with in life.
When I ask my clients this question for the first time, they usually respond with a little bit of a quizzical look and ask something like: You mean losing money, being in a bad economy, or seeing their portfolio go down in value?
In other words, they think that when we mention the word risk, it is automatically about money.
In reality, good financial planning is mostly about your health.
In my Top 10 List of Life’s Biggest Risks, seven of them are about health and relationships, and all of them may be life-changing:
1. Death – This of course will never be an impediment for those who die as you don’t need a whole lot of money after you’re dead. The problem becomes what happens to the family that’s left behind. What happens if there is unexpected Death, the family has to live, has to pay bills?
According to data available out of a total population of 121 Crore, 40 crore are insurable and out of this number only 8 crore have some type of Insurance plan. We all know most us have Insurance plans for reasons other than insurance or suitable safety cover.
2. Human Capital – Otherwise known as your job, career, occupation or bread winning role. Some place I have read that four out of 5 people are just three paychecks away from being broke. The important thing to remember is that if you viewed yourself as a machine that was designed to create wealth for your family, (just like an ATM) it would be the single largest capital resource that you have. Make sure you’re taking care of the machine physically and mentally.
3. Disability – Some people refer to this as living death, meaning you can’t do the things that you want to do but you still have to pay for them!
According to a study on Disability Awareness, because of an accident or illness-
• One out of five among us would miss work for at least a year,
• One in seven can expect to be disabled for more than five years, and
• The average long-term disability absence lasts 2½ years.
This obviously is a lot more important for younger people than it is for those approaching retirement with accumulated assets. The younger you are the more you need this to replace your human capital.
4. Health – As most of us know, it isn’t cheap. When you get sick and don’t have coverage, lookout!
5. Long-Term Health Care (Mediclaim) – Is something that usually doesn’t cross the minds of most people under the age of 40 unless they’re dealing with a parent who is struggling with health issues. It brings to light one of the scariest diseases of old age, Alzheimer’s. This is truly a terrible affliction affecting more than 50 Lac people. It’s the seventh leading cause of death in this country. We sympathize with those who have this disease but the hidden tragedy is that it tears apart the next generation of family relationships as the caregivers struggle to figure out who does what for the parents.
In next decade India is going to be known for most diabetic and heart patients.
6. Being Sued – It’s one of the top concerns for those of means as they accumulate more wealth and worry that frivolous lawsuits may cost them dearly.
90% of all money related cases pending in Indian courts are related to property, defaulters and Misselling.
7. Lost Relationships – If you really want to feel a life-changing event, talk to anyone who has lost a loved one, gone through divorce, has a new boss that they hate or your own kids who left you for greener pastures. Some of these situations you can see coming and some you can’t. When ever they occur, it can totally turn your life upside down. The only answer to this is to continue developing new relationships and have more people you can count on in those tough times.
8. Bad Advice – Comes in all shapes and sizes whether it’s about your finances, workplace issues, health issues or relationship issues. When you’re in the heat of the battle, it’s tough to figure out the right thing to do. You can usually look back and see where your mistakes were, so try and stay away from those that steer you in the wrong direction and develop relationships with those you feel whose judgment you can trust.
Learn by your mistakes. I found that’s my best learning tool (because I think I’ve made more than most!).
Choosing a right advisor is as difficult as finding a good neighborhood.
Some of the things to look at while choosing one are: Integrity, Knowledge & Expertise, Availability, Age, Commitment to work, communication skills and compensation model.
9. Fraud –Today fraud has risen to a whole new level. Be it the Ponzi schemes or the Builder-Broker nexus, 7 years Highest NAV Guarantee Plan, assured monthly return or Free Service trap that has came out when the markets were in the process of melting down in 2008 was truly the salt in the wound of investors.
It seemed no matter how smart or wealthy you are you may be taken for a ride (even unknowingly by your friends and peers.)
It is a tragic story about how a rich, senior and reputed Defence Officer swindled Crores of Rupees from his Friends, colleagues, mates & customers and they had no idea what happened. Even when it’s close to home it may be hard to detect.
10. Negligence – I think one of the biggest problems we all have is benign neglect. We don’t address the issues that we know we need to address because we don’t want to or don’t have the courage. When you finish this blog (don’t even think about stopping now!) do three things with your money that you know you have to do but have been putting off. Do just one right now and give yourself a time frame to complete the others. If you do it, reward yourself and if you don’t penalize yourself somehow. If you don’t do this then I guarantee the long-term penalty will be much worse than whatever you impose on yourself.
How do you like that list of life-changing events? I didn’t even include the stock market crash and having all your money in fixed deposits. I have mentioned earlier that seven of those items pertain to health and relationship issues. In fact, a lot of these issues can be taken care of by writing a check to an insurance company. I will admit right here that I have never written a check to an insurance company that I liked, whether it be death, disability, nursing home expenses, healthcare costs, or an umbrella liability policy. It’s just that the alternative of not having insurance is worse and I’m willing to give up a little cash flow to protect myself and my family.
I certainly can’t solve these 10 big risks but I am hopeful I can at least get you to think if you’re protecting yourself from them. Whether you buy some insurance, foster your relationships with family & friends, steer clear of bad guys and advice, or improve your career chances, just do something to better your situation with life’s biggest risks. Then you will get to answer the ultimate question in the end. Did you take too much risk in my life or too little?
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