Achieving financial security is a key goal for many people, yet it often seems out of reach due to daily expenses, debt, and the unpredictability of life. Financial security is not about being wealthy — it’s about having enough resources and financial stability to cover your expenses, handle emergencies, and plan for the future without constantly worrying about money.
The question is, how do you get there?
Whatever your future goals or current financial situation, these seven strategies can help you build a strong foundation and put you on the path to financial security.
Key Points
• Financial security is defined as living without debt, being able to cover your expenses, and feeling confident about the future.
• Setting specific, measurable goals can help you achieve financial security.
• Setting up a budget that aligns with your goals, automating saving, and paying down debt are also key to achieving financial security.
• Building an emergency fund reduces financial stress and allows you to handle unexpected expenses without strain.
• Investing early maximizes retirement savings and financial growth.
What Is Financial Security?
Financial security is typically defined as reaching a point where you’re living without debt, can cover your monthly financial obligations, and feel secure about your financial future. It means you’re confident that you could manage the unexpected, even a job loss, since you have a solid cushion of cash in the bank.
Financial security can look somewhat different for everyone because it’s based on individual circumstances and goals. For one person, it may mean being debt-free and having a solid emergency fund; for another, it may involve building wealth through investments and passive income streams. At its core, financial security means having the freedom and peace of mind to live the life you want without being burdened by money worries.
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Why Financial Security Matters
Financial security provides peace of mind and reduces the stress associated with living paycheck to paycheck. When you know you have money set aside for emergencies and future expenses, you generally feel more in control and less anxious about your finances.
Financial security gives you the freedom to make decisions based on your goals and values, rather than financial limitations. You might have the flexibility to switch careers, take time off, or pursue opportunities without worrying about income. It also allows you to plan for the future. When your present financial needs are covered, you can focus on long-term goals like retirement, home ownership, and building wealth.
Benefits of Achieving Financial Security
When you achieve financial security, you gain more than just financial stability — you gain the freedom to live on your terms. Here’s a look at some of the key benefits of financial security.
• Less financial stress: Knowing you can cover your expenses and handle emergencies can significantly lower anxiety and stress related to money.
• More flexibility: Financial security allows you to explore new opportunities, such as starting a business, investing, or traveling, rather than being limited by financial constraints.
• Improved relationships: Financial stress can strain personal relationships. Becoming financially secure can reduce conflict and help you build stronger connections.
• Confidence in decision-making: When you have financial security, you can make decisions from a place of strength rather than desperation or fear.
• Generational wealth: Financial security allows you to build wealth that can be passed down to future generations, improving your family’s financial stability.
7 Ways to Achieve Financial Security
No matter your age or stage of life, achieving financial security typically requires a strategic and disciplined approach. Here are seven steps that can help you get there.
1. Setting Goals
Financial goal-setting is like jumping ahead to the last chapter of a book. It starts with the endgame, such as traveling, upgrading your home, or paying for kids’ college. From there, your work backwards by breaking those goals into bite-size steps until the arrival at Chapter 1 — the first step.
Short-term financial goals could include things like paying off high-interest debt, eliminating student loans, optimizing your credit score, or building an emergency fund. Longer-term objectives might include retirement, paying off a mortgage, and/or investing.
When setting goals it’s important to make them specific and measurable (e.g., “Save $5,000 for an emergency fund in 12 months”) and to regularly review and adjust your goals as you go along.
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2. Creating a Goals-Based Budget
A budget is a crucial tool for financial security because it helps you understand where your money is going and how to align your spending with your goals.
To start building a budget, look at the last several months’ worth of financial statements to determine your average monthly income (after taxes) and average monthly spending. It’s also a good idea to make a list of your typical monthly expenses, dividing them into essential and nonessential spending.
From there, you can come with a plan for how you want to allocate your income. For example, one popular framework is the 50/30/20 rule. This approach recommends putting 50% of your take-home income for needs (housing, utilities, groceries, minimum debt payments); 30% for wants (entertainment, dining out); and 20% for goals (saving and debt repayment beyond the minimum).
Recommended: 50/30/20 Budget Calculator
3. Getting Out of Debt
If those monthly high-interest 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.
Two popular debt-payoff methods include:
• The debt snowball, which calls for paying off the lowest balance first and then focusing on the next-lowest balance, and so on. This approach provides early wins which can help keep you motivated.
• The debt avalanche, which requires paying off the debt with the highest interest rate first, then working your way down to the debt with the lowest interest rate. This approach can help you save money on interest.
Other solutions for dealing with debt include looking into zero- or low-interest balance transfer offers for credit cards, which can give your breathing room (often 18 months) to pay off what you owe without those steep interest charges. Or you might look into debt consolidation with a personal loan, which could give you a lower monthly payment, or you might meet with a low- or no-cost debt counselor for guidance.
4. Managing Your Expenses
Overspending is one of the most common barriers to financial security. Here are some ways to control your cash flow and stay on track toward your financial goals:
• Reduce fixed expenses: You might be able to get a better deal on some of your so-called “fixed” bills, like your cell phone, insurance, and utilities, by negotiating or switching providers.
• Limit impulse purchases: Try to avoid shopping when you’re emotional or bored, and consider implementing a 30-day rule before making big purchases.
• Use cash or debit for everyday expenses: Credit cards can encourage overspending. Paying with cash or debit helps you stick to your budget.
• Review subscriptions and memberships: Cancel unused or unnecessary services. Even small monthly charges can add up over time.
• Meal plan and cook at home: Eating out is a major expense for many people. Preparing meals at home is generally healthier and more affordable.
5. Saving
Having money in the bank for near-term goals and emergencies is an important part of financial security. Here are some ways to build your savings:
• Open a high-interest account. To earn a competitive rate on your savings, it’s wise to shop around and compare annual percentage yields (APYs). A high-yield savings account can pay 9x the national average interest rate for savings accounts.
• Build an emergency fund. It’s important to have a cushion of cash in the bank that you can tap should you get hit with any unexpected expenses or lose your job (more on this below).
• Pay yourself first. To make sure some money goes into saving each month, it’s a good idea to set up a recurring transfer from checking to one or more savings accounts for a set amount on the same day each money (ideally the day after you get paid). This keeps the money out of sight and (hopefully) out of mind so you don’t inadvertently spend it on something else.
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6. Investing
A major part of financial security is knowing you’ll be able to comfortably retire one day. The earlier you start investing for retirement, the less you need to set aside each year to reach your retirement goal. This is thanks to the magic of compounding returns — when your returns start earning returns of their own, accelerating your account’s growth.
Financial advisors often recommend investing around 15% of your pre-tax income each year into a 401(K) or individual retirement account (IRA). If that feels too high right now, try to contribute at least up to any employer match, since this is essentially free money. You can gradually increase your contributions over time.
7. Keeping Your Money Safe
Achieving financial security also involves keeping your money safe. Here are some steps that can help:
• Choose reputable financial institutions When opening a checking or savings account, look for a financial institution that’s insured by either the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).
• Guard against fraud. Keeping your money safe also involves choosing strong passwords, enabling mutli-factor identification, and monitoring your accounts regularly for unauthorized transactions.
• Safeguard your income. Long-term disability insurance helps protect your income should you become unable to work due to illness or injury. You may have protection from your employer, but it’s a good idea to check your coverage and make sure it’s sufficient.
Building an Emergency Fund for Financial Security
An emergency fund acts as a financial safety net and is crucial for building and maintaining financial security. Having cash set aside for emergencies allows you to cover those surprise expenses — like a car repair or a broken appliance — without stress or running up expensive debt.
Financial advisors generally recommend having at least six months’ worth of living expenses set aside in a savings account earmarked for the unexpected. But you don’t have to build your emergency fund overnight. It’s fine to start with a smaller goal (say, $500 to $1,000), then gradually build your back-up fund over time.
Recommended: Emergency Fund Calculator
Tracking Your Progress Toward Financial Security
As you work towards achieving financial security, it’s important to monitor your progress every month or quarter, and make adjustments when needed.
For example, if you’re not meeting your goal of putting 10% of your income into your savings account each month, you might track your spending for a month or two to see exactly where your money is going. This can help you identify patterns and areas where you can cut back.
Monitoring your progress can also help keep you motivated. Watching your vacation savings fund and/or retirement account grow, for example, can motivate you to keep up the good work and potentially put even more aside each month towards your goals.
Opening a SoFi Savings Account
Whatever your starting point, there are certain strategies that can help you achieve long-term financial security. These include setting goals, establishing a budget, managing expenses, knocking down debt, saving, and investing for long-term growth.
Once you achieve financial security, you’ll have the freedom and confidence to make decisions that align with your values and live a more fulfilled life. Start today — your future self will thank you.
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FAQ
What is an example of financial security?
Financial security means having enough savings, investments, and income to cover your living expenses and handle emergencies without stress. For example, someone with a stable job, a solid emergency fund, and investments generating passive income is financially secure. They can cover monthly bills, handle unexpected medical expenses, and still save for future goals like retirement or buying a home.
How do you start financial security?
To build financial security, you might start by creating a budget to ensure you’re not overspending and that you’re putting some money into savings each month. It’s also important to build an emergency fund, pay down high-interest debt, and contribute to retirement accounts, such as a 401(k) or individual retirement account (IRA). Financial advisors often recommend putting15% of your pre-tax income towards retirement each year to build long-term financial security.
What are financial security issues?
Issues that can hinder financial security include insufficient savings and high-interest debt. If you’re living paycheck to paycheck and don’t have an emergency fund, an unexpected expense or loss of income can threaten your financial stability. Inadequate retirement planning and poor investment choices can also weaken long-term security, making it difficult to maintain a comfortable lifestyle in the future.
How can I protect my financial assets?
Steps that can help protect your financial assets include using only trusted financial institutions, setting up strong passwords and multi-factor identification, diversifying your investments, and monitoring your accounts regularly for any signs of fraud. It’s also important to purchase health, disability, and property insurance to cover unexpected losses.
Does financial security include having insurance?
Yes, insurance is a key part of financial security. Health, life, disability, and property insurance can help protect you from unexpected expenses and loss of income. Having insurance provides a financial safety net, ensuring you don’t have to drain your savings or go into debt when faced with costly emergencies.
How can an emergency fund contribute to financial security?
An emergency fund provides a financial cushion for unexpected expenses (like medical bills or car repairs) or a loss of income. If you don’t bother to build a back-up fund and experience a financial set-back, you might be forced to run up expensive debt that could take months, even years, to get out from under. Ideally, an emergency fund should cover at least six months’ worth of living expenses. Having this safety net can reduce stress and help you stay on track with long-term financial goals.
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SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.
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