Money Fundamentals

How to Achieve Financial Security

Achieving financial security is a deliberate process, and by this stage, you should be proactively managing your resources to build resilience and independence.

From financial capability to becoming financially secure, the third financial wellness stage is about gaining peace of mind and establishing a secure financial foundation that not only meets current needs but also ensures stability and prosperity for the future.

What is Financial Security?

Financial security means more than having enough money to cover your bills—it’s about building a robust financial cushion that protects against uncertainties and enables you to pursue your life goals without financial stress. It’s a step above financial capability as it involves creating a well-rounded financial strategy that includes savings, debt reduction, investments, insurance, and estate planning.

Core Aspects of Financial Security

  • Comprehensive emergency savings
  • Debt repayment plan
  • Diversified investment portfolios
  • Adequate insurance coverage
  • Estate planning and wills

Achieving financial security is a deliberate process, and by this stage, you should be proactively managing your resources to build resilience and independence.

Why is Financial Security Important?

Attaining financial security is crucial. It provides peace of mind and frees you to make life choices without undue financial pressure. It also protects you and your loved ones from unexpected twists of life, such as illness, job loss, or economic downturns.

Enhancing your financial security allows you to face these challenges confidently, knowing you are well-prepared. It also allows you to pursue your dreams, whether that means changing careers, starting a business, or retiring early.

Assess Your Financial Security

At this stage, you should confidently answer the following questions:

  • What are your long-term financial goals?
  • Do you have a fully funded emergency reserve that covers 6-12 months of expenses?
  • Are your investments diversified across different asset classes?
  • Do you have the necessary insurance to protect your assets and health?
  • Have you set up a will or trust to manage your estate?

Being financially secure means having comprehensive plans in place to protect your wealth and ensure that your financial actions today support a stable tomorrow.


Steps to Enhance Your Financial Security

Building financial security involves several essential steps that fortify your financial defenses and ensure you are prepared for whatever the future holds:

Step 1: Set a Clear Vision

Having a vision for your life is essential. You want to understand how your goals help create your dream life. Be clear about your vision and the life milestones you want to achieve. Then, set the corresponding financial goals to reach them.

Step 2: Create a Financial Plan

A financial plan is a roadmap to reaching your dream life. It will outline the financial aspects of your life milestones. Without a plan, you’ll have a much harder time achieving your goals and securing your future. Learn how more about the financial planning process.

Step 3: Build a Robust Emergency Savings Plan

Ensure you have enough money to cover unexpected expenses or emergencies without impacting other financial goals.

Follow a purposeful savings plan to build robust emergency savings, including a rainy day fund and an opportunity fund. These funds provide financial security to cover emergencies and unexpected income disruptions.

Step 4: Investing Wisely and Passively

It’s time to level up your investing. Continue contributing towards your retirement using your tax-advantaged retirement accounts, such as your 401(k) and IRAs. Set up contributions to increase the amount by 1% or more each year to help you save more for retirement.

Then, begin passively investing in index funds using a taxable brokerage account.

The goal is to build a sizable retirement nest egg for financial retirement and grow your assets to achieve financial independence.

5. Accelerate Debt Repayment

Being financially secure can mean getting easy access to credit and the ability to manage debt.

However, there’s no real financial security if you’re in debt. Debt is a ball and chain that requires you to have enough money to make payments. Having no debt frees your income and secures your financial health.

If you have debt, consider paying it off. Eliminate your debt, starting with unsecured credit cards, personal loans, auto loans, student loans, and mortgages. Follow a strategic debt repayment plan to free yourself from the burden of monthly payments.

Now, this doesn’t mean you can’t use credit. It simply means you’re paying off credit card balances in full each month.

Step 6: Optimizing Insurance Coverage

Situations out of our control will happen, and you may not have enough savings or investments to cover them. This is where insurance plays a role in your financial security. For a small monthly premium, an insurance company will take the risk in the event of illness, accidents, emergencies, or death.

Evaluate and secure comprehensive insurance policies that cover critical areas of your life, including health, home, auto, and life insurance. This ensures that unexpected events do not derail your financial stability. Learn how to complete an insurance coverage checkup.

Step 7: Estate Planning

Establish a clear estate plan, including a will, trusts, and other legal instruments, to ensure your assets are distributed according to your wishes and your loved ones are cared for in your absence.

Now that you’ve learned the steps, it’s important to review your financial plan regularly. One thing we can expect is that things will change, so your plan must change along with it.

While many people strive to reach this stage and remain, you can go further. Continue onward towards planning your financial retirement and, dare I say it, reach financial independence.

Continuing Your Financial Education

Maintaining and expanding your financial education is crucial as you build toward financial security.

  1. Continue reading our articles.
  2. Grab a copy of the financial wellness books.
  3. Enroll in the free 7-day financial wellness kickstart email series.

What steps will you take next on your path to financial security?

Next Stage: Financial Retirement

Jason Vitug

Jason Vitug is a bestselling author, entrepreneur, and founder of phroogal.com and thesmilelifestyle.com. His purpose to help others live their best lives through experiential and purposeful living. Jason is also a certified yoga teacher and breathwork specialist and has traveled to over 40 countries.

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