It can sometimes feel as though there are only two paths to financial security: either you are born into a wealthy family, or you somehow become a top earner who never has to worry about money.
In fact, neither of these needs to be true, and almost everyone can become financially secure. It takes discipline, but the tradeoff is really having control of your own life.
Define It, and Stick to It
First, figure out what financial security means to you. A word of caution is while it can mean that you don’t ever have to worry about money again, it doesn’t mean that you can spend as much as you want. Maybe the top few wealthiest in the world are in this position, but if you think about it, you’ve probably run across stories about highly paid celebrities who lost everything.
These may not have been billionaires, but they were certainly people who, if they had carefully managed their money, could have lived a comfortable life. Think about the things that you want, and do some research to get a ballpark figure of how much you’ll need to support yourself at that level.
Here’s yet another word of caution in that it’s common for people to always want more. In fact, it might be hardwired deep into our human nature, but you’ll need to resist this. Falling into this trap is how people end up always living above their means even as their income increases.
Most who become millionaires and stay millionaires live relatively frugal lives. This doesn’t mean that you can’t have expensive vacations or designer clothes if those are things that mean a lot to you, but it does mean that you should establish a budget that these extravagances fit into.
You can’t have financial security when you owe money to other people. A possible exception to this is carrying a mortgage, which can offer tax breaks and other benefits. However, some prefer to pay this off as quickly as possible too just for the sense of freedom that they get from being completely debt-free. Your first step should be to assess exactly how much money you owe, and your second should be to look at whether there are ways you can reduce it.
Of course, paying it off reduces it, but before you do that, you may be able to get the total that you have to pay lower. This may be the case if you have any introductory offers for credit card balance transfers that offer 0% interest for a certain period of time, such as six or 12 months.
These can be a little bit risky because the interest rate tends to be very high once that period is up, but if you think you can make some serious progress before the interest rate bounces up high again, a balance transfer can save you a lot of money.
Another option is looking into refinancing some of your debts. This can give you lower monthly payments, a lower interest rate, or both of these things. Refinancing your student loans gives you a payment plan that helps you pay them off faster. You may be able to find refinancing opportunities online. It might also be possible to refinance your home or your car, which can also save money in some situations.
With your debt under control, it’s time to start saving. While it’s important to pay off debt as quickly as possible, it’s also important to start saving for retirement while you are young and to have at least some emergency savings to fall back on. If you aren’t exactly what you’d call young any longer but you’re still striving for financial security, those things are also important.
Focus mainly on debt to start with but try not to neglect to contribute to a retirement account. Since everyone has unexpected expenses crop up, you also need some money in a savings account or another type of account that you can access immediately if needed. Set an initial goal of around $500, but you should eventually strive to have several months of expenses in this account.
Depending on your particular situation, you may want enough to cover a year or more of expenses, but you may be able to park some of that money in a certificate of deposit or another type of account that isn’t necessarily available immediately but that earns more in interest than a traditional savings account. Just make sure that plenty of it is readily available if you suddenly need to purchase a new roof or replace your car’s transmission.
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Investing and Passive Income
This is ultimately how you’ll achieve real financial freedom and security. Investing beyond your work-sponsored retirement account can seem like a big leap, and you may even think of it as something that is inherently risky.
The key is to diversify so that you never have all your assets in one or two vehicles. In addition, you should have a mix of investments that have different levels of risk, which will vary depending on your age, financial situation, and general tolerance for riskiness.
Investing is not just about opening a brokerage account although that is one easy way to get started, especially since you can sign up for one online and allow the AI to walk you through the creation of your portfolio. Many do not realize that a life insurance policy can be an investment.
Real estate can be both an investment and a source of passive income from rent. Investments may be one of the easiest and most lucrative sources of passive income, but there are other ways to make money without having to actually do very much as well once the upfront work is completed.
If you have a particular area of expertise, such as gardening, writing code, or playing an instrument, you could create instructional materials that you put online. These could be videos, eBooks, and entire courses. You could offer a few freebies and charge for the full program, and you could also look into affiliate marketing and selling ad space.
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