on personal finance
Understanding what constitutes financial risk and what doesn’t, can be extremely empowering. Many people, while being reckless about money, honestly believe they are taking risk which, in their reckoning, is a prerequisite for winning big. On the other end of the spectrum, it is often confused with volatility, some degree of which is inevitable, rather healthy.
Let’s discuss various dimensions of financial risk.
I have recently retired from a government job. About 5 years ago, as the retirement was nearing, I started thinking about my personal finance and how I should go about planning my retirement. I spent hours reading the material available on the subject. My main source of research was the internet. I keenly observed the financial behavior of people around me. I also looked inwards and critically reviewed my relationship with money. I thought about how I had taken the important financial decisions during my working life. Whether my decisions had stood the test of time or not.
The history of money can be traced back to a time when one of the early humans received a product or service from a fellow human and reciprocated with another product or service. Money continued to change with the evolution of humans up to its present form. It started with a simple barter, passed through various shapes including stones, pieces of metal, stamps, paper, and has now reached fiat and cryptocurrencies.
You must have heard the term “investment”, often being used loosely. But when it comes to financial parlance, this has a specific meaning. It is usually confused with another similar term: “speculation”. But why is it even necessary to know the difference? After all, the ultimate purpose is to make money, isn’t it? If you think so, you might be asking for trouble. The purpose of writing this article is to explain the difference and to suggest a way of how to handle these two.
Whenever you are executing a complex operation e.g. surgery, flying an airplane, or constructing a bridge, it is extremely important to follow a system, a process, or an organized way of going about it. This is what Atul Gawande has outlined in his book: “The Checklist Manifesto”.
Personal financial matters are no different. If you want to avoid financial accidents and want to smoothen the ride through your financial journey, a checklist offers a good solution.
Sound financial planning and prudent money management are the foundations on which you can build the castle of financial freedom. Our finances, if not managed well, can be a source of worry. Hence, there is a need to understand this subject well.
