How to become financially secure
Financial security involves organizing and planning your finances for a stable future, allowing you to focus on life goals beyond money.
What is financial security?
What do we mean when we talk about financial security?
For starters, it goes beyond making ends meet. You may have enough money to cover everything you need right now, but what about the future? Financial security is knowing you’ll have the money you need for the life you want in the next five years and the next 50.
From a financial advisor’s perspective, you’re classed as financially secure when you’re free from debt, have enough income to cover your outgoings comfortably, and have plenty of savings for the future, including retirement.
Another point to remember is that all sorts of situations can impact your financial security. Will you still be financially secure if you lose your job, divorce, or the economy plummets unexpectedly? Although you can’t plan for every unforeseen circumstance, effective financial planning will create safety nets if something drastic happens.
How to become financially secure
The secret to becoming financially secure is getting started with financial planning early. The reality for most Americans is that they won’t achieve financial security until their later years. That’s because it can take a long time to get out of debt and build enough savings for retirement.
Another harsh fact of society today is that men are typically more financially secure than women. Men have three times the amount of retirement savings than women. For many women, sacrifices in their career for their family don’t only mean they have less income during that period, but time out from work results in lower savings for the future.
But that’s not to say that becoming financially secure is reserved for certain groups. Instead, putting plans in place can help anyone ensure they have enough income for shorter-term goals and savings for the future.
Why is financial security so important?
On average, we are living longer than ever before.
This means retirement savings need to stretch across a longer period. Unfortunately, this also means many people don’t have enough money to live on as they age. This massively impacts their quality of life.
Financial security doesn’t come from being wealthy and having heaps of money to lead an extravagant lifestyle with few worries. It comes from having enough set aside for when you stop working or simply for when something major changes in your life so that you can still live comfortably.
Five ways to achieve financial security
1. Start early
The earlier you plan for the future, the more time you have to save. Also, if you plan early, you’ll have time to recoup losses along the way.
Retirement may seem like a long time away, but you should set aside money for retirement as early as possible. There are multiple ways to save for retirement, including Roth or Traditional IRAs and 401(k).
If your employer contributes to a plan, it’s worth investing in the same one to get the most out of those contributions. But remember that you can contribute to more than one. So, as well as paying into that 401(k), consider setting up an individual retirement account (IRA) or Roth IRA.
Choosing the right account for you will depend on your preferences and circumstances.
2. Build an emergency fund
It doesn’t matter how old you are or how high your income is, you should work to build an emergency fund. So, if something happens like your car needs a major repair, you lose your job, or you have a big medical expense, you have some money to keep you going for a while.
If you need to dip into it, focus on building it back up. Remember that you'll need more if your car is expensive or your bills and rent or mortgage are high.
Having a blossoming retirement pot and a healthy emergency fund is great, but you shouldn’t have all your eggs in one basket. Imagine if the economy took a turn and your retirement savings dropped. Spreading your investments across different assets can help hedge against downturns making a big dent in your finances.
There are four main types of assets: cash (like savings), bonds, stocks, and real estate. While they’re all linked, they can perform differently as the economy moves through its cycles. Your stocks may suddenly drop, but you might find that the property you own creeps up in value to balance it all out, for example.
4. Deal with debt
Debt can drain your income. Not only because you need to pay it back but because you’ll likely be paying back more than you borrowed through interest. That’s why tackling your debt should be part of your regular budgeting.
There are different techniques for paying off debt, but it usually starts with paying off either the largest one or the one with the highest interest rate. Once you’ve paid it off, you can focus on saving more money.
Financial security is something that needs to be maintained. If your personal situation or the economy changes, you’ll need to tweak how you manage your money. And as your priorities shift, your plan might need to adjust too.
Set a date for when you’ll next check your plan. Once a year is a good option – it gives you time to see how your plan is shaping up, but it’s regular enough for you to make changes quickly.
A financial advisor’s job is to understand what you want out of life and help you shape your finances so you can live out your plans. They’ll help you decide how much to put in your retirement savings and the best way to address your debt. Find your perfect financial professional today.
Senior Content Writer
Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.