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Finances are always on our mind. It doesn’t matter if it’s about retirement, starting a business or education fees for our children, we always need to think about our financial situation and we need to make plans for the future. There are usually two types of people when it comes to managing finances; those who struggle with saving their cash and those who have no future worries. The latter camp is referred to as having financial security.
Some people consider financial security to be a myth. After all, there’s a saying that goes “the best-laid plans of mice and men often go awry” and it’s, for the most part, completely true. It’s difficult to plan ahead for the future because you’re never sure what could come around the corner, so why waste the effort of preparing for the future when it could all be for nothing? In addition to that, there’s the problem of inflation which makes saving up your money rather difficult, so is there any reason to aim for financial security?
In this article, we’ll be going through some of the main reasons why you should be thinking about financial security and ultimately how you can achieve it. We’ll be explaining how financial security is far from a myth and how it can empower your life both in the present and the future.
Reducing the Number of Financial Mistakes in Your Life
Your financial situation is something that still sticks with you for your entire life. Whether it’s taking out a loan, getting a mortgage or even just borrowing money from a friend, your financial history is going to leave behind a history that you won’t be able to easily erase. As a result, it’s important to minimise the number of financial mistakes you make so that you’re not burdened with a negative stigma for the rest of your life. Here are a couple of common financial mistakes and what you can do to reduce their impact or avoid them outright.
- Watching your credit rating – The first major concern you have to consider is your credit rating. Your credit rating is one of those things that will stick with you forever. Fortunately, it’s possible to fix your credit rating by just being better with your money. Pay back your debts, don’t make late payments and budget for your expenses. In short, the better you are with your money, the less you have to worry about a bad credit rating.
- Reducing the amount of debt you have – If you have accumulated lots of debt, then it’s important that you pay it back as soon as possible. You can do this by consolidating your debts with the help of a debt relief blog. Debt consolidation means you’ll be taking out a single loan to pay off all of your debts before they accumulate even more interest. It’s a great way to clear up a lot of your debt in a single go and can often save you a lot of money in the long run.
- Taking out loans to pay debts – Aside from consolidating your debts, it’s important to hold yourself back from taking out more loans just for the sake of paying off existing ones. If you do this on a per-loan basis then you’re not achieving much even if you’re able to cut down on the amount of interest you’re paying. This will just lead to further complications in the future and you don’t want to hurt your credit rating any further.
- Overestimating your ability to manage money – One of the biggest concerns for people with poor financial management is that they don’t even know it. Many people seem to overestimate their ability to manage money. For example, they might think that starting a business while in debt is a good idea because they believe that the profit made will offset the increased debt. However, someone who is in debt most likely doesn’t have the ability to manage a business very well in the first place. In this case, starting up a business while in debt is a terrible idea and should be avoided at all costs.
- Forgetting to budget for future expenses – Whether it’s paying for your child’s college tuition, your medical bills or even your internet usage, make sure you plan ahead for future expenses by budgeting correctly. If you’re having trouble managing your budget, then remember that you can always use budgeting software or applications to make it easier for yourself.
- Failing to identify long-term goals – And with that said, identifying your long-term goals is also important. Perhaps you want to ensure that you have plenty of money for your retirement, or maybe you plan to move to a new home in the future. Whatever it is, you need to identify what your long-term goals are so you can make smart financial decisions to cater towards them. Failing to do this will result in poor financial security.
Now that we’ve identified some of the most common financial mistakes, let’s take a look at what it takes to remedy those mistakes and how we can provide ourselves the financial security that we want to achieve.
Learning to Invest for the Future
Whether it’s putting together a company or investing in real estate, the idea is to protect your money from inflation by investing for the future. This can be done a number of different ways, but the general idea is to stop yourself from using a savings account.
The reason you need to avoid a savings account is that, despite the promise of interest, you won’t get enough to cover several year’s worth of inflation. Just think back to how much your grocery shopping cost several years ago and compare it with today. You’ll probably realise that it’s far more expensive, thus why it’s important to protect yourself from inflation with other methods.
One of the most common ways to avoid inflation is to invest. Whether it’s in stocks and forex (risky method) or property (much safer) the idea is to place your money into assets that will increase in price over time, thus becoming immune to inflation. It sounds risky especially if you personally haven’t tried to invest your money into other things before, but it’s a fantastic way to provide financial security that is immune to the effects of inflation. People find that inflation is one of the most problematic things about saving money for the future and the best way to avoid it is to put your money into assets that will grow in value.
Financial security involves building up enough wealth in the form of assets so that you feel safe no matter what happens. It’s similar to building up an emergency fund but on a larger scale. Financial security doesn’t mean you need to be rich–it just means you need to have enough money to sustain your chosen lifestyle.
Plan With Your Money, Don’t Just Save
Another key aspect of financial security is being able to plan ahead instead of just saving your money. There’s a distinct difference between blindly saving your money and thinking ahead. Saving means that your money doesn’t have a purpose or an aim–you’re just saving for no reason. On the other hand, planning your money gives you a reason to save it in the first place.
People that have achieved financial security will all tell you the same thing; set goals and build plans to reach them. This is important because people are naturally goal-oriented. We’re driven to accomplish things that we set ourselves and we’re more likely to succeed when the goal is clearly defined. The goals need to be short-term goals to ensure that you can actually reach them instead of long-term ones that stretch several decades into the future. For instance, if you’re still in your early 30s, then planning for retirement shouldn’t be as important as say, starting a family or paying off your student loan.
Without a purpose, your money is virtually useless. It’s pointless to leave your money sitting in a bank account doing nothing, so always plan ahead for your expenses.
Some Final Words
As you can see, financial security isn’t a myth. It’s often misunderstood as being rich, but even wealthy people aren’t guaranteed to be financially secure. One of the most important concepts to understand when attempting to build financial security is investing your wealth for the future. Your immediate wealth sometimes isn’t as important or crucial as your long-term wealth, and this is what creates a feeling of security.
In short, stop saving your money aimlessly. Change the way you approach your savings by investing in assets instead whenever possible. Otherwise, your money will rot away in a savings account and you’ll be left with less wealth than you’d think. Inflation will devalue your savings and the lack of a safety net will make you feel financially insecure.