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?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.