Financial security means different things to different people, but to me it means room to breathe. It means knowing that I have money to pay my bills, money to pay for unexpected expenses, and, more than anything else, the start of a future. Financial security is hope in a nutshell. It’s like reaching for the stars and actually twirling among them.
Even though having financial security is a peaceful thought, it’s not always a peaceful journey to get there. It’s hard work, and I’m not sure that anyone’s ever “there.” At any time, it’s possible to lose your job, have a house fire, have outrageous medical bills, or experience any other catastrophe.
Having financial security won’t prevent bad things from happening, regardless of how much we hope and pray. It does help set you up so that you have a fighting chance when something bad happens, though.
So, the question of the day: how do you achieve (or work toward) financial security? It’s not easy, but it’s definitely a journey worth taking.
The farmer and I didn’t always start out being “financially secure.” When we were getting married, we used every cent that we had (not much, but we followed a strict budget) on our wedding. Then, once we were married, we had huge student loan bills, two car payments, and ridiculous New Jersey rent to pay (at one point, we were paying $1,500 a month in rent, not including our utilities – crazy!!!).
We knew we wanted to buy a house as soon as possible (anything to avoid sky-high rent), and we wanted to get out of debt. We also knew we needed to save for retirement, get our master’s degrees, and eventually start a family. It wasn’t easy, but we managed to accomplish everything on our list in less than four years. We paid off our cars, paid off the student loan debt, and then moved to Michigan where we bought a house, finished our degrees, and started a family. By the way, when we moved to Michigan, I had to quit my job, so we had to live on one income for 13 months until I found a job. We also used all of our money as a down payment to buy our house, so we were starting from scratch with our savings. On one income, with a new house that needed renovations, and with a baby on the way, we were still able to reach “financial security” again.
That’s a nice story, but what about you?!? How can you reach financial security? I promise it’s not that difficult (and even if it stretches you, know that it’s not permanent)! Know that an end is in sight – an end when you can take a deep breath without feeling like the weight of the world is pushing you down.
- Start (and follow) a budget. This is huge, and I can’t stress it enough. I’ll do a budgeting series on Tickling the Wheat in January, but in the meantime, start by tracking and reviewing your expenses. If you already have a budget, make sure that you remember to pay yourself (rainy day fund, retirement savings, etc.) first, and then deduct your expenses. Note that you should focus on accumulating a large enough rainy day fund (keep it liquid, like in a money market or high-interest savings account), but not so large that you’re neglecting your high-interest debt. At this point, don’t worry about saving the recommended three – six months of your expenses. Just save enough to maximize your 401(k) employer match and create a small rainy day fund, then focus on your debt.
- Make double payments or make extra principal payments whenever you can. In addition to paying yourself, make sure that you account for principal payments to your loans. Pay extra on the highest interest loans first. I know that many experts recommend paying off the smallest loan first so that you feel “accomplished” as you pay off your debt, but we’re not focused on your feelings right now (sorry to be blunt). By focusing on your highest interest rates, you’ll pay off your debt faster, and you’ll be able to feel “accomplished” once all your debt is paid off (and with good reason)!
- Be realistic. If you know that you have $50,000 in student loan debt and earn $50,000 a year, you won’t be able to pay off your debt in one year. You have to eat! On that note, make sure that you’re living within your means, though. Don’t accumulate more debt while trying to pay off other debt. Chances are, your student loans or auto loans have lower interest rates than credit cards, so focus on paying off higher interest loans first without breaking the bank. Instead of eating out (and spending $50+) once a week, cut down to once a month. Take that extra $150 and make a principal payment on your highest interest rate loan. Slow and steady wins the race. You may not pay off your debt in a year, but know that you’ll get there eventually.
- Be willing to do “whatever it takes.” You might have to settle on some things. You might have to “do without” once in a while. You may even have to move halfway across the country. Know that it will get better and you’ll finally be able to breathe easily once you reached your goals. I’m not advocating a complete spending freeze, although you may need to make some cuts. Try minimizing your expenses and reevaluating your budget, and then start making the difficult decisions.
If we can “reach financial security” (twice), anyone can do it! With a little planning (my favorite word these days) and a little scrimping (don’t panic – we always had cable TV, went out to dinner at least once a month (even if we did use gift cards), and still “lived” our lives), you can achieve and maintain financial security, too! Think about your expenses, current savings, and your goals, and get ready to reach for the stars!