Financial vulnerability essentially describes the likelihood that you could be derailed on a financial basis by unexpected events, poor money management and other issues. Even the seemingly wealthiest individuals can be financially vulnerable. After all, we have all heard stories about very wealthy people who have foolishly spent all of their funds, and we have also heard about very low-income people who have amassed a small fortune through frugality and excellent savings habits. Because all people can be financially vulnerable in various situations, it is important to take stock of your finances and to actively improve in this area on a regular basis.
Understanding Your Financial Situation and Vulnerabilities:
One of the primary causes of financial vulnerability relates to a lack of knowledge and understanding. For example, some people think that if they have a few thousand dollars in a savings account, they are good to go. However, many unexpected events may cost much more than this. In addition, your loved ones may be severely impacted by you having a serious illness, an injury or an untimely death. Planning for all contingencies, such as by purchasing life, health, long-term disability and accident insurance can all decrease your exposure to financial loss. Understand how different risk factors may affect your finances, and be proactive to mitigate those factors.
Improving Your Money Management Efforts:
Some people are particularly vulnerable to the possibility of financial loss because of their poor money management efforts. For example, if you impulsively shop or regularly buy many more things than are needed, you could be creating unnecessary risk for yourself. Rather than spending so much money simply because you can, consider how much more financially secure you would be if you had not made so many purchases within the last year and if you had invested the money instead. Spend time reviewing your challenges and habits honestly, and make positive changes to your habits going forward.
Being Actively Involved:
Money is a cause of stress and grief for many people, so it makes sense that some people prefer to let someone else handle their finances. For example, you may allow your spouse to pay all of the bills, manage credit cards and invest your money. Consider what may happen to you financially if your spouse suddenly passed away or become physically unable to manage funds for you. You should also consider what may happen if you get divorced. In order to decrease risk of loss and stress in this area, you must get more actively involved. Find ways to understand your financial situation and to actively participate in all aspects of money management.
These are only a few of the many ways that people can be financially vulnerable. Regardless of your income level, the value of your assets or other factors, there are always steps that you can take to further increase financial stability and security. Spend time analyzing your own financial situation so that you can better determine the right steps to take improve in this area.
Yorkville Advisors, LLC is a privately owned hedge fund sponsor.