Welcome (back) to our Six Stones series. Our financial adviser, Jordan, is sharing as many tips, ideas and advice for people going through a divorce as a humble blog will allow. He’s staying away from specific financial advice – it’s all general advice over here, be sure to get personal financial advice before doing anything – but we hope you find some useful information in here as you navigate through/out of your divorce.

Of course, not all risks are equally important or serious.

There are the minor risks – missing your bus – and the major ones – cancer – and all the ones in between.

It’s worth spending some time exploring the different types of risk we face in life, and how you can start categorising them.

Likelihood x Impact

There are, quite literally, dozens and dozens of different risks in our life.

Don’t worry – I’m not going to list them here. Because concerning yourself with all of them will simply consume you and, likely, paralyse you to the point you’d be scared to make any decisions.

Instead, I want to show you one framework you can use to categorise the risks in your own life, so you can work out which ones are worth worrying about.

But first, what makes each risk different?

When distilled down to the core factors, all risks that we face will have two consistent, but individual, characteristics:

The LIKELIHOOD of it Happening

So – how likely is it that the thing-you-don’t-want-to-happen, could happen?

We’re talking statistics here, obviously.

When you hear somebody say “they have a 40% greater risk of having a heart attack”, this is the kind of thing we’re talking about.

Or a “1 in 200 year storm”, “2-to-1 odds”, “once in a blue moon” – these are all measures of the likelihood of something happening. 

Feel free to think back to those high school math’s classes where you flipped coins for 45 minutes to refresh your probability theory.

Or don’t – while I love re-reading old maths textbooks, you don’t really need that detail for what we’re doing.

Just remember – for every risk in your life, there’s a likelihood or probability of it happening.

The IMPACT it Would Have if it did Happen

Then there’s the pointy end – if this ‘uncontrollable’ loss did happen – what impact would it have?

Take heart attacks (because that’s the kind of light-hearted discussion we all like to have).

The chance of you having a heart attack at any given moment is fairly minor.

But the impact of you having a heart attack is pretty dramatic.

There are the immediate effects – nausea, vomiting, extreme fatigue, etc.[1]

Then the medium-term ones – time in hospital, potentially surgery, time away from work.

And the longer-term ones – a permanent increase in your likelihood of another heart attack, potential permanent weakness, the nagging fear in the back of your mind every time you have indigestion again.

And the most impactful of all – death.

Or, from the other end of the spectrum, consider the risk of leaving your access pass upstairs when you go out for lunch.

The impact of this is fairly small – some slight embarrassment when you have to ask reception to let you up, in utter breach of any security protocols; some gentle ribbing from the people on your floor when you return to your desk later than expected[2].

There’s no lasting impact from this risk, save for taking extra care to check you have your pass in your shirt pocket next time you go downstairs[3].

The likelihood of this happening is probably higher than a heart attack[4], but the impact is quite minimal. 

Remember – when we talk about ‘risk’, there are two components:

• The LIKELIHOOD or PROBABILITY, and;

• The IMPACT of it happening.

[1] https://www.victorchang.edu.au/heartattack?gclid=EAIaIQobChMIiYnnstfF5QIVwworCh0B4gcwEAAYAyAAEgLjt_D_BwE , <Accessed 31st October 2019>

[2] Um, no, this isn’t from personal experience. Why do you ask?

[3] Seriously, I’d never do something as silly as forget my pass.

[4] I hope so, I’ve done it like ten times! I mean…no I haven’t.