Financial security is a dream for many. Some may think this is impossible to achieve, considering today’s circumstances. But financial security is relative and could be attained by anyone. Here are the things you need to know regarding financial security and your road path to becoming financially secure.
What Is Financial Security?
Financial security is having enough financial assets to cover your everyday expenses and emergencies while living debt-free. It means not being worried about money even if you lose your job for a couple of months or when a family member is rushed to the hospital. Financial security is knowing that you can survive financially until after retirement. Financial security could mean something different for everybody. Below are four essential aspects that would define financial security.
Debt-free
Financial security is a feeling, and it will be hard to feel secure when you are carrying a significant amount of debt. For some, there are certain kinds of debt that are inevitable, like housing loans or student loans. But accounts concerning your everyday needs, luxuries, gadgets, and vacations are not likely to make you feel secure.
Credit cards are another form of debt. Credit cards are good as long as you can pay them right away, and not acquire interest rates. However, credit card companies have high interest rates that can make you spiral further into debt. The company can also sue you, repossess your assets, or foreclose on your house if you fail to pay off your credit card debt in time. The menace that it imposes can make you financially insecure. Plus, the burden and pressure that they weigh on you will take away your inner peace.
Having Control Over Personal Finances
Financial security means you take power over your finances rather than your money controlling you. In simpler terms, budgeting! You can only reach financial security when you know where your income goes, and by the end of the month, you still have some left in your pocket.
Prepared For Emergencies
When unexpected things happen, are you financially ready? Many don’t take insurance and savings as a priority. But having these is one of the keys to financial security. Living paycheck-to-paycheck without a savings account costs you your confidence and mental health. Have plans and a buffer in the bank for unforeseen expenses, whether big or small.
Consistently Increasing In Financial Security
Being financially secure is not just a one-time feeling. It is a continuous sense of safety as time goes by. You could be feeling safe at the moment, but tomorrow, you may feel otherwise. Therefore, financial security is a steady rise in progress, consistently paying off your mortgage and loans, depositing to your savings account, availing of insurance, or investing for retirement. Seeing that your net worth is expanding means you are on the right track of financial security.
The Importance Of Financial Security
The coronavirus pandemic has taught the world the importance of being financially secure, as the entire world took a pause, except for utility bills, mortgage, and grocery bills. You never know what life will throw at you. Whether your car suddenly stops, your washing machine gives up, or your family gets sick, you need to prepare yourself, financially. When you are ready for these financial circumstances, you will consider them as mere inconveniences rather than challenges.
Financial security is also intertwined with happiness. According to Dan Buettner, the author of The Blue Zones of Happiness: Lessons From the World’s Happiest People, financial security delivers more happiness than anything money could buy. The relief, stress-free life one could live by is irreplaceable by any tangible items. Any insecurity, be it financial, emotional, or professional, will lead you to stress, fear, and anxiety, which contradicts happiness and security.
To help you achieve the dream of being financially secure, we have listed ten steps for you to follow. However, your participation, hard work, and dedication are necessary for you to become financially secure.
10 Steps To Financial Security
1. Evaluate your current status
The first step is to write down your income and expenses. You need to know your current financial situation. Write down your profits, how much money you make, your monthly costs, savings and investments, how much debt you have, and its interest rates. It is vital to see the numbers to accurately know where you stand. If you can, be specific with your accounts and expenses, and break them down.
2. Live below your means
This step is the most crucial part of money management. If you notice that your monthly liabilities and expenses are greater than your monthly income, create a budget now, and ensure that you stick with it.
When you have a salary increase or additional income, do not fall into the trap of lifestyle creep. Lifestyle creep happens when you spend more money once you start earning more money. Your spending habit increases as your income increases, leaving you with no savings at all. So, whatever your financial status is, always live below your means. This will also prevent you from incurring debts.
3. Set financial goals
Your financial goals will lead you to your financial security. The four things mentioned above could be your goals. You could also be specific, like saving for college, for a car, or retirement. Whatever it is, write them down and determine how much you will need to accomplish those. Then, arrange them according to your priority to know which you could save up for first. A budgeting app is also a commendable option.
4. Make a financial security plan
Now you have to have a plan for achieving those goals. Include in your written document the amount you will save every month for each of your goals and how long it takes to save up for it. Also, consider the things that could prevent you from achieving those goals and how to avoid them. You may also prepare a contingency plan for a significant event. Most importantly, create a plan for your top priorities.
5. Lessen your expenses
Looking at your plan, you will likely make some adjustments to your expenses. To achieve your goals by the time you have set, you may cut back on enormous buys or luxury items. However, it would be better if you can consistently save up. This means to look for ways to save up a hundred dollars every payday, maybe through cutting back on monthly subscriptions, or by making your own coffee instead of buying it at a coffee shop.
6. Pay your debts
Two methods could help you pay off your debts. The first is the avalanche method. Pay first the debt with the highest interest rate, then down to the lowest. The second is the snowball method. In this method, you start paying off from the smallest debt and up to the biggest amount, regardless of the interest rate. When you cross out your first bill and realize that you are moving forward, you will be more motivated to settle all your liabilities. Hence, the snowball method can help you repay your debts faster.
7. Save, save, save
One of the vital steps in achieving financial security is to save consistently. On your paycheck or whenever you earn an income, put aside a portion of it for your savings. If you don’t have any rules for yourself when it comes to saving, you may consider the 50/30/20 rule of Senator Elizabeth Warren.
Her principle suggests spending 50% of your total net income on your needs, such as food and utilities. Allot 30% on your wants and 20% to savings. If you haven’t started saving yet, begin as soon as you can. Whether you are earning plenty or not, the important thing is to start.
8. Make more money
Find ways to earn more, because it would bring you an additional sense of security knowing that your source of income is not only dependent on one source of income. One option to consider is to negotiate for a higher salary or get a job that pays more. But, it may be better to start a side hustle like online selling, a dropshipping business, or starting a monetized blog.
9. Invest in a diversified portfolio
When it comes to investing, do not put all your eggs in one basket. Instead, disperse your money on various, multiple investments, creating a diversified portfolio. You may invest in the stock market, real estate, or mutual funds. So when one fails, you would not lose all your hard-earned money.
10. Be consistent
Remember, financial security never stops. Create a sustainable habit of managing your finances to achieve long-term financial security.
Bonus Tip: Work with a Financial Advisor
A financial advisor can help you in managing your finances and your investment portfolio, especially when you are inexperienced in financial management and investments. A good professional can go a long way in helping you with their financial knowledge and expertise. If you are interested in working with one, Money Management, Inc. can help you.
Money Management Inc. has been in the finance industry since 1969. We would love to work with you towards your financial security. Don’t hesitate to give us a call at 606-990-2102 or message us at jmckennon@virtuecm.com. Let us help you achieve financial security today!
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