Financial security plays a crucial role in helping to protect against unnecessary stress and significant debt. Despite how important it is, not everyone learns the skills they need to establish and build lifelong financial security early on. If you’re just getting started or simply want to check where you’re at, here are a few key characteristics to make sure you’re on track for building lifelong financial security.
1. Have a Strong Foundation
The first step to achieving financial security is to assess the foundation before you begin building upon it. When it comes to financials, you need to first understand what your income looks like compared to your expenses, including needs and wants. From there, based on the take-home amount you receive each month, you can begin to build a budget that is proportionate.
One of the most common budgeting methods is the 50/20/30 rule, in which you’ll spend 50% on things you need, 30% on your wants, and 20% on savings. While it might not work for everyone, the general rule can help you better assess and divvy money which can promote financial security in and of itself.
2. Build Emergency Savings
When putting away savings, it’s important to reserve a portion for a rainy-day fund and emergencies. The money in these funds will be reserved for emergencies and is easily accessible when you need it most. Common uses for these funds can include unexpected car breakdowns and medical expenses, but the need for your savings may vary depending on your unique living circumstances.
It’s recommended that you reserve at least three months of total living expenses in an emergency fund for major life events like job loss or critical illness, but consistently contributing to the fund will help establish financial security by having a plan when things go wrong. It’s no secret that life can be unpredictable, so the best thing you can do to be ready is expect the unexpected.
3. Paying Off Debts
Perhaps one of the easiest ways for financial insecurity to come about is by falling victim to debt. Whether it be credit cards or loans, any debt with high interest can grow into something which can be hard to escape.
It may be helpful to begin by outlining all of your debts, noting their interest rates, balances, due dates, and similar figures to help prioritize which need to be addressed first (usually highest interest and/or highest balances).
If it feels impossible to tackle on your own, many non-profits and organizations offer debt management counseling services free of charge. A qualified individual can help you decide which debts to pay off first and help you understand the path to financial security.
4. Begin Investing
Reserving some money in a savings account is great for easy accessibility, but it’s not ideal to keep all of your money in savings. Most banks offer a very small interest rate that can help grow your money a small amount over time, but the best way to grow funds substantially is investing.
If you’re just beginning, it can be helpful to contact a financial advisor to help you allocate funds and properly diversify your portfolio. The earlier you begin investing, the more time your money has to grow, so don’t put it off for an undefined date in the future.
5. Purchase Insurance
Just like we purchase car insurance or renters’ insurance to protect ourselves, there are other important insurance options to consider to ensure financial security for your loved ones and the things you love. From critical illness insurance to life insurance, the appeal of each of these is that you’re protected in worst-case scenarios, which is essential for wellbeing and longevity.
When it comes to how to find a life insurance policy or an insurance policy, the internet makes it easier than ever to cross research and find a plan that is the perfect fit for your needs. Much like investing, finding a life insurance policy is not something that you will want to put off for the future, as anything could happen at any time.