I’m sure everyone wants financial security; both now and for the future. It’s one thing to have a job now and be living it up, but it’s impossible to know what the future may bring which makes it even more important to create long-lasting financial security. Had a live chat on radio the other morning which prompted me to think about how to achieve financial security. So take a listen here and read on.
6 strategies to achieve financial security
Understand the importance of cash flow
Understanding the importance of cash flow is essential to help you move past the “pay check to pay check” mentality. You know that feeling of when there is just not enough money to see you through the month? Well that’s something that can be sorted out by fixing your cash flow. It’s not necessarily easy, but it’s so worth it!
Take a look at the image. If you have lots of debt you’ll inevitably be using your current months salary to pay for past expenses which almost makes it obvious that you won’t have enough money for the current month.
If however you don’t have debt and can use your full months salary for the current month you’ll generally find that you even have money left that you can save towards the next month.
Read this for more on what cash flow is and why it’s important.
Set up an Emergency Fund
This is probably something you’ve heard of before and it’s really a great way to bomb-proof your finances. Imagine having R10,000 – R20,000 saved as cash somewhere that you can use whenever you have an emergency. Things like the car breaking down or suddenly needing R5,000 for an insurance excess. Or even going to the emergency room at hospital which will set you back a minimum of R4,000. Life happens and having an emergency fund just helps smooth things over.
Some people have a credit card available for emergencies and that’s a good idea as you can access the money whenever you need. However, you should have the cash savings to back it up or else it will affect your cash flow and budgeting for the next few months as you try pay back the debt.
Create a financial plan
Having a plan is an excellent way to set yourself up for winning at life. Sure, it’s easy to say that you need to have a financial plan and it’s not hard to jot down some ideas and goals but actually implementing it and doing it is the hard part.
So where do you start?
Well if you have debt you need to make a plan to pay it off. You need to look at how much you need to retire and start working towards that and just generally start tracking expenses, savings rate, net worth etc and come up with a plan for yourself.
It really seems easier said than done but start by following some personal finance blogs (see blogs I like), reading books and really putting in the time and effort to understand your current financial situation and decide what is important to you and how you plan to get there.
Start here with the all the personal finance basics you’ll ever need.
Also remember to tweak your plan as you go. Have a look at retirement planning in uncertain times for more thoughts on this.
Want to chat to a financial planner?
Make smart investments
Everyone’s always looking for the next big thing. Buying into a company like Apple when its still just a start-up and making millions. Yip, some people get lucky and in hind-sight those were amazing investments but I’m actually just talking about more plain and simple investments.
Getting a retirement savings in place, taking out Unit Trusts or buying some ETF’s, and investing for the long run! The difference between “any old investment” and a “smart investment” is the fees! See how investment fees work; you could be throwing away (well giving away) literally a million rand or more over a 30 year period!
Generate passive income
Another strategy to ensure financial security is to create passive income streams. These could be from rental properties, side-hustles or businesses that you start. It’s not easy creating a stable passive income stream but once you have it, wow, it makes a difference!
I personally spend a lot of time & effort trying to build passive income as it will help me retire sooner and will in fact help me through retirement! I can still be earning income after retirement with very little work.
I don’t have any specific posts on this (yet) but I’ve added it to the backlog of things to write about.
You could look at how to start blogging – if that’s something that interests you.
The final strategy to achieve financial security is to keep track of everything. And by that I mean everything finance-related.
Keep track of your monthly expenses and savings.
Keep track of your Net Worth.
Keep track of your goals and stay motivated.
Keep track of your retirement savings and how much you need to retire.
How to achieve financial security in 6 steps
It may seem like a lot of admin but it’s very easy to create a little system for yourself. Some people like spreadsheets whilst others use apps. The more old-school approach of per and paper works just as well too!
- Understand what cash flow is and fix yours if necessary
- Set up an emergency fund
- Create a financial plan
- Make smart investments
- Create passive income
- Keep track of it all
Download the personal finance spreadsheet that I use.
Whatever you decide, just keep track of your finances and adapt when necessary.