Financial security is a very common goal to pursue. Having enough money to cover living expenses and healthcare alone is sadly a rarity in today’s society. But what is the true measure of financial health? And how can you establish enough money to get there? That’s what we’re covering today. By the end of this blog post, you’ll know 20 tips to help with your personal finances, getting you closer to achieving your financial goals!
What Is Financial Security?
What does financial security mean? To us, financial security means financial stability and peace of mind. It means that your financial situation is stable. And when your financial situation is stable, the following are true:
- You are not living paycheck to paycheck
- Your consumer debt is perfectly manageable, and you pay it off every month
- You have an emergency fund or a side hustle in case you lose your main source of income
- You regularly pay into a savings account and invest for the future
Financial Security VS Financial Independence
There is an important distinction between financial security and financial independence. Many people use these terms interchangeably, but they are really very different.
Financial Security: Financial security simply means stability. When you’re financially secure, you don’t live paycheck to paycheck. You’re secure in your living expenses, and you feel peace of mind that your income is enough money to fund your lifestyle.
Financial Independence: Financial independence, on the other hand, means financial freedom. It’s when you have the freedom to make more frivolous purchases. When you have financial independence, you think about money, but you never worry about it.
Why Are Financial Goals Important?
When you are setting your personal goals, make sure to include financial goals as well. The earlier you begin thinking about personal finances, the better. Many of the most important financial goals you will set for yourself are long-term goals, so the younger you start, the more you can accomplish.
This is definitely true for retirement savings. With compound interest, the earlier you start saving, the more money you’ll make in the long run. This is why it’s always best to start a retirement account as early as you can! You should also take advantage of any employer-sponsored retirement accounts such as a 401(k) as soon as it is made available to you. If your employer doesn’t offer a retirement account, set up an independent ROTH IRA.
Financial planning for unexpected expenses, like healthcare, car trouble and major home repair, can make difficult circumstances much less stressful for you and your family.
When Can You Achieve Financial Security?
There is no timeline for achieving financial security. It’s possible to do so early in life if money management is something you commit yourself to. However, if you have yet to achieve financial security, remember that it’s never too late to change your situation. With sound advice from a financial advisor and some extra work on your part, you can change your circumstances for the better.
20 Tips for Financial Security And Beyond
As a disclaimer, we must say that the following is just general financial planning information, and it’s crucial to get advice tailored to your specific financial situation. However, these general tips should help you get started on the path to financial security.
1. Take Stock of Your Situation
It’s important to know where you are before you plan where you want to go. So sit down with your bills and open your online bank account. Then, write down all your monthly expenses. Next, write down your total debts and your monthly payments. Finally, calculate your total net income.
How’s your current money situation looking? Do you have more money going out than coming in?
2. Create Financial Goals
What are your personal finance goals? Do you want to eliminate credit card debt? Take a vacation to New York? Save a nest egg for a rainy day? Invest in real estate? Choose one thing depending on what stage of financial planning you are at now.
For example, if you are in the early stages of learning how to manage your money, you should focus on ensuring that you have enough money to cover monthly expenses first. Then you should establish an emergency fund. Then you can think about saving for retirement and investing. Everything has a time and place.
3. Set a Budget
Budgeting is essential for financial security. Knowing how much money is coming in and going out is crucial. Make sure that your budget is reasonable! Finances are personal, and someone else’s budget may not be the best budget for you. When budgeting, you must know exactly how much you can spend each month and still be financially secure.
4. Have a Long-Term Plan
What is your 5-year plan for your financial health? After you achieve your current financial goal, what is the next step? Remember that financial planning is as much about the future as it is about the present. Don’t neglect your retirement plan because you want the latest phone today. The generations to come won’t be able to rely on social security. You must think ahead and be able to provide for yourself.
5. Live Below Your Means
It’s a simple statement, but it can be very challenging for some to live out. The temptation to buy with credit cards or live above your income level can be high. But living above your means will never lead to financial security. That road leads only to trouble.
6. Build Up Your Bank Account
Keep a base of 1 to 3 month’s worth of spending money in your checking account at all times. This money should provide you with peace of mind that you have enough money to cover living expenses. Plus, it’s there to ensure you avoid overdraft fees of any kind.
7. Develop an Emergency Fund
Life is unpredictable, so it’s wise and financially smart to have 3 to 6 months of expenses set aside. This emergency fund can be used in the event of a surprise illness, sudden unemployment or other unexpected expenses. Once you’ve built up your emergency fund, don’t touch it. Use it as a financial cushion to fall back on, should you absolutely need it.
8. Start Your Retirement Savings
As early as you can, start assigning part of your paycheck to retirement savings. As previously stated, starting a retirement account early allows you to make the most out of compound interest. An employer-sponsored 401(k) and a ROTH IRA are both good options. No one wants to work into their “golden years,” so make sure you plan ahead.
9. Take Advantage of Employer Matching Contributions
If you choose to invest in a 401(k) retirement account, take maximum advantage of your employer match program. Any matching contributions your employer is willing to make will generously impact your retirement savings. If you don’t take advantage of their matching, it’s like leaving part of your paycheck on the table.
10. Consult With a Financial Planner
Everyone’s financial situation is unique. We’re all influenced by so many personal factors, including family size, family health and much more. That’s why it’s a great idea to consult a professional. A financial planner will help you decide the best way to improve your financial health and hit your financial goals.
11. Get Rid of Bad Debt
Certain kinds of debt are worse than others. For example, consumer debt (credit card debt) usually has the highest interest rates. That’s why you should consider eliminating your consumer debt first. Student loan debt is likely what you’ll want to tackle next. Then, focus on your home mortgage last.
There is however, another approach. Financial guru Dave Ramsey recommends what he calls the “snowball” approach. With this approach, you eliminate your smallest debt first and tackle the remaining debts according to size. This, he says, builds momentum and confidence as you achieve your financial goals one at a time.
Either of these approaches is fine. You must choose the one that works best for your situation.
13. Invest Your Money
Once you get to a certain point in financial planning, you’ll want to start harnessing your money so it can multiply. This means investing. Now, this may mean investing your money in the stock market, in a money market or in real estate. Or, it may mean something else entirely. The choice is yours. Don’t be afraid to discuss investments with your financial planner. But, you want to ensure that you’ve achieved financial security before you think about investing your money.
14. Donate to Causes You Care About
It’s important to feel that you are contributing to the things that matter most to you. If there is a particular cause you care deeply about, donate to it. We believe that giving back is an important part of financial health. In fact, consider adding donations to your budget.
15. Eliminate Emotional Spending
Some people eat when they’re stressed. Others SHOP. Unfortunately, the things you buy when you are emotional are usually completely unnecessary and this can be a very unhealthy financial habit. If this is something that you struggle with, think of a replacement habit that you can do when you’re feeling stressed instead, like calling a friend or even playing a computer game.
16. Start a Side Hustle
If there is one way to improve your financial security, it’s to increase your income. A great way to do that is to create a secondary source of income, like a side hustle. Whether you sell your crafts, share your knowledge online in a mastermind, or open a lawncare operation, starting a side hustle is a good way to improve your financial situation.
17. Reassess Your Spending
It’s good to occasionally reevaluate your budget and spending habits. Make sure to check in with yourself and your bank account regularly. How’s your budgeting—are you sticking to it? Are you spending less in some areas? If so, could you reallocate those funds? Having up-to-date information is crucial.
18. Diversify Your Portfolio
Like a budget, a consultation with a financial advisor is not something to do just once. Check in with them periodically and discuss the possibility of diversifying your portfolio over time. As your position in life changes, you may be willing to accept more or less risk with your investments, and you’ll want to adjust accordingly.
19. Make a Will
Although many people wait until late in life to create a will, that’s not ideal. It’s smart to create one earlier rather than later, especially if you have children or considerable assets. If the unthinkable should occur, you will want to know that your family is looked after. Creating a will early in life will give you and your family peace of mind.
The last step for the financially secure is to retire once they reach an appropriate level of wealth. Usually at this point they have passed over the line and into financial freedom. Few reach this stage. But it is a worthy goal to strive for.
Why Is Financial Security So Elusive?
We live in a culture of instant gratification. In general, we want things, and we want them right now. But purchases provide nothing more than momentary pleasure. If we had financial security in the long-term, we would receive lasting joy and peace of mind.
Listen, there is very little that people stress about more than money. But with these financial planning tips, you can learn to manage it better and achieve financial security.
We hope these tips help you with your financial health and that soon you’ll be on the road to financial independence!