Financial security, defined as meeting current and future financial obligations without running out of resources, is akin to navigating the smooth and rough roads of life without running out of fuel. Attaining this level of stability involves being debt-free, having sufficient funds for living expenses, maintaining a financial buffer for emergencies, and navigating market fluctuations with ease. Achieving such a state might seem like an ideal scenario, but it is indeed possible to strive for close to 100 percent financial security with careful planning, strategic thinking, and consistent monitoring of personal finances.
Renowned author Dan Buettner emphasizes the profound impact of financial security on happiness: “Financial security is huge. It really does deliver more happiness over time than most anything that money can be spent on—after your needs are taken care of and you maybe treat yourself occasionally.” Buettner suggests that, once basic needs are met, allocating leftover funds toward endeavors like paying down mortgages, buying insurance, or participating in automatic savings plans contributes significantly to long-term happiness.
The Mind over Money survey, conducted by Capital One and The Decision Lab, reveals alarming statistics about Americans’ financial anxiety. A staggering 77% report feeling anxious about their financial situation, with 58% feeling that finances control their lives. Financial worries span a spectrum from savings and retirement to affording a home or paying for a child’s education. Notably, 68% fear not having enough money to retire, 56% are concerned about keeping up with the cost of living, and 45% grapple with managing debt levels. The impact of financial stress extends beyond mere numbers, manifesting as fatigue (43%), difficulty concentrating at work (42%), and trouble sleeping (41%).
The initial step toward financial security lies in financial literacy, the ability to make informed and prudent financial decisions. Developing this literacy involves learning to manage and improve personal finances, working towards both short-term and long-term goals. Seeking guidance from financial counselors, accessing relevant educational resources, and cultivating improved financial habits form the basis for a successful journey towards financial security.
The U.S. Securities and Exchange Commission, in its publication “Roadmap to Your Journey to Financial Security,” emphasizes that financial knowledge is not inherent but can be acquired. Modest earners who embark on the journey often achieve financial security, affording them opportunities such as homeownership, quality education for their children, and a comfortable retirement.
Northwestern Mutual outlines five fundamental steps to build financial security:
Financial Education: Invest time in understanding the nuances of finances, continually expanding your knowledge.
Pay Off High-Interest Debts: Avoid unnecessary debts, and promptly pay off high-interest ones.
Create and Protect Your Financial Plan: Identify short-term and long-term goals, understand income and expenses, participate in retirement savings plans, allocate funds for savings and investments, and assess risks.
Save for Emergencies: Establish an emergency fund to handle unexpected expenses, ensuring financial stability during challenging times.
Participate in Retirement Savings: Consider the long-term by participating in retirement savings early in your working years for greater financial security in later life.
To achieve financial happiness and security, it is crucial to grasp fundamental financial concepts, create a solid financial plan, and persistently follow through. Regardless of the amount of money one possesses, the key is to educate oneself about available opportunities and take proactive steps towards financial well-being.
