What I have found to be true from working with clients for over two decades is that some have a certain way of thinking about risk that is much different from the mainstream idea of growing wealth.
At times, the more money someone has, the more they seem to want to avoid risk as much as possible. Many people tend to dislike risk, and they do everything they can to avoid it and keep as much money in their control as possible.
Now, there are many variables to this that can influence how some people think about their wealth. An influence on the mindset of risk has to do with how much control someone has over the outcome of their decisions.
Contrary to what you may believe, it’s not risk that creates wealth – it’s the management of risk that creates it. People have a tendency to confuse risk-taking with wealth-building. Taking risk is not a paved road to wealth. Unmanaged risk is essentially gambling with the hope of a hypothetical outcome. People go to a casino with the hope of winning, but that does not mean they are going to win. The same can be true with the stock market; your confidence or hope in the market going up does not mean the market is going to make anything.
Managing risk essentially means minimizing risk by identifying all of the things that are out of your control and moving as much into your control as possible.
How can you increase control?
Identify the areas of your life that you do not have control over and work to move as much into your control as possible.
When it comes to money, you have control over how you spend and how you save the money you have or will receive. You have control over how money flows through your life. As you think through what you have control over, realize that much of this is about your behavior with money.
Here are factors to consider:
- Once you spend money, it is gone forever
- Once you make a decision to finance a purchase, you are giving up control of a portion of your cash flow to the banks. (You have required payments.)
- Once you choose to save money in a bank, you are giving up control to the bank as a result of little, if any, earnings and fractional reserve banking. (They make a lot of money!)
There are more examples, but suffice it to say that people give up control of their money in the decisions they make without possibly realizing what is happening.
Identifying what money is flowing out of your control and seeking strategies to have more money flowing into your control is the first step toward creating real wealth.
If you have questions about this idea of avoiding or managing risk let me know.