Financial security means that you have enough money to ensure you can still pay for the necessities in life, despite any unforeseen circumstances. An essential part of becoming financially secure is having an emergency savings. Despite this however, studies show that only 39% of people have enough in their savings to cover unexpected expenses.
Many people feel like the security they seek will eventually come somewhere far in the future when they have accumulated more wealth. However, financial security is more about reducing uncertainty than it is about being wealthy. With a solid understanding of how to manage debt, prepare for the unexpected, and save wisely, you can attain the peace of mind that financial security provides. Implement these healthy habits for a more financially secure life:
1. Start Early
Not only do younger people typically have fewer expenses and debt, but the money that they make has the most time to build value. That’s why it’s important to put aside money from a young age. Money in a savings or retirement account will accrue interest every year — the younger you are, the more interest you can accrue. Even an investment of just $5,000 in your 20s can balloon to over $80,000 be the time you retire, assuming you make no other contributions. Compounding interest is powerful, so don’t miss out on valuable years.
This doesn’t mean that if you didn’t start early, you should just give up. Even if the best time to start saving was ten years ago, the next best time is right now.
2. Avoid Debt
As most recent grads will tell you, avoiding all debt is impossible. That’s why it’s important to understand the difference between debt that helps you, and debt that hurts you. Many experts feel that debt is something that is best used to open opportunities. Education increases your chances of employment, while a home loan helps you build equity you couldn’t have done on your own. These forms of debt unlock doors that would not have otherwise been available.
On the other hand, putting an expensive dinner on your credit card or taking out a payday loan to buy someone nicer presents would be considered a much riskier use of debt by some financial experts. It may be best to avoid debt that isn’t absolutely necessary. If you already have a significant amount of debt, there are ways to pay down the debts and free up your income.
3. Think About the Future
If you’re only responsible right now for rent and a few bills, it can be easy to assume that you will always have the money to pay for what you need. Keep in mind that as you get older more financial responsibilities will creep up on you: a mortgage payment, car insurance, health insurance, medical bills, and food for other members of your family. What is required for your financial security will grow as you get older.
It’s possible that your expendable income could quickly disappear, and you’ll have to develop more frugal habits to keep saving. Set a goal to help you stay on track. Determine how much you want to retire with, and calculate how much you’ll need to put away each year to achieve this. Keeping the end goal in mind will help keep you from impulse buying that pastry at the coffee shop.
4. Create an Emergency Fund
Unexpected expenses are guaranteed to pop up. It’s important to be financially prepared for everything from a flat tire to the loss of your job. That’s why many experts recommend saving three to six months of your required expenses in an account that is easy to access. Having money set aside is the best way to avoid going into debt.
Try allocating a portion of your check directly into a savings account. This way, you won’t have to remember to do this every month. If you consider paying into your savings as a part of your monthly expenses, you are much more likely to put away that money. This principle of reducing the stress of money management can be applied to every aspect of your financial life. Automate your bills and credit card payments so you don’t have to worry.
5. Get Insured
While we all hope we’ll never need to use car or health insurance, they provide incredible peace of mind. Paying out of pocket for a fender bender or a sprained ankle can quickly derail your financial plans. While you may never use it, insurance is a predictable expense that will ensure you can pay for everything that comes your way. Financial security is not necessarily about having more money, but about making your income and expenses as predictable as possible. Insuring your, home, pet, or any other important assets is a great way to reduce financial uncertainty.
6. Track Your Progress
Keep yourself accountable for your expenses. Whether you’re a spreadsheet kind of person, or someone who prefers to use an app for it all — find a method of tracking your finances that works for you. Create a budget and stick to it as best you can. Return to your budget often to assess how well it works for your life, and make adjustments where necessary. It’s better to create a sustainable budget than a strict one that you’re likely to forego.
Keeping track of your expenses and savings will also provide you with a sense of accomplishment. Watching the amount in your savings grow will feel better than all the small purchases you had to cut out.
7. Be Patient
It pays to be patient. This applies to every aspect of money management. If you’re considering a new purchase that isn’t absolutely necessary, take some time. Write it down, and if in a few days or a month you still want it, then allow yourself to buy it. This ensures you’re only purchasing things you really need, and aren’t wasting money on items you’ll soon toss.
When it comes to tracking your progress and thinking about your future, being patient will help you stay motivated. Focusing too much on your progress towards financial security will create stress that’s counter-productive.
In summary, financial security is entirely achievable no matter where you start. The most important things to keep in mind are that you should prepare for the unexpected, save liberally, and use your credit wisely. With patience and informed choices, you’re sure to attain financial security.