15 Risks and Understanding Layers of Risk

ball-and-chainA couple recently came to me to seek financial counseling, and as I met with them I struggled in the moment to properly communicate the financial risks they were encountering. Dave Ramsey has a saying: Personal Finance is 80% Personal and 20% Finance. What he’s communicating is that this thing called LIFE isn’t a math equation or a formula – it’s a very personal journey.

This couple had taken on an enormous amount of risk, but they didn’t see it because unlike one large risk (50k in credit card debt for example) they had layered lots of smaller risks on top of one another.

Our brain is really ill-equipped to understand risk at all, much less how lots of different risks interact with each other. One of the main points author Michael Lewis made in his book “The Big Short” was that Wall Street investment banks – who’s only job was to understand and mitigate risk- didn’t understand how all their risks layered onto each other.

We’ve developed a lot of tools to help us mitigate risk in the 20% ‘math/finance’ portion of “Personal Finance”, but there isn’t a lot of understanding and tools around the 80% ‘personal’ side.

What is personal risk?

We understand from Jesus parable of the talents that we can’t go through life without taking any risks. Taking no risks in life is actually cowardly and a big risk in itself. We take both eternal and temporal risks – a great teacher once told me that we take risks in the direction of our hope.

Financially, we also take a lot of risks, calculated on a hoped for return. We put money in the markets with the hope of it returning to meet a future need. We also are born into and voluntarily take on a variety of financial risks. The couple I counseled had six of these risks at the same time. To help us understand this idea I’ve compiled an incomplete list here:


These are risks of which any singular one of them can make life very challenging.

  1. Lower income: A lifetime of low income (as much of the 3rd world faces) makes meeting life needs very difficult.
  2. Debt: The Bible warns about debt being bondage – and “It was for freedom that Christ set us free”.
  3. Lower education: Wisdom is knowledge rightly applied. Without knowledge, there it’s hard to succeed in life.
  4. Substance abuses:
    1. Gambling
    2. Alcohol and drugs
    3. Pornography
  5. Dumb Friends: “Do not be misled: ‘Bad company corrupts good character.’”


These are risks (often by no choice of our own) that we encounter that add a layer of complexity to our financial picture.

  1. Having children very young: See the statistics on teen moms
  2. Being a Minority
  3. Come from a poor/broken family

These circumstances all permanently change our worldviews and relationships with money.


There are also a variety of ‘mindsets’, worldviews, or attitudes that can have a dramatic effect on our ability to navigate life’s financial complexities.

  1. ‘Love of money’: Paul warned “Those who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge people into ruin and destruction.”
  2. Dreamer, serial entrepreneur: There are a lot of unemployed musicians, screenwriters and artists of all kinds that are waiting ‘to be discovered’. Success virtually never happens this way. If you’re wired this way, there are a number of amazing books like “The War of Art” that detail the path from dreaming to working.
  3. Aversion to Authority: This is me. If you have a strong aversion to authority, it is very difficult to have a boss, work inside a team, and generally succeed in most forms of employment.
  4. Materialism/Spending: Thomas Stanley’s life work (Stop Acting Rich, Millionaire Next Door) was dedicated to proving through statistics that the average millionaire didn’t care about material status symbols and instead focused on Needs versus Wants. In fact, he pointed out, a high status symbol job (doctors or attorney for example) was actually a hindrance toward long term financial success.
  5. Entitlement: Thinking the world owes you anything is a wonderful way to be disappointed the rest of your life.
  6. Being Lazy: Proverbs 10:4 “Lazy hands make for poverty, but diligent hands bring wealth.”
  7. Assuming on the future: Jesus told a parable about someone that grew rich and assumed on the future. Paul and Solomon warned against it. The reality is we don’t know our future health, the political or economic conditions that the future holds.

It’s important to note that none of these fifteen risks are a death knell in and of themselves. They are all addressable through well documented strategies. The point of this article is that we often layer several of these risks on top of each other and we don’t have any clue about the combined risk they play together. In fact, ‘layers’ gives the image that they add up one by one. Risk’s actually multiply together.

4 thoughts on “15 Risks and Understanding Layers of Risk

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