5 Proven Ways To Achieve Financial Security

Raise your hand if you want to be financially secure! That’s an easy yes, right?

But even though everyone wants financial security, unfortunately not a lot of people actually experience it—especially when more than a third of Americans say they’re either struggling or in crisis with their finances, according to our Ramsey State of Personal Finance study.

I’ve got good news for you though: You can achieve financial security. It’s possible! Even if you’re currently buried in debt, you’ve made money mistakes your entire life, or you don’t have a dime saved for retirement, you can still become financially secure. You just have to be patient and take some important steps.

So, let’s talk about what financial security is, why it’s important, how you can achieve it, and the difference between financial security and financial stability.

 

What Is Financial Security?

Financial security means reaching a point where you’re so secure with your money that you’re living without debt, paying your monthly expenses, investing for retirement, and keeping money in the bank for emergencies.

It’s having the confidence that you can survive financially, even when the unexpected hits. It’s knowing that you and your family will be okay, even if you lose your job. It’s feeling peace while you take care of a family member in the hospital, even as the medical bills keep stacking up.

And here’s some good news: You can absolutely achieve financial security, and I’m going to show you how to get there! But first, let’s go over why financial security is so important.

Why Is Financial Security Important?

Financial security is important because you never know what crazy or unexpected events life will throw at you. Maybe the washing machine decides it’s done its last load, or you get a tire blowout on your way to work, or your spouse is laid off from their job. Heck, maybe a global pandemic means you have to homeschool your kids and work from home.

Any number of unpredictable things—especially that have to do with money—can happen at any time. But when you’re financially prepared, money emergencies like those become inconveniences. Being able to handle what life throws at you is what financial security is all about, and why it’s so important.

5 Ways to Achieve Financial Security

If you want to achieve financial security, you have to make it a goal. Now, reaching your goals doesn’t always come easy. After all, some of the steps we’re about to go over may take you a year or two to complete—and you won’t be able to start them all at once.

But here’s the thing: I’ve been helping people turn their money around for years, so I know if you stay focused on finally having peace around your money, you can reach that goal. And it will be so worth it!

1. Start living on less than you make.

No matter where you are on the road to financial security, your paycheck is the vehicle that’s going to help you get there. Why? Because your income is your greatest wealth-building tool.

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So, what can you do to make the most of your income? Spend less of it! To be specific, you need to make sure you’re living on less than you make. If you spend your entire paycheck every month and have nothing left over, you’re going to run into problems real fast.

If you don’t believe me, it’s in the Bible too. Look at what Proverbs 21:20 (NIV 1984) says: “In the house of the wise are stores of choice food and oil, but a foolish man devours all he has.” In plain English, that means smart people save their resources and foolish people use them all up.

That’s why it’s so important to live on less than you make and start saving money. But to do that, you’ll have to learn to tell yourself no and be content with what you have. And that can be really hard for most people! But when you get to that point, you’ll be more financially secure than ever before.

No more overdraft fees. No more living paycheck to paycheck. No more worrying if you’ll be able to make ends meet. That’s the definition of being financially secure. Imagine how free that feels!

2. Kiss your credit cards goodbye.

Can you imagine waking up tomorrow owing exactly $0 to a credit card company? Well, that can totally be you one day . . . if you cut up your credit cards today.

The biggest argument I hear for keeping credit cards is the rewards. Hey, I won’t deny that cash back and airline miles sound like offers that are too good to pass up. But to “earn” those points and miles, you have to spend a lot of money. And along the way, you’ll be tempted to spend more than you would with hard-earned cash just to chase those rewards. That’s a problem.

Plus, as we talked about earlier, credit cards are a terrible plan for handling emergencies. Like I said—going into credit card debt the next time an unexpected expense pops up will turn that emergency into a crisis. And sure, everyone plans to pay off their credit card every month. No one opens a credit card planning to rack up a ton of debt. But the average credit card balance in America is $6,360.¹ Don’t risk falling into that same trap!

Here’s the bottom line: The only thing you earn with a credit card is a lot of debt, stress and worry—even if you plan to pay it off every month. The random perks, airline miles and free pizzas the credit card company throws your way aren’t worth the risk of paying crazy amounts of interest and putting your financial security at risk.

3. Pay off your debt.

You’ve probably heard people say you can’t survive without debt these days, and that it’s a tool for building wealth. Uh, nope. Let me set the record straight about debt: It’s a thief. Debt steals your income and gives it to car dealerships, student loan servicers and credit card companies. And since your income is your number one wealth-building tool, that’s a huge problem.

You’ll never be financially secure when you owe people money and have to make payments every month. So, if you want financial security, it’s time to become debt-free! Start by deciding and committing to not borrow money anymore. Then, start working the debt snowball method—the debt payoff method our team has recommended for over 30 years.

Here’s how it works:

1. List your debts from smallest to largest (regardless of interest rate).
2. Make minimum payments on all your debts except the smallest debt.
3. Put as much money as possible toward your smallest debt every month until it’s gone.
4. Then, take what you were paying on your smallest debt and add that to your payment on the next-smallest debt until it’s gone too.
5. Repeat the cycle until each debt is paid in full and you’re completely debt-free!

You’ll also probably need to start making sacrifices to free up as much money as you can. Some of my favorite ways to add extra margin to your budget and get out of debt faster are cooking at home instead of eating out, swapping fancy vacations for places you can visit with your family for free (or super cheap), and earning extra income through a second job or side hustle.

Is getting out of debt easy? No, but it’s possible and it’s worth it.

4. Build up an emergency fund.

Nothing will give you peace of mind and financial security quite like an emergency fund. It’s like a safety net for when emergencies happen—and as much as we all hate to admit it, emergencies will happen. Unfortunately, it’s just a matter of when, not if.

And if you don’t have a safety net when an emergency pops up, it’s tempting to use a credit card to cover the bill. After all, our research shows 19% of people with credit cards keep them around to help cover emergencies. But that’s not a good plan, you guys! All that does is turn your emergency into a bigger emergency because it means going into debt with super high interest rates.

On the other hand, when you have money in the bank to cover those urgent, unexpected expenses, you can pay cash the next time your car breaks down or your refrigerator stops running. You won’t even have to think twice. That means no stress or drama.

So, how much should you save for emergencies? If you still have consumer debt, begin with a starter emergency fund of $1,000. This will cover smaller emergencies while you’re getting out of debt. Once you’re out of debt, take your emergency fund up to a full 3–6 months of expenses.

5. Invest 15% of your income.

A huge piece of financial security is knowing you’ll be in good shape with your money when you retire. That’s why the last step on this list is to invest 15% of your income for retirement—once you’ve paid off all your debt and built a full emergency fund.

Imagine going into your golden years debt-free with a full emergency fund and a big pile of retirement savings. Think of how much peace (and freedom) that would give you! And the good news is, it doesn’t just have to be a pie-in-the-sky dream.

Let’s crunch some numbers to see how to make this a reality. If you start investing 15% of a $55,000 salary into good mutual funds with an 11% rate of return at age 30, you’ll have over $3.3 million in your retirement nest egg at 65. That’s great!

But even if you get started a little later, you can absolutely still build wealth. Investing 15% of a $65,000 salary from age 40–65 with an 11% rate of return will grow to over $1 million. And of course, 15% is just a starting point. Once your house is paid off, it’s a good idea to invest even more than that.

Now you know how much to invest and why you should do it. But there’s one more question to answer: Where should you invest your money? The best place to invest your money is tax-advantaged retirement accounts, like a 401(k) or a Roth IRA. Within those accounts, you’ll want to invest your money in good mutual funds with a long track record of success.

There are a million rules and details when it comes to investing, so you always want to work with an investment professional you trust. This person should explain to you, in an understandable way, how these investments work.

Financial Security vs. Financial Stability

One more thing before we wrap up: Lots of people want to know the difference between being financially secure and financially stable because they sound almost the same. There’s a slight difference, so let’s go over it.

While financial security is about knowing you’ll be okay with your money both now and in the future, financial stability is more focused on the here and now. When you’re financially stable, you can confidently cash flow an emergency, cover your monthly bills, and maybe even have a little extra at the end of the month to put in savings. Financial stability is what life looks like after you become debt-free but before you reach financial security.

On the other hand, when you’re financially secure, you’re also making moves to set yourself up for long-term financial success, like consistently investing for retirement and being super intentional about saving money each month. It’s being able to pay for your life today, tomorrow and further down the road.

You’ve Got This!

It may feel overwhelming or even a little silly to think about financial security if you’re just trying to keep the lights on. You might be thinking, How can I prepare for the future when I’m barely living paycheck to paycheck?

I get it. And if you’re feeling that way, you’re not alone. After all, 78% of Americans are living paycheck to paycheck.² Plus, our State of Personal Finance study found that a third of adults have zero savings—for emergencies or anything else.

But the good news is that if you feel like you’re drowning in debt, unprepared for emergencies, or behind on retirement savings, there’s hope. You can become financially secure. It’ll take time and hard work, but it is possible if you take the five steps we just went over.

I’m cheering you on!