‘Financial security’ is a phrase we hear all too often- but what exactly does it mean, and how do you know if you’ve reached it? It’s easy to assume that it comes as a result of getting your dream job or winning the lottery, but actually it’s not the case. Here’s how you know you’re financially secure- and you may well be doing better than you thought.
You can afford what you need in the here and now
Being able to afford what you need, week to week or month to month doesn’t need to mean having lots of cash to spend. It simply means you’re able to make ends meet- your bills are paid, you’re fed and can comfortably live without running out of money. It might seem as though in order to achieve this that you need to start earning more, but it’s not always the case. Any extra you can get is a bonus, but a lot of it comes down to how you spend. Have a budget in place and stick to it. A good way to manage your bills is to open a separate bank account for them. Set everything to come out via direct debit, and every time you get paid you know you have to transfer a set amount into that account to cover everything. You don’t end up accidentally spending back onto the account. If you often find yourself getting to the end of the month and thinking ‘where has my money gone’ where you have nothing to show for it then start being accountable. If you go on a night out with friends, take a set amount of cash instead of your debit card so you know you can’t overspend. If you know you’re guilty of ordering lots of takeaways then learn to cook and start preparing more food at home. Go through your bills and make sure you’re getting the best deals- this will usually involve switching companies to make the most of new customer deals. All of these things add up, and free up cash to be better spent elsewhere.
You have a buffer against unexpected bills and expenses
Being able to afford what you need in the here and now is the start of financial security. The next step is planning for any emergencies. A broken down washing machine, a failed car MOT, an unexpected bill landing on your doorstep- all of these things can cause serious money issues if you aren’t’ prepared. From having to borrow from family and friends to taking out lines of credit like credit cards and loans to cover what you need, it can quickly spiral into debt. It’s important that you always have a buffer in the bank- a rainy day fund so to speak. This should be separate from any other savings that you have, and only dipped into when it’s a genuine emergency. It’s up to you how much you keep in there, but at least a few hundred will give you a starting point even if it ends up being something more expensive. Another way to buffer yourself against unexpected bills and expenses is by getting insured. Home insurance, pet insurance, dental, medical and even specific insurances like boiler and appliance insurances can all prevent you from ending up out of pocket. You have to pay a little extra each month to cover them, but if the situation arises where you need to use them you’ll be so glad you took the plunge. Be sure to shop around as insurers are very competitive, you can snag prices cheaper than you might think. Just make sure to read the smallprint so you know what your policy includes. The last thing you want to do is try and make a claim and realise something important has been excluded. For example, in pet insurance policies this could exclude all dental work meaning if your pet needs teeth removal or cleaning then it’s something you’ll have to pay for separately. Excesses are another thing to check, excesses set too high can sometimes make it pointless claiming.
You’re prepared for the future
Having a buffer against unexpected expenses is useful in the short to medium term- but when it comes to financial security you want to be prepared for the long term too. This could mean getting your pension in order, creating an income stream for once you retire and making a will. When it comes to earning money when you’re no longer working, investments can really pay off. Purchase stocks and shares or property for example and these can continue to earn you money each month with no real hassle to you. Another way to go about this is to establish a business, when you retire you can simply hire someone else to do your job and live off the profits. These things can take a long time to set up or save for, so it’s important to do what you can, as early in life as you can. If you want to buy properties and live off the rental income for example, you could take out a number of buy to let mortgages. Once your tenants have paid the mortgage with their monthly rent cheque, everything from there onwards is pure profit. It’s difficult to imagine getting old, but it is important to plan for it. It will roll around one day (if you’re lucky!) and you need to ensure you can continue living the lifestyle you’ve become accustomed to.
What does financial security mean to you?
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