Does financial security simply mean not having to worry about money?
That’s too simple to define such a broad meaning of “financial security”. You might not have to worry about money during a great time where jobs are everywhere, and your country’s economy is doing very well, and earning money is so easy. But will you start worrying when it is recession time? Would you worry about money if your family members were hit by a deadly disease? Would you worry about money if suddenly you are unable to climb off your bed in the morning and need to stay on bed for the rest of your life?
Financial security is about knowing and feeling safe that whatever disaster arrives, you know you won’t have financial trouble. Except for some extremely rich folks, financial security does not seem to be that simple.
Photo by spushnik
Can we define financial security simply by putting up a number? Would a million dollars give you security? Or you won’t be feeling financially secured unless you have 10 million dollars assets?
I think merely giving it a number doesn’t define it fairly neither.
Ask These Questions to Test Your Financial Security Level
- What happens to my children, my parents, my spouse and my family if I passed away suddenly?
- What if both you and your spouse passed away at the same time? Will everything be well taken care of?
- Am I prepared for the next recession?
- What happens if I lose my job today?
If you are able to answer all the questions above in a positive manner, congratulations! You are definitely financially more secured than 80% of the population in the world.
Five States-of-mind of Being Financially Secured
As shared by Michael Mihalik, financial security consists of four things:
- Being debt-free
- Being in control of your expenses
- Consistently increasing your savings/assets/net worth on a monthly basis
- Not being forced to work at a job you dislike just to pay the bills
For a broader and more comprehensive definition of being financially secured, I would like to add another important state-of-mind: being well thoroughly protected.
When you know and feel that you are financially secured, here is what happens:
Never worry about debt
You don’t have to be debt-free to feel secured. But knowing that no matter what happens, you will be able to pay off your debt makes you feel safe. Let’s say you still owe a lot of mortgage payment. If you lose your job today, can you still pay the mortgage for the next 24 months? The answer is yes, if
- you have a substantial reserve fund.
- you are a capable person and finding a new job just require a few weeks time
- you have other source of income
What if a car hits you today and you lose your ability to earn an income? Can you still afford the loan installment? The answer is yes if you are well protected with life insurance.
Being in Control of Your Expenses
It is a very dangerous statement if you say “I can’t control my expenses”! Yes, I know you can control your expenses.
Some people say:
- I need to spend the money to please my wife
- I need to buy those things to please my kids
- I need vacations because my jobs is too stressful
If money is spent on anything that’s not within your budget plan, you have lost control over your spending habit. All the above are just cheap excuses.
Another situation is when a family member needs that money which is not within your budget. For examples:
- your mother need medical aid
- your child needs a lot of money to study overseas, but all you had saved for him is just enough for local colleges.
- your brother need to borrow from you because his business is going south.
These are problems that cannot be tackled easily. But with proper planning, wise decisions can be made to prevent that.
Why should your brother risk your money to rescue his company? Why can’t your child compromise to enter local colleges? Why didn’t you buy medical insurance for your mother in the first place?
Consistently Increasing your Net Worth
The best reward of proper budgeting is to see your net worth grow day by day. When you know that you are getting richer every minute, it just motivates you to do even better.
I have shared many principles on how to growth your wealth before. These articles might interest you:
- 3 elements of Wealth Accumulation
- Do you qualify to save?
- How to Quickly Evaluate an Investment using the Rule of 72
- Leverage in Investment
- Income – Saving = Expenses
- Simple Strategies to PAY YOURSELF FIRST
- Analyze Income & Expenses Flow in Your Life with Practical Advices
- Are you a Financial Idiot or Genius? Plot Your Net Worth Chart!
- Get Rich using Excessive Debt
- Hacking your Cash Flow & Net Worth Chart
- Money Lessons from Tranformers movie
- Money won’t make you rich
- Net Worth vs. Age
- Should you focus on Increasing income or reducing expenses?
- Top 21 List of Financial Sotfware and Application for Efficient Money Management
- Wealth Accumulator Formula
- What’s your real ASSET?
- What’s Your Time Worth?
- Why Should Couple Combine Finances? And How?
Not being forced to work at a job you dislike just to pay the bills
Work takes up 1/3 of your weekdays. If you are stuck with a job you hate, I can imagine how miserable your life is. If you want a joyful life, you should have a job you are passionate about, beside having a spouse you are deeply in love with.
The freedom to do whatever you want (legally) is so precious. I am not yet rich, but I feel secured in this area about jobs. I have a full list of what I can do to make money, and none of them are things that I dislike.
The fact is that I don’t worry about losing my job, because I have many jobs that I like to do. Here is my list:
- Financial planning services – I really can’t see how it may fail because I have hundreds of clients. This business is a long term relationship between the planner and clients. My customers are so diversified that some of them are engineers, lawyers, businessmen, managers etc.
- Music production – I do music arrangement. Sometimes I am selective about the projects I want to work on.
- Making money online – My online income is not much, but I know I won’t starve if I turn full time doing blogging and internet marketing.
- Live performance – one of my best friend, who is a professional pianist often asks me to play gigs. Now I seldom perform because I want to spend more time with my son and wife at night. But if everything turns into a disaster, I can still go out to perform, and give music lessons.
Please don’t feel that I am bragging. I am certainly not earning a lot at this moment. But I have fun all the time, during work and out of work. I just want to urge you to build up your own financial security, in your own passionate fields. You should turn your passion into money making machines, and never worry about losing your job anymore.
Being well thoroughly protected
When you are well protected, you can be rest assured that all your dependents can still live on at the same lifestyle if you passed away suddenly. Some areas that people often overlook:
- Have your will well planned and written up
- Have a living trust set up to provide education, maintenance, guardian allowance in case of double tragedy
- Have your business well protected with key person assurance, liability cancellation plan, and also a funded buy sell agreement if necessary
- Have your own insurance properly planned, and get the best benefit with the most affordable premium
- Have all your dependents insured as well. Please realize that a seriously illed family member will eat up your nest egg too.
For more tips on planning your wealth protection, refer these articles:
- Everything about Life Insurance Company in Malaysia
- How Much Critical Illness Insurance Cover do you Need?
- Investment-linked vs. Traditional Insurance
Would you feel financially secured after doing all the above suggestion?
We would like to hear your thought in the comment section.
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