Opinion – Grain in Grain: Know your two biggest financial risks and how to deal with them

There are two risks that individuals face in the course of their lives. The two are related to his inability to generate enough income to support himself. I explain below what they are and the best way to deal with them.

Before explaining the risks I will ask you two questions.

1) Among the two alternatives below, which solution do you think is the most appropriate for a risk that has a high impact on your life, a low probability of occurring and that you can hardly prepare for, especially if you are under 45 years old?

a) take the risk yourself and hope that nothing happens;

b) pay a low amount to a third party to take the risk for you.

2) Among the two alternatives below, which solution do you think is the most suitable for a risk that is practically certain to occur, that you have the ability to prepare for, but requires some effort?

a) do nothing and wait to see if it does not occur;

b) make an effort and prepare yourself, because it gives you time not to face the worst.

If you answered “a” to both questions, beware. You are counting on luck.

My preference is for option “b” in both questions. If you also preferred the same, then I will explain the two risks so that you are aware of them and how to deal with them.

During our adult lives, most of us are bestowed with the power to work and earn income.

However, fatalities do occur. The risk of being disabled by accident or illness is low, but it can have a big financial impact on our lives.

The advantage is that this risk can be transferred to a third party, in this case, an insurance company.

Unlike general life insurance, because its probability of occurrence is low, insurance that covers disability due to accident or illness is relatively inexpensive. In fact, it costs a fraction of life insurance.

The second biggest financial risk people are exposed to is reaching retirement age and not having the income to cover their costs.

With the rise in life expectancy, the risk of not having an income during your old age is high. Thus, there is only one way to cover this risk.

You should carry out financial planning to assess how much you need to accumulate to have the desired income in retirement and how to prepare until then.

It will take effort, but the sooner you start, the lower the cost.

As I mentioned in a previous article, the vast majority of the population solves both risks only with the INSS. Therefore, they would not have to worry about these two risks. They should focus on investing in education to increase their chances of earning a higher income.

Those whose financial risks exceed the INSS coverage limit should reflect on the two questions above and, thus, decide on the best way to manage them.

Michael Viriato is an investment advisor and founding partner of Investor’s House

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