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Some risks are unique to an individual whereas others are applicable to everybody, like inflation and loss of income. When planning your budget, consider the risks that are most applicable to you and the extent of these risks. These risks may change over time with your circumstances, whether they are based on income or capital needs. Income needs exist over your lifetime and include disability, disease and unemployment. Capital needs are associated with death and include the cost of winding up your estate.

Insurable and non-insurable risks

Some risks are insurable and others are not. The insurance industry covers financial losses or financial risks. Non-financial risks like emotional loss are not coverable. Speculative risks involving profit and loss are also not insurable. This would include activities like investing in shares on the stock market.

Insurance covers specific risks. Pure risks are those where there is no possibility of benefit but only the possibility of loss. Loss of income may result from death which can be covered by a life policy or group insurance. Disease and disability may also lead to a loss of income. These risks can be covered by medical insurance and disability insurance respectively.

Loss of property and personal liability can be covered by short-term insurance. A life policy can take care of estate duty in the case of your death.

Risk management

Risk management (PDF) involves identifying your risks, evaluating these risks, choosing a method of managing the risks and implementing a suitable programme. Your risk programme should be re-assessed from time to time as your circumstances change.

Specific financial risks to consider include loss of income, loss of property, personal liability, business risks, winding up your estate, retirement, debts, inflation, income tax, interest rate changes, fluctuations in exchange rates and market risk, amongst others like health risks.

Speak to a broker

When planning your budget, pay particular attention to any financial needs that may come from disability, retirement or death. Work with a trusted broker to help you identify how to provide for your personal requirements within the constraints of your budget.

Tags: Finances