Mr John Robert Kakeeto. Photo/Courtesy
In today's complex and ever-changing financial landscape, it is essential for individuals to take a proactive approach to managing their financial risks associated with personal finances.
To achieve financial success, it is essential for an individual to set clear financial goals and create a financial plan tailored to specific objectives.
The financial plan should be reviewed periodically, ideally at set intervals or when significant life events occur. Personal financial risks refer to the potential losses or setbacks that an individual may face due to unforeseen events or circumstances.
These risks can be broadly categorised as market risk, credit risk, liquidity risk, legal and regulatory risk, personal health risk and longevity risk: As Lord Kelvin famously said, 'To measure is to know. If you cannot measure it, you cannot improve it.' The significance of measurement in driving improvement cannot be overstated.
Consequently, effective risk management begins with the crucial steps of identifying and assessing potential risks. Here are some steps you can follow: Conduct a risk assessment: Take a comprehensive inventory of your financial assets, liabilities, income and expenses streams. Identify potential risks: Consider the likely personal financial risks. Assess the likelihood and impact:
Evaluate the likelihood and potential impact of each identified risk on your financial well-being and portfolio accordingly. Prioritise risks: Prioritise the identified risks based on their likelihood and potential impact so as to mitigate, avoid or transfer the risks. Once you have identified and assessed your personal financial risks, it is essential to develop strategies to manage or mitigate them within what you can handle.
Below are some of the strategies you can use: Diversification: Spread your investments across different asset classes, such as stocks, bonds, and real estate, to reduce risk. Emergency fund: As an individual, always try to have or maintain an easily accessible savings fund to cover three to six months of living expenses in case of unexpected events out of the risks you may face.
Consider insurance: Where possible, please consider purchasing insurance policies, such as life insurance, health insurance, and disability insurance, that can help you mitigate personal risks.
Debt management: Develop a plan to manage your debt, such as prioritising repayment of high-interest debt faster to minimise the interest paid, debt consolidation to create a more flexible debt repayment schedule that is within your income band or frequencies. Elect to avoid some risks.
You can chose to avoid some behaviour expenditure habits such as impulsive, conspicuous consumption and hedonic spending. Regular reviews: regularly review your financial situation, where possible adjust your expenses depending on the income you have at that moment and adjust your risk management strategies accordingly.
As a risk manager, I wish to share some guiding practices each one of us should keep in mind while managing personal financial risks: Stay informed: Stay up-to-date with market trends, economic and regulatory updates because information is power. Seek professional advice: Before taking any major financial decision which may be an investment, savings or expense, consider consulting with a financial advisor or planner to get personalised advice as the devil is the detail.
Monitor and adjust: Regularly monitor your financial situation and adjust your risk management strategies as needed to avoid any unforeseen circumstances. Avoid over leveraging: Avoid taking on too much debt or over-leveraging your investments.
Maintain a long-term perspective: Focus on long-term financial goals and avoid making impulsive decisions based on short-term market fluctuations. Managing personal financial risks is an essential aspect of achieving financial stability and security.
Mr John Robert Kakeeto, Chief Risk Officer,
United Bank for Africa, Uganda.
