Self-Insure Against Life’s Biggest Risks

Risk can be a big part of the financial world. It’s often said that where there is no risk, there is little reward.  It makes sense, and we can see this in practice with the returns on different investments.  Look at the risks and returns involved in buying individual stocks, and compare to the risks and returns involved with “safe” bonds.

When we step outside the realm of investments, and enter the world of money in our daily lives, it seems as though risks don’t always come with great rewards.  Sometimes, there are some things that we want to make sure don’t happen, as the consquences can be less than entertaining for us!

This got me thinking about the concept of insurance, and how it’s supposed to protect us against risks.  In many cases, it absolutely can protect us financially to a large degree. Insurance coverage is important in many aspects of life.  However, what about the concept of taking things in our own hands, and supplementing this with own efforts to self-insure against different risks in lfe.

I’m not talking about buying additional insurance.  Rather, I’m taking about insuring ourselves against risk by being aware of how things work, and using our brains to intelligently make decisions that help us avoid big problems throughout life.  Importantly, this involves self-discipline as well!

Here are 5 ways to avoid financial risk in our daily lives, through taking steps to “self-insure” oursleves:

1) Manage your career

I say this quite a bit here, but we can’t save money for retirement – much less have money for daily needs – if we aren’t making money in the first place.  To protect oursleves against the loss of income, we need to make sure that we are valuable to A) our current employer, and B) other potential employers.  This means self-insuring against economic conditions and other bigger issues by taking an active role in treating your job and ultimately career like it is your own business. You need to manage it, rather than let it manage you.

2) Diversify income

First off, I do believe in the 80/20 rule, as the Pareto Principle leads us to focus our efforts on what brings in the most benefits.  See “manage your career” above!  That being said, there are benefits to diversification of our energies as well. As long as we don’t drop the ball on our primary endeavor, it can be a good idea to spend some time on diversification of income.   If you do lose your job for whatever reason, a second income stream can help.  This can apply in other ways, such as a couple where two people work instead of just one.

3) Stay healthy

Sure, we can and should have health insurance to protect ourselves financially against what can otherwise be sky high medical costs. That’s obvious. We should also strongly inconsider the importance of dental insurance to our finances, as those bills aren’t always cheap either.   However,  we can insure against medical expenses in a different way: by staying healthy!  This means eating right, and getting exercise.  The healhier we are, the less we may spend on health problems, and the more able we might be to work and earn money.  Being healthy even means managing stress and getting rest – we’ve discussed the topic of sleep and wealth before!

4) Avoid accidents

On the surface, this might seem obvious. Who plans to get into accidents? Nobody I know, that’s for sure! Of course, if we aren’t careful, or take our eyes off the ball so to speak, things can happen.  This means using our heads and not taking dumb risks where the downside far outweighs the upside.  For example, while it’s clearly great to save money on auto insurance, we can also save money by self-insuring against risks by simply following the rules of the road, driving within the speed limit, refraining from texting and driving, and so on.  This concept can apply to many other parts of life, as reckless behavior comes in many flavors.

5) Maintain good relationships

First of all, good relationships are healthy and great to have without any consideration of money whatsoever.  People matter more than dollars. Keeping that disclaimer in mind, it still makes sense that to the extent that we get along with others, we’ll be better off financially.  What if there was an inheritance that could be divided, but you and your siblings couldn’t get along? Worse, what if a relationship with a spouse didn’t work and the two people ended up in divorce?  The bottom line is that we can insure against such risks by taking the time, attention, and genuine care to maintain good relationships with others.  If we don’t, we risk poor results in many ways, one of which is money.

My Questions for You

Do you ever think about some of these risks to our financial health?

What do you do to actively prevent such risks in your life?

Are there any that you think are more important than others – or that should be added?