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TOM@RICHHABITS.NET
All risk, whether good or bad, shares one thing in common – both require an investment. That investment typically includes time and money.
Good Risk vs. Bad Risk
- Measurable/Quantifiable – Good Risk is risk that can be measured and quantified by doing Due Diligence (Homework). If the cost of potential outcomes is not measured/quantified, measurable/quantifiable, then you are taking a Bad Risk.
- Identify Uncertainties – When you are able to identify all of the potential outcomes, whether good or bad, and you are able to plan for all potential outcomes, then you are taking a good risk. When Uncertainties are unknown or unknowable, that’s Bad Risk.
- Probability of Success – If there is a high probability of success, then you are taking a Good Risk. If the probability of success is low or unknown, then you are taking a Bad Risk.
- Fundable – Risk that can be adequately funded, under the worst case scenarios, is Good Risk. If under the worst-case scenarios you run out of capital, then that is a Bad Risk.
- Probability of Failure – If there is a low probability of failure, then you are taking a Good Risk. If there is a high probability of failure, you are taking a Bad Risk.
- Comprehensible – If you can understand the nature of the risk you are taking, then that is Good Risk. If you cannot understand the nature of that risk, then you are taking a bad Risk.
Tom Corley is an accountant, financial planner, public speaker, and author of the books “Effort-Less Wealth: Smart Money Habits At Every Stage of Your Life” and “RichKids: How to Raise Our Children to Be Happy and Successful in Life“. Corley’s work has appeared on CNN, USA Today, The Huffington Post, SUCCESS Magazine, and many other media outlets and podcasts in the U.S. and 27 other countries. Tom is a frequent contributor to Business Insider and CNBC.
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