Basic Rules for Financial Freedom: Make Wealth Happen
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Decide Your Attitude Toward Risk
After you decide your attitude toward risk, it makes your planning easier. It allows you to tailor how you intend to become prosperous. Hare or tortoise, I guess.
Obviously, your attitude will vary depending on the project. Things to take into consideration are
- Your age -- We cope better with risk the younger we are.
- Family commitments -- If, like me, you have young children, it does make you more cautious. If they've all left home, you might be prepared to push it a bit further.
- Income and/or assets -- You need to work out the percentage of your wealth you are prepared to risk. The more you've got, the smaller the risk might be -- unless you are prepared to lose the ranch, of course.
If you are going to take risks, then do try to offset them. Take out insurance if you like:
- Don't put all your eggs in one basket (more about this later).
- Consider how much stress and excitement you can handle.
- Look at the timing -- long term against quick returns.
- Think about how much you can afford to risk -- worst-case scenario stuff.
- How much information do you have? Too little increases risk.
The other thing to ponder is how you respond to the risks of life. Life in itself is risky, and nothing is certain. How do you cope when things go wrong? Are you positive, dynamic, enthusiastic, and up? Or do you get all gloomy and depressed and feel the glass is half empty? Know yourself, and know how you cope and how you respond to changes. And remember that risk doesn't mean bad. It means you don't know how it will all turn out.
From The Rules of Money Copyright © 2007, FT Press. Used by permission of FT Press, and Pearson Education. All rights reserved.
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