What is Financial Security?
Is the current economy getting you worried about your retirement? If the Covid crisis taught us anything, it’s that we have to be prepared for virtually anything when it comes to our finances. That’s why we put together this article showing you how to prepare yourself and achieve financial security.
What is financial security?
Financial security is the feeling of peace of mind you have when you’re not worried about if your income will be enough to cover your expenses. It also refers to having enough money saved to cover emergency expenses and future financial goals, such as having saved enough for your retirement.
Why is financial security important?
Having financial security can reduce daily stress, which is important to your health. However, there is so much more to feeling financially secure than mitigating stress.
Having financial security now can lead to financial security for your retirement: Financial security now can give you the opportunity to start building your retirement portfolio, such as a 401(k) or IRA.
How do you achieve financial security?
Achieving financial security isn’t necessarily about saving as much as you can and denying yourself the comforts of your current life. Sometimes, you may have to do this in the beginning — limiting your spending on non-essential items gives you the ability to watch your savings grow, giving you a little more security (or a buffer) in your personal finances.
How much money do you need to be financially secure?
The answer to this question is different for everyone. Some people are most comfortable when they have enough saved to cover a month’s worth of expenditures in case of an emergency. This gives them the buffer that they’re looking for.
It’s about comfort.
While you don’t necessarily need 10 months’ rent in the bank to be financially secure, financial security really comes when you continuously think about your financial plan and how you’re going to save and invest your money to protect and grow your wealth.
How do you create a financial plan?
Creating a financial plan should always start with goals.
If your goals are for financial freedom and financial security in the future, you need to have goals that reflect that.
The building blocks of financial security for your retirement come when you take a portion of your money out of savings and start a retirement portfolio. This will help you work to secure your financial future when you are no longer working full time. After you decide on the perfect way to start your portfolio, it’s time to diversify your investment to protect them and optimize its growth potential.
How do you diversify your portfolio?
Consider the different asset classes that you can invest in. They don’t all have to be connected to the stock market, which is what many people think when they start investing. As a matter of fact, they shouldn’t all be connected to the stock market. Different asset classes come with different risks, and if you put all of your eggs in one basket, you’re at risk of losing it all before you retire.
Financial security comes from investing in various asset classes. If you’re not currently in a position to do this, set a goal to diversify your portfolio later on.
How do you maintain financial security?
Once you achieve the comfort of financial security, the best way to maintain it is to continuously monitor and modify, if needed, your financial goals.
When we get into better financial positions (make more money), we tend to adjust our lifestyle rather than our financial plans. This can be dangerous, as there is no telling when our financial positions can change for the worse. So, if your financial position changes for the better, be sure to adjust your contributions to your savings or your portfolio accordingly.
When it comes down to it, focusing on financial security is the best way to keep a healthy mind and give yourself the retirement you deserve.
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