What is financial security?
Financial security is a state in which a person has enough money to meet their basic needs for food, shelter, clothing, healthcare and other living bills, handle financial hitches without risk to their well-being and still save to meet their financial obligations in the future.
Financial security represents your ability to live comfortably and provides you with a sense of safety. When you’re financially secure, you don’t worry about not being able to pay your bills or not having enough money.
The feeling of not having enough money
When you don’t have enough money it can stress your whole life—you may feel ashamed or embarrassed that you can’t afford things that other people are able to buy easily. It’s hard; not knowing whether there will be enough money left over every month after paying all of your expenses—and even harder if you have someone else that also depends on your very income. If you’ve been there, you’ll understand that this feeling is not a comfortable one at all.
Next, we’ll look at the steps you can take to ensure this feeling stays far away from you.
Steps to financial security
- Get out of debt
- Save your money in a high-yield savings plan
- Identify your spending habits
- Live below your means
- Set goals for yourself
- Don’t borrow to show off
- Work with a financial advisor or educate yourself financially
- Have insurance
- Have an emergency fund
- Grow your net worth by investing
1. Get out of debt
The first step to financial security is getting out of debt. When you’re in debt, you feel like a slave to your creditors. But once out, it feels like a huge burden has been lifted off your shoulders and you can properly focus on taking deliberate steps toward financial freedom.
Learn more about how to get out of debt.
2. Save your money in a high-yield savings plan
If you’re saving money, it’s important to save as much as you can and as early as possible. The earlier in life you begin saving for retirement, the more time your money has to grow and compound over time. You can save your money in a savings plan on Cowrywise where you get to earn higher interest rates on your deposits than what traditional banks offer.
3. Identify your spending habits
Identify your spending habits. This means creating a budget, knowing where your money is going, and knowing what you can afford to spend on. Take some time to understand how money leaves your account.
4. Live below your means
Keep your expenses below your income. As income increases, the typical human tendency is to gravitate toward a more luxurious lifestyle. However, from a financial security perspective, that is not a wise thing to do. It is best to channel that extra income into growing your savings, emergency funds, and investments. Don’t lose sight of your financial goals.
5. Set goals for yourself
You can start by asking yourself: What do I want my financial situation to look like? How much do I need to feel financially secure? Why do I want financial security? These are good starting points that should help you define a clear goal for yourself. And when you set goals, ensure to write them down and assign timeframes. You have a better chance of following through that way.
6. Don’t borrow to show off
If you have to borrow money, it should be because you want to invest in yourself or your business – basically in something that has the potential to bring you money or brings you closer to your financial goals. Don’t be caught trying to borrow to impress others by fronting a lifestyle you don’t have yet. No one gives a flying eff.
7. Work with a financial advisor or educate yourself financially
Your financial advisor helps you create a plan to improve your finances. They advise you on the best strategies to handle your personal finances and investments. However, if you don’t have the wherewithal to hire one, you can take the time to know and learn about personal finance and the investment opportunities that best align with your financial goals. Investing in oneself definitely pays.
8. Have insurance
The main function of insurance is to provide a financial cushion against the uncertainties, risks and unexpected losses that come in life. One of the steps towards financial security is making sure you’re insured. You should have different types of insurance from life insurance, health insurance, auto insurance, property insurance to travel insurance.
9. Have an emergency fund
An emergency fund can also be said to be a form of insurance. It acts as a financial buffer to keep you buoyant in times of financial crisis making sure you have access to cash.
Here’s how to start an emergency fund.
10. Grow your net worth by investing
Investing is also another important step towards financial security. You can grow your net worth by investing. To do this well requires patience, research skills, experience in analyzing financial information about your investment options, and discipline so that you don’t panic sell when prices fall or get greedy when prices rise too much.
Financial security vs Financial stability
Financial security is a long-term goal. It’s about having enough money to afford the things you want, not just the things you need. Financial stability, on the other hand, is a short-term goal; it refers to having enough money to live day to day without worrying about being able to pay next year’s rent or monthly utility bills.
Financial stability means having a reliable stream of income and some savings available in case of emergency—but that one source doesn’t necessarily take care of all your needs. If, for instance, your only income source is from a minimum wage job, then achieving financial stability becomes more difficult when unexpected expenses come up like medical bills for yourself or family members who depend on you for support.
Financial security is very important because it gives you peace of mind that you will always have money available if needed, which allows you to focus on other areas of life or spend time with friends and family.
With these tips, you’re sure to be on your way to financial security. Got any questions or thoughts, share them with us in the comments.