When it comes to money, most of my decisions are based on how it will help me achieve either of my top two financial goals:
Today I want to talk about the first of those goals: financial security.
My absolute primary financial objective is to make sure that my family always has enough money to meet their basic needs. No matter what’s going on in our lives, I want to be able to afford food, shelter and clothes. Beyond that I’d like to always have enough to keep their daily lives stable so they can keep going to school, meeting up with friends, and the other little things that make up a regular life.
We can live without luxuries, but I want my family to also live without the worry of money issues causing a big disruption in our lives.
Building that kind of financial security takes some work and it takes some time. So how do you get there?
Live below your means
The very first step in building financial security is learning to live below your means. None of the rest of the steps are possible if this isn’t in place.
What does it mean to live below your means? Very simply, you can’t spend every single dollar that comes into your bank account.
The extra money between what you make and what you spend can be set aside as savings, or at the very least it can serve as a buffer when those unexpected expenses come along.
But if every dollar you make is spent, you’re putting your family in a dangerous situation where it would be difficult to handle even the smallest financial hiccup.
Build short-term savings
I don’t care what interest rates are, I’m always going to have a good chunk of money in a good old-fashioned savings account. The reasoning is very simple: life happens and I want easily accessible savings on hand to deal with it.
When your car breaks down, where will that money come from? When your roof has a leak, how will you pay for it? What about when your son breaks his arm, or your daughter has a cavity, or you get laid off and the unemployment checks aren’t enough? These are the kinds of situations for which you build both an emergency fund and saving to spend accounts.
Where people get into trouble with this kind of savings is when they start worrying about the interest rate they’re earning. Beyond taking simple steps like using an online savings account instead of one at a traditional bank, the interest rate is really not something you should worry about here.
When you reach for higher returns you end up taking on more risk and open up the possibility that the money won’t be around when you need it. Do yourself a favor and keep this money somewhere you know is safe.
Make sure you have good insurance
No matter how good you are at saving, it’s almost impossible to save up enough to protect your family from some of the worst-case scenarios it might face. This is where insurance can truly be a life-saver.
Insurance makes sure that your family is financially protected from uncommon but potentially devastating events. Life insurance can pay off debts and replace your income if you were to die. Disability insurance will ensure that income remains relatively steady in the event of long-term sickness or injury (which is more common that you might think). Liability insurance on both your auto and homeowners/renters policies ensures that a lawsuit wouldn’t cripple your finances. And of course a good health insurance plan will help your family get the care it needs, no matter what the cost.
I’ve written before about how much I love insurance because of the security it gives me. It’s really the only way I can afford to provide a truly stable financial environment for my family, so it’s one area where I refuse to skimp.
Invest for the future
Once you’ve got the foundation laid with the steps above, it’s time to start planning for the future. One of the greatest gifts you can give your children is ensuring that you yourself are financially independent so that they won’t have to support you in your old age. The best way to do that is to make a plan and start investing now.
The good news is that you can do this relatively simply. Start by making a very simple retirement plan to determine how much money you should be saving. Then you can work through this two-part series on how to start investing.
Remember that the best investment strategies are often the simplest and focus most of your energy on the basic steps of starting now and saving as much as you can.
The best part of investing for your future is that you’re not only increasing your family’s financial security, but you’re also bringing yourself closer to financial freedom. Imagine a day where you and your family not only have the money to live your life without financial worry, but you also have the time to enjoy it. Isn’t that something worth working towards?