This is the third article of a 9 part series on 9 Strategies for Biblical Wealth Management. Last week I told you about the second step; Cash Flow Discovery AND Management that Honors God. In this step we looked at how we obtained wealth in one of seven ways and how we must transfer ownership over to God, recognizing that everything we have belongs to Him and He has the right to decide where it all goes and how it will be spent. I hope by now you are beginning to get an understanding of Biblical Wealth Management.
As a reminder, the 9 Strategies for Biblical Wealth Management are:
1. Discovering your purpose for Biblical Wealth Management
2. Cash Flow Discovery and Management that honors God
3. Wise Risk Management
4. Estate planning that incorporates caring for your loved ones and others
5. Investing and Asset Allocation that uses Biblical principles
6. Setting up a Retirement Income Strategy that will last throughout you and your spouse's lifetime
7. Wise Tax Planning Strategies that are legal and ethical
8. Philanthropic Planning and giving that creates a lasting legacy
9. Seeking Non-Proprietary, Fee-Based Biblical council.
Now, let's look at the third step in this process; Wise Risk Management. I believe we need to first look at the definition of risk, then management.
Risk is exposure to the chance of injury or loss; a hazard or dangerous chance. Management is the act or manner of managing; handling, direction, or control. Now let's put it all together, according to Wikipedia, risk management is the process of measuring, or assessing risk and developing strategies to manage it. Strategies include transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, and accepting some or all of the consequences of a particular risk.
Wise Risk Management is transferring the risk you do not wish to or cannot handle to someone else who is willing to take the risk for a fee. Today we transfer risk in 6 basic ways:
1. Life Insurance- to cover expenses such as debt, loss of salary, etc. in the event of a pre-mature death of a "breadwinner"
2. Health Insurance- to pay medical costs if we become sick or have an accident.
3. Homeowners Insurance- to protect our home and the contents from serious loss, such as theft, fire or a natural disaster.
4. Auto Insurance- to pay for repairs, or complete replacement in case of an accident or theft
5. Disability Insurance- to cover our salary in the case of an major accident or illness resulting in the inability to continue working
6. Liability Insurance- to provide additional coverage for situations where a potential liability/lawsuit could exceed the limits of protection provided by the above policies, i.e. auto and homeowners insurance
After going through this list let's now assess your financial situation. Put together a financial statement and ask yourself this question; How much risk can I or my family handle (assets minus loans=net worth) if we had to take on the risk because we did not transfer it? Basically, if you died today how long could your family live on your savings and investments? How long could you pay the medical bills from an accident or serious illness with the help of health insurance? How long could you live on your savings if you were disabled and could not work and maintain your current standard of living? What would happen if your neighbor's kid had a debilitating accident in your backyard and you were sued for an amount above the limits of what your homeowner's policy covered? The answers to these questions might be quite simple, however many of us continue with unnecessary risk when we don't have to. Proverbs 6:6-11 says, "Go to the ant, you sluggard; consider its ways and be wise! It has no commander, no overseer or ruler, yet it stores its provisions in summer and gathers its food at harvest. How long will you lie there, you sluggard? When will you get up from your sleep? A little sleep, a little slumber, a little folding of the hands to rest - and poverty will come on you like a bandit and scarcity like an armed man."(NIV)
The key here is planning. Transferring risk so that you or your family will be prepared in case of tragedy is wise planning and it shows those you love that you care about them. 1 Timothy 5:8 says, "But if anyone does not provide for his own, and especially for those of his household, he has denied the faith and is worse than an unbeliever" (NASB). Proverbs 21:5 says, "The plans of the diligent lead surely to advantage, but everyone who is hasty comes surely to poverty" (NASB).
Take a look at the list again and decide where you need to begin. See your financial representative to help you make the right choice for your situation. Be a wise risk manager and prepare!
Bob Barber is president of the National Association of Christian Financial Consultants (NACFC).