what is financial risk

What Is Financial Risk? Let's Prevent it

What is Financial Risk – Whizmates, every action we take in life comes with a risk, right? Because risk involves definite uncertainty. There is just a difference in how uncertainty is expressed. Likewise, when we plan our finances, there will be risks that we need to anticipate and manage.

Many unexpected things happen in life that can be financially detrimental. For that, we must be prepared and responsible for the events and financial decisions that are taken.

One event that can cause financial losses is natural disasters. No one can avoid it since we never know when it can strike. This natural disaster can ultimately be detrimental financially.

As a result, we have to be aware of financial risks and how to avoid them to plan for our finances carefully and live a calmer life. Let's finish this article together!

Also Read: Must Do! How to Create Financial Records For Students

Types of Financial Risk

According to the OJK website, a financial risk is one whose risk impact can be determined by assessing its value in money. Losses can also vary. Some lose assets, suffer significant losses, and others.

Many types of financial risks occur in life. Next, let's discuss the types of risks that can be financially detrimental as follows.

1. Financial Risk in General

There are at least two financial risks in general, according to Gramedia, namely systematic financial risk and non-systematic financial risk.

Systematic financial risk refers to risks that cannot be predicted and avoided—for example, inflation, pandemic, increment in interest rates, and market volatility.

Meanwhile, non-systematic financial risk is associated with an individual, company, or organization due to certain events and decisions—for instance, loss, illness, or death.

2. Financial Risk in Private

In a personal context, financial risk is divided into four risk types: income risk, expenditure risk, investment assets, and credit loans.

Income risk is a risk that affects a person to earn income. For example, unemployment, layoffs, and physical disabilities that make someone unable to work anymore.

We face expenditure risk when our expenditures exceed our incomes. This occurs when we are faced with an emergency disaster and have to spend a lot, but our income is insufficient. This risk includes accidents, home renovations due to natural disasters, damaged vehicles, and others.

Asset or investment risk arises when those instruments experience several constraints. For example, assets are damaged or stolen, investment loss, insufficient savings to continue investing, and asset values ​​depreciating.

In addition, credit or debt risk occurs due to a person's inability to pay debts, such as high interest or the amount of debt that exceeds income.

3. Financial Risk Based on Timeframe

According to the BFI website, there are at least two types of financial risk based on the timeframe: short-term and long-term.

Risks associated with short-term finances are those that arise suddenly and within a short period. For example, if a family member is sick and has to go to the doctor, they need to spend some money on the treatment.

Meanwhile, long-term financial risks appear over a long period, resulting in serious economic consequences. For example, if a family's breadwinner dies, their primary income will cease, and the family's finances will suffer.

4. Financial Risk Based on Its Impact

According to the OJK, there are three types of financial risk: pure and speculative risk, special and fundamental risk, as well as static and dynamic risk.

The pure risk is the risk of causing pure loss, such as a vehicle that breaks down unexpectedly or is damaged, making it unusable. In the meantime, speculative risk arises as a result of a small profit that could lead to losses. Participating in investing simply because it follows the trend is one example.

The following risk is a special risk that happens only in individuals, and the effects occur locally, such as a fire in a house within a housing complex. While, a fundamental risk can occur anywhere, for example, natural disasters that strike a particular region.

Lastly, the static risk is affected by the economic situation, such as property loss due to theft or house fire. On the other hand, dynamic risk is a loss experienced due to changes in the national economy that impact one's finances—for example, declining currency values, inflation, and fluctuations in stock values.

The Best Ways to Manage Finances

After knowing the various types of financial risks that can occur when we plan our finances, you also have to understand the best way to manage your finances, Whizmates!

Suppose you want to be prepared to deal with financial risks that could occur. In that case, you can take several steps, including finding a side job, creating a financial plan, buying insurance, studying your assets, setting financial goals, and avoiding debt or credit that exceeds your income, the ability to budget and manage finances effectively.

Managing your finances may be challenging, but that doesn't mean it's impossible, Whizmates. Now you can use the Whiz financial application. to make budgeting more accessible and better financial management.

With the Whizfinancial app, you can manage allowance,, prepare an emergency fund, and learn financial literacy!

Apart from that, as a smart solution, Whiz Smart Saver is here to help you achieve your financial goals, you know. With interest of 6,75%, Smart Saver provides optimal growth potential. In managing assets and investments, Whiz Smart Saver can be part of a strategy for smart finances.

Also Read: Example of a Personal Budget and How to Make It. Let’s Have a Look!

How was it, Whizmates? After reading the article above, you now understand better the types of financial risks and the best way to manage your finances. Get the Whiz financial app now and feel the ease of your finances!