Financial Security: What it Is and How to Get There

For more and more young people, financial stability is replacing retirement planning as the savvy way to consider saving for the future. While a different way to think about savings, many of the same tools work for financial security and retirement planning. 

What is financial security?

According to Investopedia, financial security is having enough passive income to cover your expenses for the rest of your life. For example, if you have rental property, dividend income, savings account interest and a turnkey business that provides enough money to live on, you’ve achieved financial security. As you age, these opportunities account for more of your income, leaving you more time to pursue your passions.

Financial security gives you freedom and flexibility. It means the freedom to move somewhere because you want to live there rather than following a job. It means you can care for an ailing parent or take vacations on your schedule.

It’s not quite retirement. Financial security assumes that you’re still making money somehow, whether in residual income from work or small business opportunities you work to maintain.

How do I get there?

Most of the advice that applies to retirement savings applies to saving for financial security. Putting away 50% or more of your income into savings vehicles and investments is an excellent place to start. Avoiding debt for consumer purchases or lifestyle maintenance is another great choice. 

The real difference comes in timing. With traditional retirement planning, you invest more as you get closer to retirement. The goal is to accumulate enough savings to live on for a decade or two when your expenses are at their highest, so you must contribute more during your peak earning years. Typically, these come just before you retire. 

When your goal is financial security, the timetable reverses. In the beginning, more of your wages need to go toward investments. As they bring in returns, more of your income becomes disposable. Because your savings aren’t locked up in a designated retirement account, you can use them to pursue non-work money-making strategies.

Financial security is also about investing in yourself. Learning a new skill can open up new opportunities or help you save money by in-sourcing an existing task. 

What tools can I use?

There’s still space in a financial independence plan for traditional investment vehicles like IRAs and employer-matching 401(k) programs. These investments offer preferential tax treatment, which can be a valuable complement to other savings. 

More flexible options, like savings accounts, money markets, and certificates or CDs allow for short-term savings. Money goes into these accounts until enough capital is accumulated to invest in another money-making project. 

Investing in stocks and mutual funds is also essential to financial independence. Focus on trusts and companies that provide consistent dividends and steady growth. Avoid trying to “hit home runs” with stock picks that triple or quadruple in value overnight, and instead look for slow, steady growth. These investments are more about keeping your money safe from inflation than making it grow in value.

Another resource you will need on the journey is knowledge. Much of financial security involves navigating a lot of unknown waters. Being a small business owner requires financial knowledge not taught in most schools. That’s where KeyPoint can help. Our friendly, knowledgeable staff can walk you through the steps to being the master of your financial destiny.

If you’re interested in financial independence or improving your financial future, visit kpcu.com or stop by a branch.