Chris Bridges, Founder and CEO, VITAL Card Inc.,
Setting goals for your financial growth is a lot like planning business investments. Building up a base of funds through savings and passive income gives you money to start with
As with a business, it’s also important to weigh the type of risks you might encounter before applying those savings toward the final goal.
Defining Credit Risks
It’s worth noting that credit risks are not the same as credit fraud or information security risks. While things like fraud and identity theft concern your account’s integrity, credit risk is more about the profit and loss of building up your finances.
Examples of Credit Risks
Typical credit risk, what it means for personal finance
Credit-building risk scenarios include setting a financial growth goal and investing in a shaky marketplace. Or, you may have a financial goal to invest in purchasing real estate for resale.
At the time the goal is made, the real estate may be highly valuable, but a credit risk would come into play if the property were to lose value over the time it took to achieve the goal of obtaining it.
Consider that marketplace credit risks may trickle down to your own financial growth goals. Take a look at these factors, as well as what ideal personal growth looks like for you. You can then break these down into steps.
Below you will find insights for forming a bulletproof personal finance risk map. You can also find an example of step-by-step financial growth planning on CNBC’s money column.
Determining The Cost of Risks (COR)
Harvard University gives insights on quantifying risks and their full cost.
A system called Cost of Risks or COR is used to track financial risk factors. COR looks into the following things: External risks (like insurance costs, credit transfers, and so on)
- Indirect costs
- External consultancy fees (the cost of hiring analysts, advisors, accountants, etc.)
- Collateral (costs of using trust accounts, securities, etc.)
- Missed opportunity costs
Whenever you set out to launch a financial goal, it’s important to look at the things Cost of Risks measures.
These measurements can give you a real dollar figure for how much money a specific risk might cost. A real expense toward your goal may help you adjust your savings plan to meet that challenge.
Start With a Plan
Take an example from business plans. Business plans are made by observing the marketplace. The planners ask themselves insightful questions that they turn into actionable process.
When a business sets out to sell a product or service, it may have to ask questions like: “What problem does this product solve?” There may also be questions such as: “What investment growth milestone does this market target help me reach?”
In the case of personal financial growth goals, the logic is similar. What problem or lifestyle obstacle does your financial goal solve? What dream or ambition does it make possible for you?
Track risk factors of account activity
Break a goal down into smaller, more bite-sized increments. A goal with quantifiable milestones is a goal that you can plan and track.
Did you know?
VITAL’s suite of digital tools helps you track all activity on all available credit accounts in real-time.
Plan For Risks
The best way to prepare for obstacles to your financial goals is to assume that there will be risks. As you assume risks, you can plan for ways to avoid them.
Assume risks, and then categorize them in ways that you can clearly define and mediate. High-risk or high-severity risks are issues and challenges that might cost you a large amount of money. Low-risks are those that may not be that costly.
Seek Expert Insights
Then, some risks are transferable, which means that you can shift that risk over to a financial institution, to help you plan and mitigate.
If you can shift the weight of a particular financial risk to a professional agency, then it will break down the obstacle. This makes it easier to plan around such risks.
Risks From Creditor Service Policies
We’ve highlighted typical situations where credit risks exist. There are also credit risks that come from credit agencies themselves.
For example, if a creditor has low-engagement customer service policies, this can put a damper on your plans. Things like excessive chargebacks, or random policy changes to rewards programs are examples of creditor-generated credit risks.
How VITAL Supports You
VITAL’s platform was designed for the sole purpose of helping credit holders build their financial success. This is why VITAL declares full transparency on its credit service policies.
VITAL Card doesn’t pretend that service charges don’t sometimes exist. We disclose the ones we do have to charge to give you an idea of exactly what to expect before using our credit services.
That said, VITAL also has generated a strong support system for its users to succeed. VITAL Card uses always get 1.5% cash back on all purchases. There are no reward redemption fees or transaction fees.
More With VITAL Rewards
With referrals, VITAL users can build a perpetual passive income stream from recurring rewards features, referral cash programs, and even credit achievement rewards.
Learn the terms and conditions of VITAL Rewards via our interactive card user Help Center.
Sign up for VITAL today to plan financial goals with advanced finance monitoring support.
“Personal Finance 101: The Complete Guide To Managing Your Money,” CNBC, Personal Finance
“What Is Risk Financing?,” Harvard Business Review