Financial security is something that means something different to everyone. Financial security refers to the peace of mind you feel when you aren’t worried about your income being enough to cover your expenses. It also means that you have enough money saved to cover emergencies and your future financial goals. When you are financially secure, your stress levels goes down, leaving you free to focus on other issues.
Knowing what it takes for you to feel financially secure is an important part of building that security, but generally, you want to have an emergency fund, be able to contribute to your retirement, pay your bills each month, and have a little extra for unexpected expenses and treats. A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction.
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How To Build Financial Security and Financial Freedom
Often time, financial goals are highly personal. You may only wish to have your basic needs met and pay off your debts, or you might envision yourself buying a second property in a tropical destination where you’ll someday retire and spend your days poolside. Whatever you desire, financial security and financial freedom, you need a road map to help you reach your objectives. It important to understand what financial security mean?” and “What is financial freedom?” we’ll also discuss how to build financial security and financial freedom.
How to Build Financial Security and the Meaning
Having financial security is important for every American to feel a sense of safety and well-being. To be financially secure means you can meet all of your basic needs like food, shelter, and living expenses. It also means you’re prepared for milestones like sending your kids to college or entering retirement and that you’re financially equipped to handle a crisis or illness that comes your way.
There are several ways to achieve financial security. You might have a stable job with a good salary or fixed income stream like Social Security or a pension. You might also have an additional layer of protection, such as life, disability, or long-term care insurance to protect against the unknown. Whatever your personal situation, to be financially secure means you’ll still be able to pay your bills, even in the event of a major disruption to your life. The following are the steps to building financial security:
1. Have a Career that Compensates you for your Effort
Having a career that you love and that compensates you for your effort is an important part of financial security. Everyone has heard stories of people that find amazing jobs with no higher education, but those experiences are the exception rather than the rule.
Being able to invest in yourself with education is the best way to ensure that you are employable. When working on building financial security, it can be difficult to think about taking on new debt, but student loans are an investment in your future. Earning a degree that makes you employable will increase your income over the life of your career. You will enjoy the benefits of your degree long after those loans are paid off.
2. Don’t Put Off Funding Your Retirement
Compound interest is the magic of building a healthy retirement fund. It can be difficult to find money to stash away when you are young and not making much money, but the money you invest in your younger years has much more time to grow. Saving even a small percentage of your income for retirement from the time you start working will make retirement planning much less stressful.
3. Prioritize Your Goals
Everyone has different goals for their life, and that is alright. The important thing is to determine what those goals are and develop a plan for reaching them. If owning a home is important to you, prioritize those savings.
If it is important to you that one parent stays home with future kids while they are young, start saving for that. No one can decide what your financial goals are but you. Finding money through cutting expenses or picking up a side job is much more appealing if you have a plan for where that money is going, whether it is going to fund something fun like a vacation or something more boring, like savings for a home remodeling project.
5 Steps to Building Financial Freedom
Financial freedom doesn’t mean you can spend whatever you want whenever you want; it means you have the ability to make decisions about your life that won’t jeopardize your financial security. You are in control of your finances, and your finances do not control you. Here are the steps you need to build a financial freedom:
1. Create budget based on your earnings and expenses
Your success with budgeting may depend on your perspective. Some think budgets are meant to be restrictive, take the fun out of life, and make you feel shameful about spending. Others may view budgets as too time consuming to make or too difficult to follow.
In reality, budgeting is an empowering process. It puts you in control of directing your money towards what you really want in life, including having fun. With this in mind, taking the time to create a realistic budget you can follow will be well worth it. Budgeting is a vital skill if you’re working towards achieving financial security. You should:
- Learn how to create a budget based on your earnings and expenses.
- Practice the self-discipline needed to stick to your plan.
- Make a list of expenses for a year, or even further into the future. Prioritise these and assign them to months, remembering that savings transfers should go off first.
- Put you in control of your money and ensure it is being used to meet your needs and achieve your goals
- Show you where your money is going and reduce wasteful spending
- Improve your ability to pay all of your bills and not run out of money during the month
- Free up money to pay down debt
- Save for things you really want
- Reduce stress and build confidence
2. Eliminate unnecessary debt
Debt is something that must be approached with caution and common sense. It’s foolish to use borrowed money to finance a lifestyle you can’t afford. Loans should be used to pay for emergencies (though this wouldn’t be necessary if you created an emergency fund ) and expenses that will allow you to progress yourself (an asset that helps you in your work or a course or qualification that will help you upskill yourself and make you more valuable to an employer).
3. Saving for the future
Saving for your and your family’s future is something you need to start doing today. But you also need to ensure that saving for your children’s education doesn’t come at a cost to your retirement savings. Although your children’s future is a priority, ensuring that you’re financially stable in your retirement is even more important.
There are many ways to find the money for your children’s education when the time comes from full or partial scholarships to part-time work (let your children contribute). You can save for retirement and education in two different accounts, but don’t let saving for one compromise the other.
4. Automate your savings
The best way to ensure that you are saving every month is to automate transfers into your savings accounts once your salary comes in. That way, you’ll only spend what you have left after your savings have been deposited, making it less likely that you’ll spend the money earmarked for savings. Of course, you don’t want to deposit any savings account, but rather one that will grow your money with an inflation-beating interest rate or rate of return.
5. Keep an emergency fund
The first thing you should do when working on your financial security is to build an emergency fund. The amount in this fund will vary depending on your situation and your comfort level.
If you are your only means of support, it makes sense to have a larger emergency fund than someone with a spouse. It is unlikely that you will both face a job loss or other financial emergencies at the same time. Savings that cover between three months and a year of living expenses is an excellent goal. Depositing this money in a high yield savings account allows it to grow while still being easy to access.
Conclusion
Feeling financially secure requires knowing what your assets and liabilities are, as well as how your income compares to your expenses. If you aren’t tracking these, you might not know you’re struggling, but that’s like an ostrich sticking its head in the sand and hoping for the best. For true financial security, create a budget that addresses both your current needs, like food, clothing and shelter, and your long-term goals, like paying down debt and saving. You should also include insurance to cover the what-ifs in life.
