Taking responsibility for our lives by managing our finances really pays off. Financial security is both a lifestyle and a choice. We invest time toward money management and seeking better living conditions. You can take control of your cash flow no matter how much you bring in by following a few steps.
The Meaning of Financial Security
There isn’t a one-size-fits-all meaning of success and financial security. Food, water, shelter, and clothing are the basic human needs we all share. Your personal income, goals, and quality of life expectations will determine what financial security means to you.
Financial security is a mindset. Some people might feel secure with a small amount of money stashed away for a rainy day while others need a year’s worth of savings to achieve the same sense of security.
Beyond bank account numbers and bills, achieving financial security reaps rewards in all facets of life. The more secure we feel in our life, the less fear we have and more opportunities to share good times with others. By no means does this require extravagance. Getting financially secure frees up a lot of space in life—space that meaningful connections can fill.
Financial security contains two components. On one hand, there are the number values and bank account digits that might indicate success. On the other hand, financial security is an emotional state that reflects how we perceive our value in society. Both concepts must align to our own personal standards in order for us to feel financially secure.
Having one element without the other doesn’t cut it. The tough part is that there are no rigidly defined parameters around what financial security is. Every person decides how to define financial security themselves.
Taking steps to become financially secure will clarify what it means to you. When you more clearly understand what you want out of life, it becomes much easier to put your plans into action. Acting toward your goals is the only way to achieve them.
5 Steps to Becoming Financially Secure
For some, financial security seems like a distant, unattainable dream. Anyone with any income can achieve financial security by following a few simple steps. Take responsibility for spending and take an active role in your own finances to define what success means to you.
1. Track Your Expenses
Chances are you probably already track your finances. How efficient are you in this tracking? The first step to becoming more secure financially is to get serious about tracking your expenses.
It doesn’t matter if you are using an app, software, or a quilled pen and paper, financial security is built upon your ongoing commitment to tracking your cash flow.
How to Track Your Money
You don’t need an accountant to analyze your financial data and track your expenses. You can reach financial security when you pay attention to where your money goes.
Start with your income. Record the amount of money you bring home every month after taxes. This is your net income. It’s okay to round this number, but always round down when estimating finances.
Next, list all the bills you pay regularly. These bills are your fixed expenses because the payments you make are regular and the amounts do not significantly change. These expenses include:
Subtract the total amount of your fixed expenses from your net income. The remaining amount is your disposable income.
Disposable income is money used for variable purchases on food, entertainment, clothing, and possessions. When tracking your cash, create individual categories for all purchases. Every time you make a purchase, make sure you record what you have spent and what the money was spent on.
After a time, you will see your spending trends emerge. Tracking expenses gives you a clear understanding of where your money goes. Sometimes your spending trends will surprise you. When you know where and how you are spending money, you are better prepared to cut down on expenses you deem unnecessary, thus saving money.
2. Create a Buffer
Start by saving money now. Once you’ve tracked your expenses, you will pinpoint ways that to put money aside. It doesn’t matter how small you start when saving, just save and save regularly.
Create Supplemental Income Sources
Another way to save money is to create more by using your talents and resources. The richest people on the planet do not thrive from one income source alone, their channels of income are expansive like a river delta. Hone in on how you can create more sources of income.
You might have old stuff lying around your home you can sell online. You might have a hobby that could bring in extra money like photography, writing, or trivia knowledge. The possibilities for bringing in extra money are only as limited as your thinking.
Accept Free Money
Free money is all around us we just have to accept it. Take advantage of sales and coupons. Shop around, look for deals. If your job offers retirement matching, match the full amount the job will pay. Investigate legal tax breaks for your current financial situation.
Look for grants and scholarships when returning to school. If you are a senior, student, teacher, or military veteran, use discounts offered to you. Check if any discounts are offered through any credit cards you might have. Investigate savings accounts that will generate positive interest. Let free money into your life.
3. Ditch Debt
Ditching debt is easier said than done. Yet there is a distinction between settling into a life of debt and working to get out of it. With debt comes interest payments on that debt. It’s important to prioritize your loan payments to avoid unnecessary expenditures that will only further deplete your bank account.
Only borrow money when the money is for an investment. An investment is considered anything that will end up paying out later. Personal investments worthy of the interest payments include:
Live within Your Means
If you spend more money than you make, you are living beyond your means. We hear you, life is expensive. Taking steps toward financial security will help you find balance and define goals that are most important to you.
Often, we end up mindlessly spending money in ways we don’t realize. Spending one dollar a day on a cup of coffee doesn’t seem like much. After five years that dollar a day will have put you back nearly $2000. Only you can decide what’s important in your life. Financial security might just mean forgoing instant gratification to achieve more lasting stability.
Failing to buy insurance is one way that many people cut costs in day-to-day life. Yet not having insurance is one way to accumulate a lot of unexpected and unwanted debt. Do yourself a favor and invest in insurance. Make sure you are covered with these insurance types:
4. Let Your Goals Guide You
It’s easy to fall into the trap of “I can’t afford to save” when we haven't established any concrete reasons for saving. We find and make money for what we truly want in life. Start your savings plan by creating achievable goals for you to work toward. Don’t hold back on what you truly want, but keep the goals small to start.
Your goals might include paying off debt or saving for retirement. Find small goals to help you achieve the larger goal. The larger goal of paying off debt or amassing a retirement fund won’t happen overnight. Establish realistic goals to achieve in the short-term. For instance, you could make one additional payment toward your debt or savings per month. By doing this, you have reached a goal and worked toward another.
5. Take Calculated Risks
Taking risks with money is a tricky subject. Why take a gamble on something we are already insecure about? All risks involve uncertainty, but calculated risks are well-thought out choices that have a good chance of payoff.
There are times to play it safe and there are times to grab on to your long-term goals. If your goals for the long haul require change, it might be worth investigating the calculated risks that could change your lot in life. Calculated risks that could better your financial security include:
Not all calculated risks will pan out financially. The more thought and planning you’ve put into making changes, the more it will help guide you to make the wisest calculated risks.
It doesn’t matter what your definition of success is, we all have basic needs in life. Having a sense of security in our material affairs helps us create balance and stability in life. With persistence and planning, financial security is within your reach.