What is financial security and how do you achieve it?

Financial experts may talk about financial security or being financially stable, but what does it actually mean in practice, and how can you and your family achieve it?  

Having financial security essentially means having enough money to meet your financial obligations, such as paying your bills, and to plan for the future. 

It also means having a financial cushion in the bank to deal with any unanticipated expenses, keeping to a budget and paying off your debts.

What is financial security?

Financial security can mean a number of different things, but one essential part of it is the ability to live within your means.

It means sticking to a budget, being able to pay your bills and not overspending or trying to live a lifestyle funded by debt that you can’t afford. 

This way, you can have the peace of mind that you are not racking up debts that you will have to deal with in the future. 

Having savings put away is also an important part of being financially secure.

It’s vital to have a rainy day fund in place in case your best laid plans go awry and redundancy or other obstacles, such as major unexpected expenses, come your way.

Financial planning for the present and future is also another key part of financial security. 

Perhaps you might want to get on the housing ladder or help a member of the family do so. You might also want to save towards your retirement.

Why is it important to have financial security?

Nobody knows what is around the corner. So, being financially secure and having a financial cushion in the bank means that you won’t need to panic when life doesn’t go according to plan.

It also means you may have a better chance of achieving financial goals such as saving for a home, supporting your family and saving for the future, such as plans to go travelling, helping pay for university or saving for retirement. 

Having financial security will help you feel better prepared for the future and better able to deal with the unexpected challenges life can sometimes throw at us.

What could get in the way of financial security?

One of the biggest obstacles to financial security is debt. Not living within your budget and overspending can lead to financial difficulties. 

If you regularly spend more than you earn, then you will rack up overdraft and credit card debts, which will in turn accrue interest and need to be paid off. 

Another obstacle is not having sufficient regular income. This can make it difficult to maintain a budget and to save money for your future.

How do I achieve financial security?

For most of us, unless we have deep pockets, financial security can’t necessarily be achieved overnight and may instead take time to establish. 

But by focusing on the following key aspects of your finances, you can gradually work towards it. 

Prioritising paying off your debts

High interest debts, such as credit card balances or loans, can get in the way of achieving financial security. 

Often, it’s best to use any spare cash to pay them off before starting to invest your money.

This is because the interest rate on debts is usually much higher than any interest you’ll earn on your savings and investments. 

Switching credit cards

See if you can switch any credit card debts over to a lower interest loan or a 12 month or more interest-free credit card offer so that you can repay your debts more quickly and pay less interest on them. 

Budgeting

Set a budget for you and your family for items such as household expenses, groceries, bills and eating out.

You can use a spreadsheet or, alternatively, there are many useful mobile phone apps nowadays that you can connect to your bank accounts safely and use to set and keep to a budget. 

Having regular income coming in

Budgeting is all very well, but if you don’t have enough stable income coming in, you can’t comfortably cover your bills.

It isn’t always easy, but if your outgoings are exceeding your income regularly, look to see how you can cut back on your expenses or earn more money. 

Establishing a rainy day fund

Typically at least three months’ salary and up to six months - tucked away in an easy access savings account.

This means that you can access it easily and quickly when you need to manage unexpected issues such as redundancy or major expenses around the home, such as fixing a leaky roof or car repair bills. 

Keeping up with repayments

Automating them and maintaining a good credit record. Doing so will help you get a better deal on your mortgage and any loans you might need in the future. 

Saving and investing for the future

Making use of tax efficient wrappers such as ISAs and pensions to make the most of your savings. 

Enrolling in your workplace pension – especially if your employer matches your contributions – and setting up automatic savings plans can make a huge difference to your financial health and security. 

Planning your financial future

It’s important to set long term financial goals for you and your family and, if you can, start putting money away towards achieving them.

A financial adviser can help you do so.

Get expert financial advice

Establishing financial security can take time and won’t necessarily happen overnight for most of us, however, it is well worth working towards.  

It can mean the difference between being in a position to meet your long term financial goals, such as buying a home or having a comfortable retirement, and not being able to. 

It will also give you peace of mind to know that you have enough money put away to cover unexpected expenses. 

Let Unbiased connect you with an experienced financial adviser who can help you achieve financial security for you and your family by budgeting and planning for the future.