Financial risk encompasses uncertainties that could negatively impact municipal finances. Categories include: revenue risk (economic downturns reducing tax revenue, development slowdowns reducing development charges), expense risk (unexpected costs, inflation, emergency needs), interest rate risk (higher rates increasing debt servicing costs), asset risk (infrastructure failures requiring emergency repairs), legal risk (litigation, regulatory changes), and external risk (provincial downloading, federal program changes). Risk management involves identifying potential risks, assessing their likelihood and impact, and developing responses—building reserves, diversifying revenues, maintaining insurance, investing in preventive maintenance, and planning for contingencies. Municipalities face more financial risk than often recognized because their limited revenue tools restrict options for responding to adverse events. Understanding and managing financial risk is essential for sustainable municipal finances.