What Is Risk Management?
Learn how understanding risk can help you save money.
Better safe than sorry. You’ve probably heard that phrase before. But what does it mean? Some people would tell you it means you should always pick the safe option. Is there ever a 100% safe choice? The answer is no. You can’t keep yourself safe all the time, but you can manage, or lessen, risk.
Sure, you could sit in your room covered in bubble wrap and you’ll never get a scratch or break a bone. You’re safe, but you’re still taking risks: Risking not having fun with your friends. Risking not seeing a shooting star. Risking not being able to play a favorite sport.
Risk management isn’t all about staying safe. It’s about making smart choices. Say you’re out playing soccer with your friends and you notice some broken glass on the field. You could keep playing and avoid the area with the broken glass. But does the ball know that? The risk is that you or your friends could step on broken glass or the ball could pop. Managing this risk could be as easy as telling an adult and having them call the school or city parks department to clean up the area.
There are other times when there might not be an easy solution like telling an adult. You’re going to have to make your own choice when it comes to managing risk. Take riding a rollercoaster. It can be very scary, but if you think about it, a lot of people put in a lot of time to make it safe. The risk is low compared to the reward of the thrill.
What about driving while on your phone? Or walking while reading a book, since you probably don’t drive? Moving around while distracted, in a car or on foot, can cause problems. Cellphones are to blame for 1.6 million crashes every year. If you’re walking down the hallway at school and reading, you could step in the janitor’s mop bucket! Managing the risk would be to pay attention to where you’re going. No matter how good the book is.
So, risk management is all about doing what you need to do, or should do, but thinking about what makes it worth doing. Reading a book is good. Stepping in a mop bucket isn’t. You can think about your money in the same way. Spending all your money is risky. What if later on there is something you really want or need? You already spent your money on something else you might not appreciate as much anymore. If you save and spend wisely, you can afford the things you need and appreciate.