Before discussing Financial Goals, we should be aware of the risks, which may arise in due course of life and will affect future cash flows in uncertain events.

If these risks are taken care of in advance, then only preparing a financial plan could make some sense. So, what is Risk Management? The steps involved in Risk Management are.

Identifying the risk: This could be premature death, permanent disability, Hospitalization, critical illness, or damage to the property and other assets.

Quantifying the loss and analyzing the probability: How much life insurance needs to be taken? If the claim is settled, will it take care of outstanding liabilities and required future cash flow for dependents for a certain period of life?

It requires the deep calculation of cash flows and not just the thumb rule. Similarly timing and quantum of health insurance for yourself and your dependents need to be evaluated.

Here, I will like to caution working professionals. Those dependent on company health insurance skip having their own health insurance till their advanced age. In case of job loss, or early retirement; they may get exposed to no health insurance coverage, at such time, they may face difficulties to take Health insurance due to age factors and certain illnesses cropping in due to age.

Risk Control: Avoidance, Loss prevention & reduction:

If you can avoid risk, then it could be better. For example, the personal vehicle cost of insurance and maintenance. If the vehicle is continuously adding the cost of maintenance and increasing future insurance premiums; then the best way is to dispose it or use public transport. Taking care of health and regular exercise with diet can reduce the chances of hospitalization.

So, if the risk is mitigated in advance, further financial goals like retirement planning, children’s education, and buying property or vehicles could be done without any stress.