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Risk is something that none of us love but cannot wish away. While most risks are worrisome, financial risk would inadvertently cause you the most harm. Imagine losing your home because of a sudden fire or incurring significant business losses because of a rash decision. The thought of it is good enough to send chills down your spine!

Thankfully, a lot of these financial risks are foreseeable and can be tackled. Delving deeper into the world of money and working on your financial education levels can address these issues and mitigate potential threats.

This article discusses the role of financial education in helping you break free from financial risks and limitations.

Overview of Financial Risk

Poor decisions can often lead to financial risk. These can cause a domino effect on your finances and result in severe losses. Financial risk can be of the following types-

• Liquidity Risk – Liquidity refers to the ability to buy or square off an asset as easily as possible. It comes in two variants – market liquidity risk and cash flow liquidity risk. Market liquidity risks happen when there are a lot of sellers but only limited buyers. It leads to you facing difficulty while entering or exiting the investment. If you don’t have enough cash to pay off your debts, you are at risk of cash flow liquidity risk.
• Speculative Risk – It refers to undertaking a position with an uncertain chance of making profits. Most investments involve some risk/speculation, as you barely have any concrete idea of success or failure. However, some assets, such as derivatives, carry a higher level of speculative risk and may require hedging or limiting to minimize potential losses.
• Currency Risk – Currency prices are constantly changing. Investors, when they hold foreign currencies, are inadvertently prone to these volatile changes in prices. These risks are called currency risks and can be because of political changes, market differences, diplomatic changes, or any other reason.

Role of Financial Education in Mitigating Financial Risk
Financial education acts as a bridge that helps you effortlessly make decisions involving money and counter the risks associated. It provides individuals with the best practices for risk mitigation, allowing them to assess their financial obligations and create a suitable plan of action. Moreover, keeping up with finance education helps you stay updated on market conditions and emerging risks and empowers you to adapt and adjust as needed.

Steps to Break Free from Financial Risks and Limitations
Getting exposed to financial risks can cause significant upheavals in your life. So, there is a need to prepare upfront and ensure your family is better prepared to mitigate any financial trouble that may come your way. Here are some steps to get started

Prepare a Budget
The first step towards effective financial risk mitigation is sound planning. A budget helps you deep-dive into your earnings, expenses, savings, and investments. It lets you find and fix potential gaps before it’s too late. A typical financial budget includes income, fixed and discretionary expenses, savings, and investment.
Use Metrics
Metrics are not relevant for businesses only but can also be used for personal financial risk mitigation. Your decisions need to be measured ahead of time. For example, use a thumb rule for investing, such as investing 70% of your savings in the stock market. That way, you would religiously track your investments and ensure you use a good chunk of what you save.
Reward Yourself
While saving as much as possible is essential, rewarding yourself for achieving your goals is equally vital. For example, you want to save a certain amount, say Rs 5 lakhs, by the end of the year. If you achieve the same, you can reward yourself with something to keep you motivated. That way, you can plan your finances better and undertake better risk mitigation.
Invest in the Stock Market
The Indian stock market has consistently outperformed other financial assets, such as fixed deposits, in terms of returns. With the rise of discount brokers in the last few years, the stock market has become as accessible as possible for the common man. It makes equities and the stock market a viable investment option where you can park a portion of your savings.
Find a Reliable Trading Platform
If you are looking to invest in the stock market, it is imperative for you to find the right trading platform. A reliable stock trading platform offers optimum security and a seamless trading experience. In the sea of options available, look for an option that provides advanced tools and features specifically designed for risk management in trading.

Conclusion
Financial risks and limitations are inevitable in today’s economic landscape. However, with the right knowledge and resources, you can break free from these constraints and achieve financial stability. Finance education is crucial in equipping you with the necessary skills and expertise to navigate the complex world of finance. In addition, finding a reliable trading platform ensures convenience and optimum security. Take control of your financial future today by investing in your education and making intelligent decisions.

(The author is Founder & CEO, Alice Blue. Views are personal)

(Disclaimer: Stocks recommendations by experts or brokerages are their own and not those of the website or its management. Money9.com advises readers to check with certified experts before taking any investment decisions.)