What is financial security? The answer to this question is slightly different for everyone.
Ultimately, financial security is a sense of stability, control, and freedom in your financial life—regardless of the phase of life you’re in.
As we look into this idea further, however, other interesting questions arise. Can anyone ever truly be financially secure? And how can you turn financial security into financial opportunity? We’ll explore all of this in more detail in this article. We’ll also share real-world examples from our clients who have achieved financial security and gone on to make their financial goals a reality.
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What is financial security?
From a nuts and bolts perspective, being financially secure means that you’re financially prepared to handle unexpected emergencies or hardships; and that you can maintain a comfortable lifestyle on an ongoing basis. It means that your needs and wants are covered—but not necessarily indefinitely (that would mean you’re financially independent, which is similar but different), and you have the tools and resources to keep up with those needs and wants.
Depending on the phase of life you're in, what defines financial security or the criteria to have reached it can change. For example, if you're just starting out, financial security can be as simple as having a budget, a good understanding of your cash flow, and being in a position where you can build an emergency fund. For young Americans, financial security also often involves transferring human capital into financial capital in the form of a job that pays you income. As a result, financial security for a young person could look like saving their first $1,000 in a savings account, having positive cash flow, and managing their debt.
In contrast, financial security holds another meaning for retired Americans. Instead of covering their needs and wants with earned income from a job, other sources of income like pension plans and investments must be able to help them accomplish that—and these resources are likely to last their lifetime. Ultimately, it still comes down to having financial stability, control, and freedom.
Can anyone ever truly be financially secure?
At Bay Point Wealth, we always try to communicate to our clients that financial security isn’t an end point—rather, it’s a way of being. It points to the effort on an individual’s part to gain an understanding of their financial situation and take action to have control over their circumstances.
While you can achieve a sense of financial security, it’s a never-ending journey in that, once you’ve done so, you must maintain it. Some of our clients have financial strategies in place that would take a lot to jeopardize, but it could still happen. This is why proper money management and risk management are key to not just becoming, but remaining, financially secure.
As with many things in life, it’s about the journey—not the destination!
How Financial Security Affects Families
Having a sense of financial stability and control can create an empowering feeling of freedom. Evidence shows that being financially secure also reduces stress and anxiety, which is highly beneficial to everyone within a family dynamic. It can even boost your confidence.
When you’re financially secure, this gives you the opportunity to focus on other aspects of your life because you won’t always be worrying about money. This is why understanding your financial situation is crucial. If you’re dwelling on making ends meet, it will permeate every aspect of your life. Knowledge is the first step to taking control.
Financial security can also enable you to make better decisions. It puts you in a position where you’ve got yourself covered, so you can start focusing on helping others. (Think of it like an airplane oxygen mask). This means you’ll have the time, energy, and cash to consider your family’s financial goals and even charitable objectives.
Since financial security and financial independence are different, it may not mean that you’re flying first class to Europe twice a year, but your life will still be stable and fulfilling. You can even turn financial security into financial opportunity by using debt to build wealth or through other means, which we’ll discuss next.
How—And When—To Use Debt To Build Wealth
If you’ve built financial security, and you have a stable situation as well as a good understanding of your circumstances, you may want to approach the idea of using debt to build wealth. This could involve buying real estate or getting a commercial loan for your business. Whether this is the right move for you comes down to risk management. You might assess the risk and decide that the approach of using debt to build wealth does fit your lifestyle, and if your plan doesn’t work out, you’ll still have the financial resources to get by.
Part of assessing risk involves ensuring that you won’t become overleveraged (i.e., that you won’t take on more debt than your cash flow can handle). This is where people can get into trouble and jeopardize their financial security. Sometimes, things go sideways with the use of debt, and folks can’t meet their obligations, which undermines all of the work they’ve done thus far to build wealth and financial security. Working with a financial advisor to gain a solid understanding of your situation can help you avoid this happening to you. The key is to prioritize your financial security above all else, and develop an eye for risk management.
How To Turn Financial Security Into Financial Opportunity
Financial security is the foundation upon which you can explore other opportunities and begin to use your financial resources in new ways. You might think about investing your surplus cash in the stock market, starting a business, or going back to school and building the skills to launch a new career. Or, you might be getting ready to retire and pursue your passions and charitable objectives at a new level.
Let’s explore four ways our Bay Point Wealth clients have created financial security, and opportunity, in their lives.
Investing In Rental Properties
When they came to us, this young couple was already financially savvy—they were excellent budgeters and knew their expenses. Over time, they steadily grew their income through their careers, started a family, and bought their first home—on top of that, they’ve moved twice since. Through conscientious management of their expenses, this couple has been able to keep their properties and move to a new primary residence each time, turning their past properties into income producing rentals. Steadily and methodically, they managed risk to maintain their financial security while forging a path to success.
Taking The Leap Into Entrepreneurship
When this young couple received an inheritance, they began working with us. The wife was a homemaker and the husband had a stable career he enjoyed, but wanted to leave it to start a business. Before taking action, the couple had conversations with each other and with us to be sure they were financially secure and that this was a risk they could afford to take . Together, we set parameters around how much money they could prudently invest into the business without significantly jeopardizing their future, and how much they could withdraw from their portfolio before they’d need to start earning income. So far, the business has been stable and the experience has been rewarding.
Returning To School To Increase Income
A client who received some assets from her divorce began working with us when she wanted to return to the workforce. Together, we assessed her situation and determined that she was financially secure enough to not immediately get the first job available, but to take her time and obtain the education needed to work in a field she desired. Now, she’s had a fulfilling career that increased her income and has since retired. Having financial security created the opportunity for her to explore something rewarding. That journey left her with a sense of personal and accomplishment that she didn’t have before.
Creating Stability In Retirement
Upon retirement, folks often have the choice between taking a lump sum pension or annuity income. Our clients decided to take the annuity income. They were honest with themselves about their risk tolerance level and understood that if they took the lump sum, they would be banking on the probability of the markets performing well over time. At Bay Point Wealth, we have confidence in that, but not everyone shares our view. This couple’s choice has helped them feel financially secure and confident that they’ll have stability in retirement. They’ve also been able to keep their other assets invested in the stock market.
We’ll Stick With You On Your Financial Journey
The road to financial security isn’t always a linear path. The first step is gaining an understanding of your financial circumstances. At Bay Point Wealth, that’s where we come in. We can lend another set of eyes to your situation and help boost your confidence, while empowering you to get a handle on any weak points.
Your journey and sense of financial security will change over time, but we’ll be with you every step of the way. Ready to get started? Schedule a call with our team.