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What Does it Mean to be Financially Secure?

This post was featured as a guest post at Polliwog's Pond, and was featured at I've Paid for This Twice Already, Millionaire Mommy Next Door, Girl's Just Wanna Have Funds, The Dividend Guy, FIRE Finance, and Change Therapy.

Financial security has as many definitions as there are candidates for the upcoming presidential election. For some, it's vaguely 'being a millionaire.' For others, it's having an income that's greater than what they have now. And for seemingly millions of people, it's winning the lottery.

Rather than a specific quantity of money, I believe that financial security is living by certain principles. Imagine financial security as a great tent. It keeps you warm, dry, and protected as long as the ropes and stakes holding it up stay in place. If a rope comes free, the tent can't do it's job as well. Financial security is knowing that if a rope or stake comes loose, you'll be able to repair it, and restore stability to your tent.
For me, and I dare say for many, these ropes and stakes are as follows:

1. Financial security is knowing that you can earn money if you need to. Can you get and keep a job? Are you able to create a stream of income that comes when you aren't working? Do you have the skills or training to work if the need arises? Whatever your method, being able to generate your own income is an important part of being financially secure. Many people depend on a spouse as the main income earner, which is great when you both work together. But should you encounter one of the three Ds--death, divorce, disability--are you in a position to make money on your own?

If you answered 'no,' take some time to think about how you can learn to earn an income; through formal education, certification, self-taught investing, starting a small business...there are a myriad of ways; which one works for you? It's easier to learn to do these things while you can plan for them and share the financial load, rather than if you are suddenly on your own.

2. Financial security is knowing that you are debt-free. This one seems like a no brainer. If you don't owe money to anyone, you are unrestrained and secure...and free to use your money the way you want to. Paying off debt can be a long, hard process, but have you ever met anyone who is out of debt that says, "I wish I still owed that money!"? Of course not! Make a promise to yourself today that you are going to fix that part of your tent--quit racking up debt, and instead, start paying it off.

3. Financial security is knowing that you can control your spending. This is a vital skill in life. Controlling your spending doesn't mean that you have to live a draconian life and not spend a dime. On the contrary, it means spending when it counts, and not spending when it doesn't. Even people with millions of dollars have ended up broke, because they didn't know how to spend less than they earn. Happiness is living beneath your means.

4. Financial security is knowing how to save for things you want. Because you don't take on needless debt, and you control your spending to be within your means, does that mean you can't have any fun? No! Saving your money to get something you enjoy is an enjoyable process in itself. There is a great feeling of accomplishment when you are able to purchase something special, free and clear. Delayed gratification also has it's own reward; would Christmas or a birthday be half as fun without all that anticipation?
If there is something you want, but can't afford right now, make a plan to save for it. Putting money aside for it in a methodical manner will get you to your goal before you know it, and give you financial self-confidence as well.

5. Financial security is knowing the people you love and things that are important to you are protected against big uncertainties. We can't predict what will happen in the future, we can only be prepared for it. Insurance is the name of the game here. Insurance is a necessity for protecting your loved ones, and for protecting your money. A major catastrophe can leave you in financial ruins. Learn about your insurance needs, or talk to someone you trust, and take care of them. That's how you take care of your loved ones, and your money.

6. Financial security is knowing that when you retire, you'll have money to live on. Retirement is far away for many(or it seems far away), so it's easy to put off thinking about it. This is a mistake! Time is your greatest ally when it comes to getting ready for retirement: more time means more money socked away, and more compounding on interest you are earning. There are endless resources out there for preparing for retirement. Choose one and get going so your golden years can be truly golden.

When you consider these six principles, you see that financial security is not having loads of money. It's living in a way that gives you control over your money and allows you to use it to make your life enjoyable.

Read this great poem, Nobody writes poetry about financial security, for another perspective. What does financial security mean to you?

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How To Build a Financial Safety Net

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How To Curb Impulse Buying

Ways to Save Money: Beauty and Fashion

3 comments:

Deborah said...

This article has been included in the 4 February 2008 edition of Mom's Blogging Carnival

Millionaire Mommy Next Door said...

Great tent analogy. l quoted you as one of my favorite PF carnival picks at:
http://millionairemommynextdoor.blogspot.com/2008/02/money-and-training-wheels-tents-and.html

FIRE Finance said...

This is a great post and we've cited it in our Sunday Review Favorites.
Keep up the great blogging!
Cheers,
FIRE Finance