If you drive a car you are likely to get a flat tyre at some point, as a driver you plan for this eventuality by having a spare tyre and a jack to change the flat tyre when it happens.
In our financial lives we can take similar precautions by planning for some of the risks we will all face to reduce the financial shock.
Broadly the risks we face can be divided into three categories:
- Short-term risk: this refers to things like a robbery, a car accident or a household emergency like a burst geyser
- Medium-term risks: this includes risk of retrenchment or loss of work due to disability
- Long-term risk: this includes the risk of an unexpected death or critical illness