Guide to Financial Security and Achieving It
Most of us have some dreams for our financial future, whether that means buying a home, starting a business, sending a kid to college with a minimum of student loans, or retiring by age 50, or perhaps even all of the above.
Your vision of your future is undoubtedly unique, but one thing all these dreams have in common: They usually are free, and they don’t unfold without planning and effort.
Whether you’re dreaming big of owning multiple homes and taking luxurious vacations or are more focused on simply getting out of credit card debt, achieving financial security can be one way to make it a reality.
What is the definition of financial security? It means you can meet your financial obligations, feel secure about your financial future, and you are able to enjoy life rather than dealing with a major dose of money stress.
Here, you’ll learn more about financial security and some simple steps that can help get you on the path to achieving it.
What Is Financial Security?
One definition of financial security is being able to pay the bills (without having to check account balances first) and not being worried that you’ll run out of money down the road. It’s also a sense of knowledge and control when it comes to your personal finances.
This can include a huge range of lifestyles and aspirations. For some people, it’s all about the numbers — how much they own, the size of their portfolio, or their net worth. But for others, it could mean accumulating a nest egg so they can travel the planet with all their earthly possessions in a backpack and work odd jobs wherever they land until they make enough money for a ticket to their next destination.
Why Financial Security Matters
Financial security matters for several reasons. One, these can be uncertain times. Think about how much life changed during the pandemic and how thin some people were stretched financially. Consider how health emergencies and job layoffs can crop up unexpectedly. When you have financial security, you are likely better able to deal with the ups and downs of life.
Also, having financial security means you have a plan and are preparing for what’s ahead. That’s a valuable thing in and of itself. It means you are paying attention to your earnings, spending, and saving. You’re in the driver’s seat and can course-correct when needed.
💡 Quick Tip: Make money easy. Open a bank account online so you can manage bills, deposits, transfers — all from one convenient app.
7 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 2034, and recipients might only receive a portion of the benefits they were expecting. That’s only a decade or so 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.
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 1 — 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, eliminating student loans, optimizing a credit score, or growing an emergency fund.
Once those are achieved, money could be shifted into longer-term planning, such as retirement (perhaps even retiring early), buying or upgrading a home, paying off a mortgage, or investing.
No matter how long it takes, checking something off a goal list can be a huge feeling of accomplishment, as well as motivation to start the next chapter.
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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 or pumps up savings isn’t likely to work if where the money is going remains a mystery.
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.
3. Keeping Your Money Safe
How else to achieve financial security? Keep 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.
• You’ll likely want to keep your money at a financial institution that’s insured by either the Federal Deposit Insurance Corporation (FDIC) or NCUA, the National Credit Union Administration.
• 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.
• Keeping your money safe could also involve 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.
• Since much of today’s money management is done online, keeping money safe can also mean protecting identity, passwords, and offline financial documents.
4. 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.
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).
• The debt avalanche, which is similar but focuses on the highest-interest debt first.
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.
Recommended: Steps to Financial Freedom
5. Saving
Having money in the bank, whether for short- or long-term goals, is an important part of financial security. Some pointers:
• Keeping money in a high-interest savings account for short-term use can be a good way to put your cash to work earning you some money. Typically, online banks vs. traditional ones offer the best rates.
• Aim to build an emergency fund equal to three to six months’ salary, which would tide you over if you had a major medical bill or car repair or got laid off. You might decide that a high-interest savings account is the safest place to keep the funds. (It can also provide the easiest access to money in a pinch.)
• Consider automating your finances and paying yourself first. This can mean setting up recurring transfers from checking right after you are paid into your savings account. You don’t see the money in checking, so you’re not tempted to spend it, and your savings account can grow.
💡 Quick Tip: Most savings accounts only earn a fraction of a percentage in interest. Not at SoFi. Our savings account can help you make meaningful progress towards your financial goals.
6. Investing
To achieve financial security by saving for the longer term, there’s goals-based investing. This is different from traditional portfolio investing in that, instead of focusing on which assets will give the best returns over a period of time, the 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.
You can also determine your risk tolerance based on the timeline of your goal as well as other factors.
7. Managing Your Expenses
A key aspect of how to achieve financial security can be understanding where your money goes and keeping close tabs on it. Your budget will help with that.
However, to really ensure that you meet future goals, you may want to avoid these two scenarios:
• One is lifestyle creep. This means that as you earn more, you spend more, so your future goals don’t get well funded. For instance, if you change jobs and get a $10,000 raise (congratulations!) and promptly move to a pricier new home and lease a luxury car, you could wind up spending more than you actually receive after taxes. So you want to carefully balance rewarding yourself for a job well done and achieving the aspirations that represent financial security to you.
• Another issue can be FOMO, or Fear of Missing Out. This is when we succumb to social pressure. In the case of finances, it could be that all your friends have every streaming service known to humankind, and you feel compelled to sign up too. Who wants to miss out on discussions about the latest hit? Or you might see that all your coworkers are traveling to Europe, and you decide to book an expensive trip too. Doing so could throw your savings plan off for a long time to come.
Holding your ground, managing your budget, and remembering your most important goals can keep you on track to achieve financial security.
Opening a SoFi Savings Account
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. If you’re ready to make your money work harder, it may be time to review your banking partner.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
What is an example of financial security?
Financial security means being able to afford your lifestyle, not carry too much (bad) debt, and being able to save for your future.
How do you start financial security?
There are several important steps towards financial security. These can include goal setting, budgeting, starting a savings plan, and investing for long-term growth.
What are financial security issues?
Issues that can hinder your pursuit of financial security include not setting goals (or not doing so soon enough), not managing debt well, and not saving for short-term and long-term goals. One example would be not saving for retirement.
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