What Is Financial Security

What Is Financial Security



What is​ Financial Security?
Wouldn’t it​ be great to​ be financially secure—to never have to​ worry about money?
What would it​ take to​ get there? In fact, what exactly is​ financial security?
Ask 10 people to​ define how much money it​ takes to​ attain financial security and you will probably get 10 different answers .​
For some people, financial security is​ having $10 million in​ the bank .​
For others, it’s $50 million.
I doubt anybody would say $1 million .​
Being a​ uni-millionaire isn’t what it​ used to​ be .​
With the median home price in​ the United States around $220,000 (the median price in​ my hometown, Seattle, is​ pushing $425,000), there may not be much left after paying off the mortgage .​
Even having the full million in​ the bank earning 5% per year will only produce an​ income of​ $50,000 per year .​
That’s not bad, but not enough to​ jet around the world and party with Paris Hilton, Mick Jagger, and Diddy.
What about $10 million? At 5%, that will generate an​ annual income of​ $500,000—without working .​
Now we’re talking some real money!
The problem with defining financial security in​ these terms is​ that having $10 million, $50 million or​ even $1 million is​ a​ pie-in-the-sky dream for most Americans .​
We’d all like to​ have millions of​ dollars, and it’s not bad to​ aspire to​ that goal .​
The problem is, if​ we define financial security by such large amounts of​ money, most of​ us will believe that it’s out of​ our grasp .​
Instead, we should use a​ realistic definition of​ financial security that can be achieved whether somebody makes $10,000 a​ year or​ $1,000,000.
First, let’s look at​ what financial security is​ not.
Financial security isn’t making or​ having a​ certain amount of​ money .​
There are many people who have made millions of​ dollars who are not financially secure .​
Stories about musicians, superstar athletes and multi-million-dollar lottery winners who end up in​ bankruptcy court are so common that they’ve become a​ cliché .​
If someone makes $500,000 a​ year, but spends $600,000, are they financially secure? Of course not.
Financial security also isn’t limited to​ being independently wealthy, having servants bring you martinis by the pool, and flying your private jet to​ Monaco to​ party with heiresses, super-models, and rock stars .​
If that’s what you want, then go for it, but this is​ a​ very narrow definition of​ financial security.
I prefer a​ broader definition, one that puts financial security within the reach of​ anybody with a​ desire to​ improve their financial situation, and a​ little bit of​ discipline.
To me, financial security consists of​ 4 things:
1) Being debt-free
Consider two women:
Jill:
Makes $35,000 a​ year.
Has $250 in​ her savings account.
Owes $10,000 on her credit cards.
Joan:
Makes $35,000 a​ year.
Has $10,000 in​ her savings account.
Owes $250 on her credit cards.
Which woman do you think feels financially secure? Which sleeps better at​ night?
Certain debt is​ understandable .​
Few people have the money to​ write a​ check for a​ car or​ a​ house .​
Borrowing money for an​ education or​ to​ start a​ business may also be acceptable, but borrowing money for other reasons is​ probably a​ mistake.
How many of​ you are still paying off the credit card debt for:
- The vacation you took last summer?
- The elegant, romantic Valentine’s Day dinner last February?
- The pair of​ expensive Italian shoes you just gave to​ Goodwill?
- Christmas presents your kids no longer play with?
- Electronic equipment that has since become obsolete?
When you owe somebody money, they have power over you .​
You go to​ work, even if​ you don’t want to, because you have to​ pay back your debt .​
If you don’t pay, you can be sued, your car can be repossessed, or​ your house can go into foreclosure .​
That doesn’t sound like security to​ me.
2) Being in​ control of​ your expenses
As I​ mentioned earlier, if​ you earn $500,000 a​ year, but you’re spending $600,000, you’re on your way to​ the poorhouse .​
If you control your expenses so that they are less than your income, you can save and invest the extra money, and you’re on your way to​ becoming financially secure.
3) Consistently increasing your savings/assets/net worth on a​ monthly basis
Most people have little to​ show for years or​ even decades of​ hard work .​
For whatever reason, they can’t or​ won’t save money and they’re one paycheck away from being destitute.
We should focus on saving money every month .​
It’s a​ great feeling to​ watch your savings grow, especially because the interest compounds without any extra effort from you .​
Instead of​ you working for money, your money can work for you.
4) Not being forced to​ work at​ a​ job you dislike just to​ pay the bills
Many people live paycheck-to-paycheck and are stuck at​ jobs they don’t enjoy because they have to​ pay their bills .​
If they quit their jobs or​ were laid off, it​ wouldn’t take long before they were in​ dire financial trouble.
If you are debt-free, control your expenses, and focus on increasing your savings on a​ monthly basis, you can survive tough times, such as​ a​ layoff, for months, or​ even years, without a​ change in​ your lifestyle .​
You will also have the freedom to​ quit a​ job you don’t like and take your time finding a​ new job, preferably one that you will enjoy.
Financial security is​ an​ admirable goal for which we should all strive .​
However, it’s important to​ define financial security so that it​ is​ achievable for the average American .​
Being debt-free, controlling our expenses, increasing our savings every month, and doing what we love can lead to​ happy, fulfilling, and prosperous lives for us all.




Related Articles:



Related Topics:

Financial News - Financial Guide - Financial Tips - Financial Advice - Financial Videos - Financial Support - Financial Questions - Financial Answers - Financial eBooks - Financial Help



Powered by Blogger.