Financial security is something everyone wants but not a lot of people actually have. So, if that’s you, you aren’t alone. In fact, for Americans, the number one cause of “significant” stress is money and personal finances. More than 40% worry about their finances every single day, and 34% lose sleep over them.1 Yikes.
Listen guys, it’s time to kiss money stress goodbye and start getting a good night’s sleep. Even if you’re buried in debt, have made money mistakes your entire life, and don’t have a dime saved for retirement—you can still have financial security. (But I’ll get to that later.)
So, let’s talk about what financial security is, why it’s important, the difference between financial security and financial stability, and how you can achieve it.
What Is Financial Security?
Financial security is reaching a point where you’re so stable with your money that you’re living without debt, paying your monthly expenses, investing for retirement, and keeping money in the bank for emergencies.
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It’s having the confidence that you can survive financially, even when the unexpected hits. It’s knowing that you and your family will be okay, even if you lose your job. It’s having peace as you take care of a family member in the hospital, even when the medical bills just keep stacking up.
Financial security isn’t just something to hope for. It’s something you can achieve! But in order to get there, you have to know why it’s so important.
Why Is Financial Security Important?
To some, preparing your finances for the unexpected feels a little silly when you’re just trying to keep the lights on. I know you’re probably thinking, “Rachel, how can I prepare for the future when I’m just living paycheck to paycheck?”
You never know what life will to throw at you (ahem, remember 2020?). Life as we knew it hit the giant pause button—except on the light bill, the mortgage payment, and the grocery bill. And that’s why financial security is so important.
You won’t always have to deal with a global pandemic—thank goodness! But life happens in all sorts of ways. The washing machine decides it’s done its last load. You get a tire blowout on your way to work. Your spouse is laid off from their job.
But when you’re financially prepared, financial emergencies like these are really just inconveniences. That’s what financial security is all about.
And don’t worry, I’m going to talk about how you can achieve financial security—even if you’re living paycheck to paycheck.
Financial Security vs. Financial Stability
People always ask what the difference between financial security and financial stability is. They sound practically the same, right? Well, there’s a slight difference.
Remember, financial security is being able to breathe deep and move forward in confidence—especially when the unexpected shows up on your front door (maybe in the form of a new HVAC system, a burst pipe, or a broken-down car).
It’s being able to pay for your life: take care of monthly expenses, save for retirement, and cover emergencies without worry.
Financial stability is just slightly different. It’s everything financial security is, but not as focused on the future. When you’re financially stable, you’re still able to confidently cash flow an emergency and cover your monthly bills—and even have a little extra at the end of the month to put in savings.
It’s what life looks like after you become debt-free but before you reach financial security.
Now, let’s talk about how you can achieve financial security—even if you’re up to your eyeballs in debt. Here are five ways to help you get there.
5 Ways to Achieve Financial Security
1. Kiss your credit cards goodbye.
Can you imagine waking up tomorrow owing exactly $0 to a credit card company? That can totally be you one day . . . if you cut up your credit cards today.
The biggest argument I hear for keeping credit cards is the rewards. Oh, people love their credit card points. From cash back to airline miles, manipulative credit card companies have done a great job drilling this concept into our minds.
But I’ve never met a wealthy person who told me, “The secret to my success is all in the credit card points.” Credit cards are not the way to financial security. In fact, they’ll take you in the opposite direction.
Think about all the extra money you’re spending to “earn” those airline miles. A buy now, pay later mentality causes people to spend more than they would with their own hard-earned cash. And that’s even before the interest kicks in.
You know what else you can book flights and hotels with other than credit card points? Actual money in your own checking account. Yup.
You guys, the only thing you earn with a credit card is a lot of debt, stress and worry. The random perks, airline miles and free pizzas the credit card company throws your way aren’t worth paying crazy amounts on interest and putting your financial stability at risk.
2. Build up an emergency fund.
Nothing will give you peace of mind and financial stability like an emergency fund. An emergency fund will be your safety net when emergencies happen—and they will happen, so plan for them. It’s hard to become financially stable if you keep going into debt because of emergencies, so putting some money in the bank is the first step to financial security.
Too many people reach for their credit card when their car breaks down, but all that does is turn a car problem into a money problem. Then, compound interest turns the money problem into more and more debt, stress and worry. However, when you have actual money in the bank just for emergencies, you can simply get the car fixed. No stress. No drama.
It can be difficult at times to build up an emergency fund, but if you make it a priority, it will happen.
Begin with the starter emergency fund of $1,000. This will cover smaller emergencies while you’re getting out of debt. Once you’re out of debt, you should take your emergency fund up to a full three to six months of expenses.
3. Attack your debt.
Cue the confetti because this is an exciting part of your journey toward financial security!
Your number one wealth-building tool is your income. But debt steals your income, and on top of that, making all those payments every month is just annoying. So, it’s time to eliminate debt for good.
The best way to get out of debt is to use what we call the debt snowball. Here’s how it works:
- List out all of your debts, except your house, from smallest to largest—by balance, not interest rate.
- Pay off the smallest debt first while paying the minimum payments on everything else. You have to get mad at this debt! Take as much money as you can and throw it at the smallest debt on the list.
- Once that is paid off, take what you were paying on that one and roll it to the second smallest debt and so on until you’re debt-free!
This is the most effective way to pay off debt because it addresses the real problem.
Money isn’t all about math and interest rates—it’s also about your behavior. So, by paying off the smallest debt first, you get a quick win. And we all love that, don’t we?
Even if it’s a $300 debt on a department store credit card, put it on the list and pay it off. When you’re done with it, cross it off the list and move on to the next one.
Quick wins help you stay motivated throughout this process and get you ready for the challenge of paying off bigger debts. And once you’re debt-free . . . well, that leads to true financial security.
Ready to get rid of your debt for good? Go watch Financial Peace University! This course teaches you how to pay off your debt, save for emergencies, and budget with confidence.
4. Live on less than you make.
If you want to reach financial security, you need to take advantage of your greatest wealth-building tool: your income. So, whether you’re trying to find money to build up your emergency fund, pay down debt, or invest in your future, your paycheck is the best place to start.
What can you do to maximize your take-home pay? Spend less of it!
Instant gratification will get you into trouble time and time again. If you can learn to tell yourself no and be content with what you have, you’ll be more financially stable than you’ve ever been before.
No more overdraft fees. No more living paycheck to paycheck. No more spending money you don’t have to impress people you don’t even like.
Remember that making minor sacrifices now will pay off in the long run. Know what your end goal is, and then go after it!
5. Invest 15% of your income.
A huge piece of financial security is knowing you’ll be taken care of in retirement. For you, that might mean retiring early to pursue your dream business idea or being able to spend your golden years traveling. (Personally, I want to visit Disney World at least two or three times a year.)
After you dig yourself out of debt (except for your mortgage) and have three to six months of expenses saved in your emergency fund, you’ll be in a pretty good spot in life, right? Zero payments and a sweet safety net will have you feeling more financially stable by the day.
Once you’ve built that strong financial foundation, it’s time to start investing 15% of your gross income into retirement.
Here are the four places I recommend you invest:
- 401(k) plans
- 403(b) plans
- Roth IRAs
There are a million rules and details when it comes to investing, so you always want to work with an investment professional you trust. This person should explain to you, in terms you understand, how these investments work.
Financial Security Is Closer Than You Think
So many people feel stressed about money, but that doesn’t have to be you. Don’t let your debt, fears or stress stop you from reaching your financial goals. Push through!
As much as I wish there really was a magic genie that could make all of our financial dreams come true, that’s not reality. The reality is that you can live the life you want—and the real magic is in getting to know yourself and your own money tendencies.
That’s why I wrote my latest book, Know Yourself, Know Your Money. This book will help you:
- Discover your unique set of tendencies so you can get over your hang-ups around money
- Overcome frustration and embarrassment around money so you can feel confident in your money decisions
- Learn how to make lasting change so you can make actual progress toward your dreams