Financial Security Explained: How to Achieve It at Any Age

Financial security remains a top concern, whether you're employed or running your own business. Yet, according to research by Lending Tree, one in three American households is financially insecure.??

In this state, most households stress over everyday expenses like rent, groceries, or unexpected bills, knowing there’s little to no cushion if something goes wrong. Besides feelings of frustration and failure, financial insecurity also impacts mental and emotional well-being.?

But did you know you can achieve financial security even if you're buried in debt or haven't saved or invested a penny?? Here, we’ll discuss what financial security is and actionable steps you can take to attain it.?

What Does It Mean to Be Financially Secure?

Contrary to popular belief, financial security isn’t a long-term goal achievable after accumulating thousands of dollars in your account. Someone could have a six-figure monthly income and still struggle due to poor financial management.?

While financial security can vary from person to person, it generally means having enough money to cover monthly expenses and stay afloat when unexpected expenses arise. When you’re financially secure, you feel confident you’re on solid financial ground.?

Some financial security indicators include steady income (not necessarily a huge paycheck), enough savings, and little to no debt. Reaching this milestone is not easy. But with consistency and monetary discipline, you can become financially secure regardless of your prevailing circumstances.??

Strategies for Becoming Financially Secure

It's essential to adopt practical and sustainable strategies to achieve financial security. Here are some strategies that can help you become financially secure:?

1. Live Below Your Income

Your paycheck is the greatest tool you can use to build wealth. So, you should always aim to make the best out of it. One way of doing this is by living on less than you earn.?

Living on less than you earn doesn’t mean leading a frugal lifestyle or sacrificing some of your needs. It’s about ensuring your monthly living expenses are below your paycheck. By doing so, you’ll have some amount left, which you can direct to investments, savings, and emergencies.

How do you ensure you’re living below your means? First, you’ll need to do a thorough financial analysis. Define your gross monthly income, including your salary, side gigs, freelance work, and any passive income streams.?

Secondly, track your monthly expenses. Your expenses can either be fixed or variable. Fixed expenses recur every month, and the amount doesn’t change. Examples include rent, insurance premiums, and mortgage installments.?

Variable expenses, on the other hand, keep fluctuating from month to month. They include groceries, entertainment, dining out, and other discretionary spending.?

Next, add your fixed and variable expenses together, then subtract this total from your income. The remainder will tell you whether you live below or above your means.

• If you spend less than you earn, you’re on the right track. You could use the surplus to build savings, pay off debt, or invest in the future.
• If you spend more than you earn or have an insignificant amount left, it's a sign that you need adjustments to get back on track.

If you fall in the latter category, here are some adjustments to consider:

• Review your budget and cut all the unnecessary expenses.
• Make lifestyle changes such as moving to a more affordable home, driving a more economical car, or cutting non-essential subscriptions.

Living below your means also calls for a mindset shift. You’ll have to learn contentment and delaying gratification for long-term financial benefits.?

2. Invest in An Asset That Earns You Passive Income

While your salary is your greatest tool for building wealth, relying solely on it can threaten your financial security.?

For instance, you could lose your job unexpectedly due to economic downturns, company restructuring, or personal circumstances beyond your control. This sudden loss of income can leave you vulnerable, especially if you don't have sufficient savings.

That’s why investing in assets that generate passive income is critical for building long-term financial security. Passive income refers to money earned with little to no effort on your part after the initial setup.?

It continues to flow even when you’re not actively working. This additional income can serve as a safety net, helping cover your living expenses during a job loss or when your primary income is reduced.

Some common passive income options include:

• Dividend-paying stocks: These stocks distribute a portion of the company’s profits to shareholders regularly, providing a consistent income stream.
• Rental properties: Real estate investments allow you to generate rental income from tenants while also benefiting from property appreciation.
• Online businesses or digital products: Creating and selling digital products like eBooks, online courses, or apps can provide long-term passive income with minimal ongoing maintenance.

3. Let Go of Your Credit Card

A credit card can act as a cushion for unexpected expenses or emergencies. Nonetheless, relying on this debt to support your lifestyle does more harm than good to your financial security in the long run.?

Credit card money often has interest attached to it, which is always higher than other forms of credit. To worsen the situation, most credit companies require you to make a minimum payment, prolonging the debt period and, hence, the interest. So, you end up paying more on purchases.

The other downside of credit cards is that they encourage poor spending habits. Sometimes, you might make unnecessary purchases and live above your means.?

For your financial security, consider using cash or a debit card. Doing so will encourage better budgeting and awareness of your financial limits.

4. Prioritize Paying Off Debts

Your dream of achieving financial security may seem daunting and unachievable when you have debts. This is because debt, especially high-interest ones like credit cards or personal loans, compounds over time. The longer you take to pay it off, the more you owe, which can significantly reduce your ability to save, invest, and meet other financial goals.

Becoming debt-free, however, requires discipline. Fortunately, there are several debt-repayment strategies you can use. They include:?

• Snowball method: Focus on paying off the smallest debts first, regardless of interest rate. This method provides psychological motivation, as paying off small debts quickly gives you a sense of accomplishment.
• Avalanche method: Prioritize paying off debts with the highest interest rates first. This method saves more money in the long run by minimizing interest payments.
• Debt consolidation: Consolidating multiple high-interest debts into a single loan with a lower interest rate can simplify repayment and reduce the overall interest you’ll pay over time.

5. Educate Yourself on Matters Finances

Most people find themselves in a financial crisis due to a lack of knowledge. They don’t know where to begin when it comes to managing their money effectively.?

Without understanding the basics of budgeting, saving, and investing, you can make poor financial decisions that lead to mounting debt, insufficient savings, or risky investments.

Moreover, you may fall victim to financial myths, such as the belief that budgeting is restrictive or that investing is only for the wealthy. This mindset can trap you in cycles of overspending or under-saving, preventing you from achieving financial security.

To avoid all this, you should invest in a personal finance course. It’ll empower you to take control of your finances and make the right decisions. Alternatively, you can choose to work with a professional who’ll help you manage your money and meet your long-term and short-term goals.?

Take Baby Steps to Financial Security

Financial security might sound like a far-fetched dream if you live paycheck to paycheck. However, you can build a more stable financial foundation by adopting small, consistent changes such as budgeting, saving, and gradually reducing debt. In addition, remember to be patient, as it might take time and hard work to achieve this milestone.