How can I achieve financial security?

If you are struggling with debt, financial security may seem like a faraway dream. Truth be told though, financial security is within reach for all of us. All it takes is becoming financially literate, developing a plan and sticking to it for the long term.

What is financial security?

Although financial security can mean different things to different people, there are a few basic elements in common. Ideally, to be financially secure, you have low (or no) debt, healthy emergency savings, retirement saving and a plan for the future.

“Really, being financially secure comes down to having peace of mind when it comes to your finances. In real life terms, that means not living paycheque to paycheque and having enough savings to fall back in case life events or unexpected expenses arise,” says Jeff Schwartz, Executive Director, Consolidated Credit Counseling Services of Canada.

Would you like the peace of mind that comes with being debt-free? Call one of our trained credit counsellors at 1-888-294-3130 or visit our free online debt analysis.

What steps do you need to take to achieve financial security for your family? Read on!

Understand goal setting

While you could say that your ultimate goal is to achieve financial security, it is more effective to be more specific and to prioritize goals. You are more likely to achieve your end goal if you break your goals down into different timelines. That is due in part to the fact that many financial goals feed into each other.

For example, let’s say you want to pay down debt, build up emergency savings, buy your first home and save for retirement. You develop a budget that lets you pay down debt and build up emergency savings at the same time. Once that debt is repaid and your emergency savings is healthy, you start focusing your cash flow on your retirement savings. You can draw on your retirement savings under the Home Buyer’s Plan for your down payment for your home. As your equity in your home grows, you can continue to save for retirement and keep your debt down too.

Make your budget the boss

Hands down, the most important step that you can take to achieve financial security is to establish a working household budget. Your budget will help you spend within your means and identify areas in which you can improve your spending.

A few notes about budgets: you need to be very specific in your line items. That is the only way that you can really account for all of your expenses. You also need to track your spending, to make you accountable and to see if your budget is working. Respect the budget as the boss in your household. It only works if you commit to it and stick to it, day in and day out.

That said, part of successful budget planning involves revisiting your budget often (about once a quarter) to see if your budget makes sense. You may have been too aggressive in your spending targets, which means that you are always going to fall short. Alternatively, maybe you will discover that you are spending money that you weren’t aware of, so you need to adjust your budget accordingly.

Pay down your debt

It’s simple. You won’t achieve financial security with a high debt load. If you are carrying debt, you must make a plan to pay it down as soon as possible. Explore different debt relief options available to you, depending on your financial situation.

In addition to paying down your debt, you need to stop accumulating it. Shelve your credit cards and switch to a cash-only lifestyle.

Change your attitude towards spending

When your debt is paid off, there could be the temptation to rack it up again, because you feel like you can afford it. Not true.

“One of the simple rules of financial security means living below your means-always. On the flip side, it doesn’t matter how much money that you make. If you spend more than you’ve got, you’ll end up in debt trouble again,” says Schwartz.

This involves a shift in mentality towards spending. Teach yourself about the benefits of delayed gratification, where you buy what you want and feel accomplished because you saved up and achieved that goal. This is in contrast to the instant gratification that credit provides, where you get the item that you want, but you also get debt, the additional cost of interest and the stress that goes along with it.
Learn to resist drivers that cause you to spend, like trying to “Keep up With the Joneses” and the “Fear of Missing out”, which elicits an emotional response to justifying spending beyond your means. Let cooler heads prevail and use your budget as your guide.

Living simply can help you save money as you make your way towards financial security. It’s also about embracing the many tools that can help you get there, like smart shopping, tactics to avoid impulse buying, reducing transportation costs and learning to DIY wherever you can to save money.

Commit only to good debt

If you do take out debt going forward, make sure that it falls under the “good debt” category. It must in some way increase your wealth (i.e. a house, home renovations, a car or education costs). However, still keep this debt to a minimum too.

Never use debt to fund lifestyle choices, like clothes, travel, furniture or entertainment. That is classified under the “want” as opposed to the “need” category.

Become financially literate

The more you know about your finances, the more power that you have over your future. Learn about different types of investments to learn how to diversify and reduce your risk. Learn how your credit products work so that you can avoid paying out more in costs than you have to.

Start paying down your debt today so that you can move towards your other financial goals. Call us at 1-888-294-3130 or visit our free online debt analysis.