6 Steps to Financial Security

Your attitude defines your level of concern, your degree of stewardship & how you value it when it comes to money. The positive money mindset contributes to savings, financial discipline & strategic preparation for a stable life.

2. Financial Security is Protection against uncertainty

Sustainability is one of the major hindrances to financial stability. Even with the best strategy and purpose, hard-earned assets may be drained. This can be due to the owner’s premature death or medical emergencies this depletes any hope of financial stability. Take the fictional example below:

Rahul, a male who is 45, owns a two-bedroom condominium burdened by an Rs.500,000.00 mortgage. There he lives with his wife and two children aged 13 and 15. He has worked hard to purchase the house, putting in more than Rs.200,000.00 to renovate. Rahul dies of serious heart disease just a few months before his 46th birthday. Rahul has not done any financial planning and had no medical insurance, life insurance, will, or other documents in place. His estate planning could have helped his kids graduate from college debt-free. His wife can not pay the mortgage on the house by herself. Rahul’s uncertain disease & death lead to unplanned expenses which nearly cut in half the family savings.

Because Rahul didn’t protect his assets with an estate plan and insurance, his family lost their home to foreclosure, and all the work he’d put in to create financial security was lost. The most important part of financial security is about protecting your legacy and improving your family’s quality of life – before and after you die.

Therefore buying a good health cover to save your hard-earned money from medical emergencies and having a term(life) insurance to fund the family even after you are gone is a must for well planned financial security.

3. Analyze where you stand

Without understanding your starting point you can not achieve your goal. Looking about how much debt you have, how much savings you don’t get and how much money you need can be a crushing reality. But that’s a worthwhile analysis in the right direction. Compile a list of all your debts, including mortgages, student loans, car loans, credit cards and any other debts you may have accrued. Don’t forget to include any money you might have borrowed from friends or members of your family over the years.

Now take a breath deep, yet another and sum all these numbers

4. Clear those Debts to be Financially Secured

How much debt do you have? Are the debt numbers above too big? Do not freak out, but the reality is most people are deeply in debt and the idea of saving and financial planning is too difficult for them even to consider.

Debt is the best and at the same time the worst. If not for debt, many of us would not be able to create wealth by doing stuff like college graduations or buying a house. But personal, leisure and unsecured loans like credit cards, don’t make any difference to financial stability. These are the worst kind of debts having interest rates as high as 34% which increases your unpaid balance by 2% every month, thus, never ever lull into the false sense of financial security by getting into this honey trap. You can read the below article to know how you can get rid of your bad debts.

Read in detail: How to get rid of your debts

5. Start Saving for Financial Security

Now let’s, dig at all the money you’ve saved, from the exercise above check how much you are saving currently and how much you can save after paying all your debts which include taxes.

Your savings list must include all your investments: savings accounts, securities, assets, retirement matching programs for businesses, and pension plans. Then we are going to add the regular monthly payments that you get such as wages, side hustle income, etc. Once you are done, check what’s your monthly total income from various sources, verify if your current savings is at least 6X of your current monthly income or not if not start accumulating that in your savings account of any high liquidity asset, if it’s difficult for you to save create a separate account and imagine that as a third party expense, pay 20%-30% of monthly income as the first expense to this account every income month.

6. Create a secondary source of income

Well, most of us probably think that “My debt is so much more than my income, I can never pay it off forget about financial freedom ” and alas this is reality but if you are serious about financial security and independence, you have to sweat tears and blood to achieve the same. Perhaps the regular 9 to 6 job will not be going to cut it, you need to step it up and look outside of your current job for money.

Some experts advise having seven streams of income. If you have a 9 to 6 job, congratulations, you have one, only six more to go!

So you can look at your sources of income in two ways: active income: when you’re limited by the hours of the day if you trade in your time for money or passive income: when you don’t have a lot of time to devote on multiple things, you can focus on creating income streams with passive income where you do not devote your time every day on an earning activity.

Learn More ways of creating secondary source of income

Ashish Agrawal

Ashish is passionate & enthusiastic about coding and developing new skills. He has over a decade of experience in the Software & IT industry. He loves to code, design websites, and finding automated solutions to everything.  He loves writing on topics like investment, nutrition, leadership, etc.