Even though you might be aware of how to budget your monthly expenses and avoid debt, there’s more to financial security than that. Right off the bat, you can start by establishing the difference between financial security and financial stability. Having financial stability means that you can pay off your monthly expenses without any issue, on top of having spare income for savings and whatnot.
Financial security goes a step further than that: you only have financial security if, on top of having financial stability, you’re also prepared for potential emergencies as well as retirement.
Naturally, just having a decent income doesn’t guarantee that you have financial security, as there’s no way to be sure that you’ll make that amount of money indefinitely. If you spend it all, you’ll certainly be ill-prepared to handle emergencies, on top of making it difficult to devise a good retirement plan. This article will help you achieve financial security through five simple steps. Without further ado, let’s get right into it.
Don’t lose track of your personal finance management
To achieve financial security, having control over your personal finance is essential. If you’re out of the loop on this topic, personal finance management is basically a simplified version of a company’s balance sheet applied to your personal life: it should include the entirety of your monthly earnings and expenses, allowing you to know just where you’re spending your money, and potentially change some of your spending habits.
On top of that, this information will allow you to set clear, reasonable long-term goals. This is very important, as financial security cannot be achieved without savings and investments.
Control your spending
Assuming your personal finance management is on point, it’s important to keep it up. Financial security is achieved on a long-term basis, which means you can’t really make a habit of slacking on your finances. Of course, that doesn’t mean you have to be a cheapskate: your budgeting can — and should — have a percentage of your income dedicated to entertainment or leisure expenses, but it’s important to avoid going above this stipulated value. Always ask yourself if you really need something before going ahead with the purchase.
Avoid impulse buying
On a surface level, this is similar to the previous topic. What makes it different, however, is the reasoning behind each purchase. Impulse buying is usually a purely emotional decision taken in the heat of the moment, largely due to a strong desire to acquire something that you usually would not, if given enough time to think about it. The tricky part of impulse buying, if you’re prone to it, is that your desire to buy a product can be such that even if you were to ask yourself if you really need it, your answer will end up being yes — even though you will likely regret it later.
The key to avoiding this practice is to never purchase anything without letting the idea simmer for a while. Salespeople will likely try to convince you that you must acquire said product right then and there, because of some super rare, exclusive deal, or because they’ll run out of whatever it is that you’re interested in buying. Yet, that fear of missing out is hardly grounded in reality. For the most part, the product or service is not going anywhere, despite the illusion of scarcity that sellers or brands may try to sell to their customers; it’s simply a sales strategy that works because plenty of people are prone to impulse buying.
Establish your priorities
As stated at the beginning of this article, financial security is achieved by being prepared for emergencies and retirement. With this in mind, certain priorities have to be established regarding your savings. For one, it’s important to have dedicated saving percentages for each of these categories: don’t just bundle it all up with your general savings and call it a day. This might enable you to utilize your retirement or emergency funds in an inappropriate manner. Instead, designate a set amount specifically for emergencies, ideally depositing it in a separate account made especially for this fund. It is important to have your emergency funds be as liquid as possible — the last thing you’d want, given an emergency, is to be unable to make use of said funds in a timely fashion.
Retirement money should also have a set amount dedicated to it, but contrary to emergency funds, they do not need to have high liquidity. Choose a long-term investment plan that suits your expectations and commit to it.
It’s worth noting that there is a hierarchy of importance for these things: You shouldn’t put money away for retirement if you’re failing to pay your bills, for example. Your priorities should be to have your basic finances in order, followed by a decent emergency fund, and then, if both are accounted for, an amount for retirement.
You’re not alone, ask for help or advice!
If you’re planning on taking a big step in your financial life, don’t be afraid to talk about it with people you trust. Maybe you have a friend or family member who’s always been great with that sort of thing, or maybe they have already gone through whatever is troubling you at the moment. You don’t have to do exactly what they’re telling you, but some perspective doesn’t hurt, at least to see a potential outcome of whatever investment choices they might have made. It can end up saving you trouble, or even reassure you that your decisions are tried and true.
These five tips should help you on your way to achieving financial security. Remember that it is a dynamic process: it’s important to always re-evaluate your personal finance management, as your earnings and spending might change, allowing for different amounts to be allocated to your emergency and retirement funds, for instance. But that’s mostly in terms of minor adjustments to prevent it from becoming outdated. Your goals, on the other hand, shouldn’t change all that much, as long-term investments rely on long-term commitments. Commit to your investments and you’ll be prepared for emergencies, on top of setting yourself up for a comfortable future.