Do you have financial security? How would you answer that question? Would you quickly begin nodding your head, or would you scuff your feet at the pebbles beneath you, staring at the ground in embarrassment? I have to admit that at this moment, I would not immediately jump up and say, “Yes, I’m financially secure!” It’s something that often takes a lot of hard work and time.
How would you define financial security?
For some, financial security might be to have $10,000 in the bank with no debts to pay. For others, financial security might mean $1,000,000 in investments. And, for a handful of people, financial security might mean $10,000 in passive income each month. What does it mean to you? At what point do you think you’ll step back and say, “There, we are now financially secure.”
No matter what your definition, here are some great steps that I am implementing in my current life to attain financial security in my future.
Tips for Financial Security
1) Know where your money is going – This is fairly simple. If you spend $4,000 per month, but you really only know where $2,500 of it went, you will not get ahead financially any time soon. Even if you make more money, it will still continue to slip through your fingers. Once you track where your money is going (or better yet, tell it where to go), then you’ll be able to attain wealth and financial security.
2) Get out of debt - my wife and I recently got out of debt, and it really is amazing how quickly you can save up money when you don’t owe anyone any money.
I mean, think about it. How much is your mortgage payment? Let’s say it’s $1,500 a month. If, after the mortgage payment, you are able to put $1,000 toward investments, those investments could grow to $765,000 in 20 years (assuming a 10% growth rate).
Now, let’s say you didn’t have that mortgage payment (no debt), so you’re now able to invest $2,500 per month instead of just $1,000. After 20 years, you would have almost $2,000,000!! Now that’s a big difference! If you don’t believe me, take a look at the graph below.
3) Save up for those emergencies
To be completely honest, when I heard my mom talk about “saving up for a rainy day”, I thought she meant that it’s good to have money to spend when the rain is keeping you from going outside. You know, like go to the mall to stay entertained…. What she meant was, sometimes unexpected things happen, and it’s wise to have some money saved up just in case.
I would suggest saving at least $10,000 for the disaster that may be heading your way. The last thing you want to do is use your credit card as your emergency tool. Paying the interest on that card for a few months is not the wise option. Save up some money and park it into a money market account. The yield won’t be amazing, but you’ll feel secure, and you’ll earn a little bit of money at the same time.
4) Get health insurance- This may seem like a waste of time when you’re healthy, but if you have a medical emergency without it, you will be stuck paying bills for the rest of your life. This is actually one of the top reasons for bankruptcies today. At the very least, get some coverage with a high deductible. It won’t cost you much per month, but at least you’ll be covered for that million dollar emergency that could be headed your way!
5) Invest and diversify
People often make investing out to be a very complex operation. They research stocks for hours on the weekends and move their money around constantly, trying to beat the market. They often fall far short.
Instead of trying to beat the market. Invest some money into well-established mutual funds (and if you get a company match, that’s even better), invest in some property (it’s a great time to buy right now), and do your best to set up a business of your own (that way, you have some control over the success of your investment). Just make sure to spread that money around. The more investments you have, the safer your money will be.
6) Focus on passive income
If you truly want to be financially secure, focus on setting up a passive income. If you set up a few businesses that provide a paycheck each month with very little work on your part, this is true financial security. This is most definitely my plan for the future.
At what point do you feel like you’ll be financially secure? Do you have a dollar amount in mind?
Excellent post. I feel financially secure at the point I know my family will be fine for at least a year if something happened to my 9-5. Is there a dollar amount on that? Yes, but not just emergency funds but also passive income as you suggest.
Scott Messner recently posted..Your House is a Home- but Your Car is Just a Car
I’m glad you already feel that you have financial security! You’re much farther than most!
thoroughly enjoyed your post! the part where you illustrate debt vs no debt scenario is a strong motivator for us to achieve a debt free status asap…
B Kelly recently posted..To Buy Or Not to Buy An-Off-The-Plan Property
Glad you liked the graphs B Kelly! Getting out of debt is an essential step to building wealth!
How nice it would be to get of of debt. the points you have made in the article are exactly the ones that most people in debt should have done.
The graph shows that in 21 years you would have saved $2,000,000. It would be amazing if its made true, you can really be financially secure.
Martin,
Yep! If everyone became debt free and started to save at a rate of $2,500 per month (doable with no debt), the would most likely be worth $2,000,000 after only 20 years. It’s amazing what consistency can do!
Financial security for me means being able to do what I want although we have a simple lifestyle. As soon as I establish a dollar goal, I set it higher. I am very goal oriented!
krantcents recently posted..Even More Financial Skills for Teens
I’m with you on that, Krantcents. I set goals for myself all the time, and it pushes me to do better and better!
This graph is a real reality check! I like the visual.
It makes me wonder if you could save $10,000 a year for 20 years. What would that number look like? I bet it would be a nice number to leave the kids and their kids, and their kids.
Did you mean $10,000 per month, Dar? That would generate a huge number for sure!
Thanks for the great ideas. I can’t put a dollar amount on financial security, but as for me, I am satisfied to live a frugal lifestyle without debt and with some money saved up for the future.
Dave recently posted..How to Control Impulsive Spending- Stop Impulse Shopping
Keeping debt out of the picture really is key to living well in the future. Great job Dave!
[...] Six Tips for Financial Security from Life and My Finances. Financial Security is underrated by about 65% of the population I’d assume. It’s one of the things I’ve been working towards for over 2 years, and while I’m on my way, I know I’m not there yet. [...]
I have three kids and I’m currently working two jobs. My kids are quite young and only one of the them goes to school. I was not that concerned about financial security until I got to read this article. I always ask myself days after getting my salary, “where the heck did my cash go?”. Now, I think I’d have to save some of that hard-earned cash for the future. Thank you!
Pam D. recently posted..Social Media: Key to Small Business Success
I’m glad this article could help you Pam! That is really why I write – to helps others! Having some emergency funds is definitely necessary, especially when you have 3 kids! I can’t wait to hear about your future success!