Whether you’re a business owner, or you’re employee, it’s important to pay attention to your finances, as it won’t be always rosy. If you don’t take early steps to manage financial risks when it arises, you’ll be left at a confused state. While it can be almost impossible to eliminate financial risk, you can learn basic ways to guard your finances against risks, and at the same time, creating rewards for yourself.
Here are top tips to managing financial risks:
Diversify
To manage your finance effectively and nip risks in the board before it happens, diversify as early as you can. Invest in a wide variety of investments. Split money in a specific way, such as 25 percent in low-risk money markets, 25 percent in government bonds, 30 percent in domestic stocks or derivatives and 20 percent in international investment instruments. Diversification attempts to spread risk among several safe and risky investments in various economic markets.
Use a savings account
You should also develop the habit of cutting a portion of your capital back when making investments. Using a savings account ensures that you have cash on hand for emergency purposes if necessary. Having a savings accounts may not be necessarily an investment, but you”ll always have something there to fall back on. It also comes in handy when it comes to electronically transferring funds when buying or selling investments, as it creates quicker transaction times.
Invest
Investing sooner rather than later allows you to let your money work longer and potentially earn higher returns. If investment markets become extremely risky and you start losing money, investment decreases will only reduce earned income rather than the original principal balance. This allows you to cash out of extremely risky investments with little economic loss relating to your original investment.
Be savvy, not greedy
Savvy investors often understand when to cash out and accept current financial returns. Greedy investors will continually wait for the investment to go higher and provide better financial returns. The problem with waiting for investments to go higher is the investments might begin to go down. Significant reductions in investments can occur quickly and erase all financial returns earned on investment instruments.
Keep your skills up-to-date
It’s never a good idea to become too complacent, especially when you’re in a competitive, dynamic industry. As the cliche goes: “nobody’s indispensable.” Develop skills and keep them honed in order to stay valuable in your field. Also develop skills to manage aspects of your life that will allow you to stay flexible and self-sufficient. When you run into financial crisis, maybe in a business dealing, it’ll come in handy.
Don’t hire until you have the funds to afford it
Another common financial risk is hiring employees based on contracts and promises. In the business-world, there are times when contracts become promises of future revenue. Yet, contracts are not equivalent to actual money in the bank. When it’s time to pay your employees, you’ll need to have the funds in your account to cover the payroll costs. So, resist the urge to hire more employees than you can afford before your promises are actually converted into money.
Have you been able to effectively manage financial risks? What other suggestions, apart of ours, can you tell us about?
