Importance Of Risk And Controls

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Risk and Controls

Any good CFO considers both risks and controls. On a personal level, there is a lot less that can go wrong than there is in any firm. However, there is no reason why those things should not be considered. Life always has a way of teaching you how you are not as bulletproof as you imagine yourself to be. Risk management just makes these interesting lessons sting a lot less. Realistically, taking a moment to analyze where things can go wrong will save you lots of time later. To help you optimize your plan of action the risk factors of income risk, personal risk, liquidity risk, and inflation risk should be considered and deliberated upon. Obviously, the main income risk you will experience is the loss of a job,
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Being on time, doing more than expected, and self-aware are good ways to ensure that you keep your job. Another control could be to get in the habit of doing a side hustle that may generate some extra income. Income risk is different for everyone, but ensuring that your skills are not outdated or obsolete is the best risk management for this type of risk. To mitigate some personal risk, strive for asset quality. Try not to allow yourself to purchase things that will expire or become worthless. Obviously, memories are in a class of their own. To do this you can use one of my personal controls, the “10 second rule.” This rule is quite simple and has two parts. Part one is triggered when you see something you really want to buy. Before you pull the trigger ask yourself, “do I really need this?” Obviously, this control is not good for any necessity. Then walk away and wait a day to revisit this choice. Then ask yourself the same question about the same thing again. You may not even remember what it was that you wanted to buy, but if you do and still want to buy it, go for it. The 10 second rule is no fool proof, but it can help moderate and mitigate personal …show more content…
This is not a terrible idea, but it can create liquidity issues. Implementing some forced spending limits can quell bad habits. Plus, by repetition, you can often create new habits. Whether you pay in cash to do this, or set up a daily spending limit at your bank, whatever works best for you is the strategy that you should implement. To mitigate inflation risk, buy quality assets, and invest. By purchasing carefully, the assets you have will rise in value because inflation diminishes your purchasing power (need more money to buy the same things) so often quality assets rise in value. The reason you need to invest is that just by saving you will be getting a negative return. If inflation is 5% and your savings account yields 1-2% (if you are lucky) then technically you lost about 4% of your purchasing power. To mitigate inflation risk you would need something more than 5% (if inflation was 5%). Thus, it is important to set aside money for periodic investment. Now, take a moment to revisit what you learned about compounding in the first chapter. Remember the time is money example? Now take a moment and look over your goals again. Are you inspired? I hope

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