Financial security is what we’re all striving towards. But are we going about it in the best way possible? Read on to know if you are already practising some of these great pointers or if a revamp of your financial mantras is due!
Different people have different notions about what financial security means. To some, it is having enough money to cover their bills and put aside a little something for retirement. For others, it may be a home of their own and an early retirement. And for others, it may be a 7- or 8-figure income, real estate investments, and an investment portfolio bigger than that of a small country somewhere. Regardless of what it means to be financial secure, this need for security is the basis of all financial plans.
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So what is financial security?
Very simply put, financial security is having enough money to support your lifestyle and to help you meet your financial goals. Financial security, of course, is strongly tied to finances, but it is not a function of money alone. While your income, expenses, and savings and investments have a direct bearing on your financial security, your feelings about your finances also have a role to play in determining your financial security. For instance, you may be drawing a 6-figure salary each month, but does it feel enough to make ends meet? Do you have to borrow to stay afloat at the end of the month? Do you have enough to pay your Credit Card dues and your car loan and your house rent and other living expenses but still have enough left over to put away towards a down-payment on a house? Do you have enough emergency funds at hand that can support you for at least 6 months if you lose your job? So, how you view your finances can also make a difference in your perception of your financial security.
Is financial security the same as financial stability?
Very often, the terms financial security and financial stability are used interchangeably. However, they mean very different things. Financial stability is for the here and now. It means you have little to no debt and your expenses do not exceed your income. Financial security, on the other hand, is long-term and has to do with peace of mind regarding your financial situation. Financial security is about being able to pay for your life without worry, and financial stability may be a big part of it. However, the stability is only one of the factors that make up financial security.
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Pillars of financial security
Financial security is built on 4 pillars. A strong foundation for each of these four pillars can make life easier and make you feel more in control of your finances.
- Get debt-free: Some debts are inevitable; buying a house on your investments alone or funding your higher education entirely from your funds may not always be possible. However, high revolving or unsecured credit, payday loans, etc., that are used to fund a particular kind of lifestyle carry a huge cost and should be avoided. Remember, credit is a tool for you to meet your financial needs. Do not become a slave to credit. Each time you borrow, make sure you have a concrete reason – typically to build assets or to handle emergency expenses – and do not go overboard and borrow more than what you can comfortably repay.
- Take control of your finances: Do not let your money control you instead of you controlling your money. All the income in the world will not serve you if you are not able to keep your expenses in line with what you earn. Make a budget and stick to it. Use online tools if required. Account for your debt repayments and saving for your future financial goals.
- Be prepared to deal with emergencies: Have a buffer for when things go wrong. This can be in the form of an emergency fund, but more importantly, insurance. A personal health cover will hold good even if you are unemployed or retired. A life insurance will provide financial stability to your dependents in case of anything untoward happens. Living pay-check to pay-check without sufficient funds and protection will affect your sense of financial security.
- Invest wisely: Do not put all your investment in one type of instrument. Best case, your return on investment (ROI) may be much lower; worst case, the risk of losing all your investments may be very real. Spread out your investment across different investment options from fixed deposits to mutual funds, and monitor them periodically for performance.
Financial security is all about being able to live the life you want, now and in the future. It is about money as much as it is about being stress-free. Achieving financial security isn’t always easy, but with a little planning and the right moves, you can reach financial security and serenity. We can help you look through a platform that does so much for smart financing needs!