For many, the dream of being financially secure is nothing more than a mirage. This is mainly because a common misconception equates financial security with having a million dollars in the bank. While having a hefty bank balance does not hurt, it is only part story.
Many top earners are learning this the hard way recently as the economic uncertainty has left them on the hook for expenses they can no longer afford to pay. However, this does not have to happen to you, and here are five ways to be financially secure.
When considering how to become financially secure, your priority must be the ensure that you have enough income to cover your expenses. If you cannot pass this hurdle, then you need to take a good look at your lifestyle. Granted, this might be harder for some people, but even if you can put away $50 per week, this will help you to have the emergency funds you need to weather times of uncertainty, such as the COVID pandemic.
Step 1: Develop Good Habits
“Managing your finances requires discipline, and this means that you need to have good habits, as this is the only way that you can keep yourself from falling into traps. One way to do this is to keep your credits cards at home, as this will keep you from splurging on impulse buys. You might also want to think about getting a separate bank account for your daily spending needs, as this will limit the funds available to you at any given time”, says Michael G. Branson (CEO of ARLO – All Reverse Mortgage)
By the way, having good spending habits does mean that you need to be spendthrift. Instead, you need to be disciplined. If there is an expense that makes sense and you have planned for it, then you should help consider making it.
Step 2: Leave Your Car at Home
Or better yet, sell your car. This is especially true if you are living in a city or a town where all your daily needs can be filled from shops within walking or cycling distance. Not using your car means that you can save money on gas as well as maintenance and getting rid of your vehicle altogether will eliminate monthly payments for your auto loan and your insurance.
If you need a car, then you can consider renting if it is just for a day or two, using a ride-sharing app, or purchasing a “new to you” vehicle as they will usually cost less than a new car.
Exceptions to this might be if you need to use your car for work. In this case, you are using your vehicle to make money, and as such, it might be considered an investment. However, if you are using your car to make money, then you want to make sure you are accurately tracking your expenses. Not only will this help you to get any tax advantages, but it will give you the basis to determine if the money you are spending on your car is yielding you the return you expected.
Step 3: Make as many Pre-Tax Deductions as Possible
While the rules might vary depending on where you live, you want to make sure that you take full advantage of any pre-tax contributions you can make. While doing so means that you will be taking home less money, it also means that you will be paying less in tax while putting money away for your future. As such, this approach is a big win for you and your financial future.
Step 4: Be Insured
Having the right health insurance policy can help to protect you and your family when the time comes. As such, you want to make sure that you have the right coverage to look to cover the health issues as we age.
Check out this resource from Investopedia for the best coverages available (from retirees, to low income, to those under 65).
Step 5: Regularly Review Your Financial Health
Just like you go to your doctor for an annual checkup, you should regularly review your financial health. Doing so will give you an idea of where you stand and what additional steps you need to take to reach your goals. If you want to become financially secure, then you want to make sure that you check your financial health (e.g., budget, savings, etc.) at least once a month.