Whether we like it or not, our financial security dictates a lot of our quality of life. Our income, savings, and expenses inform where we live, what we eat, where our kids go to school, and the risks we are (or aren’t) willing to take.
When our finances are in order, we feel secure, confident, and in control. When they’re not, financial stress can trigger shame, anxiety, and frustration. It can feel like our entire lives are out of our control.
Learn more about what financial security is, how it affects our well-being, and how to create it in this article.
What does having financial security mean?
Many people worry about money. Concern over being able to pay for big necessities such as housing, health care, and education, as well as the significant day-to-day expenses such as transportation, meals, hobbies, and kids' activities creates significant stress.
Financial security doesn't mean that you won't ever feel stress about finances. However, when you are financially secure, you have made decisions that help buffer you against fluctuations in the economy or in your personal job or living situation. Your finances can accommodate changing careers or stepping out of the job for awhile to care for a child or elderly parent. Financial security comes from having a financial cushion or foundation for future uncertainty versus just meeting your expenses month to month.
Financial security typically accumulates (unless you come into a windfall) because it is about the way you approach earning, saving, investing, and spending. It isn't one thing but the combined effect of understanding your personal finances and living within (or below) your means.
What is financial security?
Financial security means knowing that we can comfortably afford the necessities of life (and a few perks, too). We are confident that we can pay our bills, provide for our families, and save toward long-term goals, even when we encounter setbacks such as a job loss or downturn.
Financial security isn’t set at a particular number. It’s possible for anyone to feel financially secure. The best way to think about it is that even if you don’t have a lot of money, you have peace of mind about your personal finances.
Financial security versus financial stability
Financial stability could be thought of as kind of an interim goal before you get to financial security. When you’re financially stable, you have a good understanding of your finances and a source of income that you can rely on. Stability is a good foundational point for growth.
However, financial stability doesn’t necessarily mean that you’re in a position to achieve your long-term goals or take risks. You may still be a little more concerned about money than you’d like to be. Developing financial wellness can have a powerful, positive impact on your overall well-being.
Why is financial security important?
Financial security is about more than paying the bills — although, of course, that’s pretty important too. It’s about feeling confident in yourself. When we feel financially secure, we feel more optimistic, centered, and in control.
Financial security is a key part of the millionaire mindset you might have heard about in books or on social media. When we daydream about being a millionaire, it’s not always because we want tons and tons of money. What we really crave are the options that the money brings. For many of us, we associate money with freedom, peace, purpose, and joy.
It’s pretty rare to become a millionaire overnight (although stranger things have happened!) but it’s not impossible to become financially secure. Learning how to build financial security could be one of the best investments you can make in your life, your health, and your future success.
How to build financial security
Building financial security for yourself will mean taking a direct look at your finances (and it shouldn’t be done on the fly). If you’re married or have a partner, sit down with your spouse and talk through the following questions about your financial situation:
1. What are our current income and living expenses?
The first and strongest indicator of your financial well-being is your expenses and your income. Put directly, your cash flow (income) needs to be higher than what you’re spending or you’re setting yourself up for trouble.
If you’re overspending, you’ll need to find a way to cut expenses or earn additional income. These two numbers together will give you an estimate of your net worth (typically calculated as assets minus liabilities).
If you find that you need to make more money, start by negotiating or renegotiating your salary. If you haven’t received a pay raise or promotion for some time, talking to your manager about a merit increase could be an easy way to put some well-earned cash in your pocket.
You might also be able to cut your expenses by renegotiating your interest rates on your home or credit cards. After a good history of on-time payments, many lenders will offer responsible borrowers a more competitive interest rate.
2. What are our financial goals?
Before you start slicing and dicing at the budget, ask yourselves: what matters to us? If we had unlimited resources, what would we do? Those line items should be reflected in your budget and will help make your priorities clearer.
Your financial goals are directly related to your family values. By looking at your finances, you might find that some of the goals you felt were impossible are within your reach. For example, if one of you would rather quit your job, you can set a savings goal towards that. Or you might find by not having two working parents, the savings on childcare actually offsets the reduced income.
Other financial goals might include buying a house, saving for retirement, or paying off credit card debt or student loans.
3. How much of an emergency fund do we need?
An emergency fund is a “nest egg” of savings that you don’t touch unless you need it. Emergency savings can help cover unforeseen expenses, like the need to fly out of town for a funeral or replace a broken appliance. They help contribute to your long-term security by making sure you have enough money that you don’t need to go into debt when something happens.
You don’t have to open a special account for an emergency fund. Any savings account should do the trick, especially if it offers a competitive interest rate.
Most financial planners recommend that you have anywhere between three to six months of expenses saved in an emergency fund, and work to build that up to a year. If that number seems daunting, start with something that feels more attainable, like $500 or $1,000. Most families don’t have enough savings to cover even a $1,000 emergency, so even a small safety net will make you feel much more secure.
4. Are we saving enough money for retirement?
Even if you’re early in your career, it’s never too soon to start thinking about retirement. And if you feel like you’re behind the curve, building the savings habit now can only benefit you in the future.
If you’re not familiar with retirement plans or unsure where to start, take a look at your benefits at work. Many companies offer 401(k) matching and other retirement benefits. These are investment accounts designed to provide you with retirement income, and many offer tax benefits. Understanding how they work is a key part of personal financial planning.
If you are your own boss or your job doesn’t have a retirement plan, you could set up an IRA (individual retirement account). These are usually available through most local financial institutions.
Key takeaways for building financial security
After going through these questions, you might feel antsy to start making sweeping changes in your finances. That’s great, since the best time to start is now! But that also may leave you feeling a bit discouraged if things don’t change as quickly as you’d like. Here are some key steps to start building your financial security:
Financial security FAQs
How quickly can you become financially secure?
Even if you still make the same money, you can start feeling more empowered about your finances right away. Create two strategies for change: a long-term, five-year plan, and a list of action items you can take to get there. With careful attention to your budget and expenses, you can start feeling more in control and seeing positive results in just a couple of weeks.
How can you protect your financial security?
There are three important things to keep in mind to protect your financial security:
- Get comfortable with saying no
Just because you have the money available doesn’t mean that you have to spend it or lend it.
- Spend now, pay now
Avoid carrying a balance on credit cards or using “buy now, pay later” apps to go shopping. Try to keep your spending aligned with what’s in your checking account. Shop with your debit cards and leave the credit cards at home if you can.
- Look ahead
We all know the feeling: we enjoy the rush of buying something we want now, only to regret our purchase when money starts running low later. Before you spend, ask yourself — will I still feel good about this purchase in a month? A year? Five years?
How much money should you have to be financially secure?
The amount of money each person needs to be financially secure is different. Some people live happily on very little money (relatively speaking). For others, they never seem to be able to spend less than they make.
Building financial security is a matter of making yourself a priority. Your peace of mind and future stability is worth more than anything. Treat yourself to less stress (oh, okay — and maybe that one thing you really, really want).
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