Dreams don’t come cheap
We all have a vision for our financial futures, whether it’s a vacation home on a tropical beach, a completely debt-free (and work-free) retirement, or selling everything to buy a cabin on that cruise ship that travels the world. And while each of our dreams is uniquely personal, they all have one thing in common — they probably aren’t free.
Whether dreaming big, small, or somewhere in between, achieving financial security might be one way to make it a reality.
The government definition of financial security is “a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future and is able to make choices that allow them to enjoy life.”
In other words? It’s being able to pay the bills (without having to check account balances first), and not being worried about where the next paycheck is coming from. But beyond the physical state of having the money when it’s needed, financial security is also a state of mind.
Financial security is what you make it
Perhaps the most important aspect of the definition above is the part that says “able to make choices,” because deciding what it means to be financially secure is entirely each person’s choice and how they answer one question: “What are you financially okay with?”
For some people, it’s all about the numbers — how much they own, how much they owe, the size of their portfolio, or their net worth. But for others, it could mean traveling the planet with all their earthly possessions in a backpack, working odd jobs wherever they land until they make enough money for a ticket to their next destination.
Talk about opposite ends of the spectrum.
Potential ways to achieve financial security
For those who haven’t received a huge inheritance or won the lottery, achieving financial security is likely to involve lots of hard work, determination and a DIY attitude.
Why? One reason is because the safety nets intended to protect Americans in retirement are starting to unravel. The Social Security trust fund is on the way toward depletion sometime after 2030. And that may sound like it’s far enough in the future for flying cars, but the reality? That’s only a decade away.
The good news is, it’s never too late to get in the game. And achieving financial security may even help achieve emotional wellness at the same time. Win-win!
Here are a few smart strategies that could help with laying out a financial security plan.
Strategy 1. Setting goals
Financial goal-setting can be like jumping ahead to the last chapter of a book. It starts with the endgame, such as paying for kids’ college, traveling, or upgrading a home or vehicle.
From there, “reading” goes backward by breaking those goals into bite-size steps until the arrival at chapter one — an overview of the current situation and a plan to meet those long-term goals.
Short-term financial goals could include things like paying off high-interest debt, student loans or car loans, increasing a credit score, or growing an emergency fund.
Once those are achieved, money could be shifted into longer-term planning, such as retirement, buying or upgrading a home, paying off a mortgage, or investing.
No matter how long it takes, checking something off a goals list can be a huge feeling of accomplishment, as well as motivation to start the next chapter.
Strategy 2. Creating a goals-based budget
As a good witch from the North once said, “It’s always best to start at the beginning.” And when outlining a plan for financial security, that can mean taking a refresher course on personal finance basics.
Getting reacquainted with simple concepts like avoiding credit cards, paying bills on time and creating a budget could be a good way to help focus on a plan that’s all about individual goals.
It could also help kickstart a habit of tracking cash flow, because creating a budget that curbs spending isn’t likely to work if where the money is going is a mystery to begin with.
And remember that joy of checking off boxes? Every time money that used to be spent instead goes toward a savings goal, it could trigger that same feeling of accomplishment.
Strategy 3. Keeping your money safe
This strategy isn’t about stashing cash under the mattress. In 21st-century terms, keeping money safe is more about making decisions that will protect an investment.
Tactics like diversifying a portfolio to include some low-risk investments, cash-based savings investments, or even commodities, can help keep that portfolio steady if the market has a bad day.
It could also be as simple as keeping finances organized so it’s obvious what money is where, knowing the penalties and late fees on each account, when bills are due and how much interest is being earned.
And when much of today’s money management is done online, keeping money safe can also mean protecting identity, passwords and offline financial documents.
Strategy 4. Getting out of debt
If those monthly credit-card payments didn’t exist, where would that money go instead? Paying off debt could free up a potentially big chunk of money to put toward those big dreams. And knowing calls from collectors will no longer be a worry can provide real peace of mind, too.
Creating a debt-payoff strategy can take just as much time and effort as creating a financial wellness plan, but if one is dependent on the other, it’s an essential step.
Two popular methods include the debt snowball, which calls for paying off the lowest balance first and then applying that entire amount to the next-lowest balance (on top of the minimum), and the debt avalanche, which is similar but focuses on the highest-interest debt first.
Strategy 5. Saving and investing
Saving and investing are two similar concepts but have many differences. One of the biggest is risk. One school of thought is that the shorter term a goal is, the less risk should be taken.
If, for example, someone wants to build an emergency fund equal to three to six months’ salary, they might decide that a high-interest savings account is the safest route (it can also provide the easiest access to money in a pinch).
For the longer term, there’s goals-based investing, which is different from traditional portfolio investing in that instead of focusing on which assets will give the best returns over a period of time, strategy is adapted to meet individual needs.
An investment strategy to save for a down payment, for example, is different both financially and psychologically from saving for retirement in 15 years or more.
Making sure money is working as hard as you
The “How to Achieve Financial Security” list can be long and varied, but as the old saying goes, there are two ways to make money: You work for it, or make it work for you.
One way to put money to work could be to make investments that will earn the best returns. For example, contributing the maximum to a 401(k) that an employer is willing to match at 100%.
It’s like doubling an employee’s contribution. Add to that the magic of compounded interest, and money can seem to grow right before your eyes.
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