For our article this month, we will consider the question of whether to treat financial security as a state of being or a feeling. In other words, is it something you become by achieving a certain level of accomplishment? OR is it something you can trick your mind to feel, whether you have the achievement to back it up or not?
Is there any similarity or distinction when people say they “feel” [financially] secure versus when the are actually secure [i.e. state of being]?
To answer these questions, it is best to begin by understanding what financial security is and it’s components. Then we will proceed to take the question segment by segment before bringing it all together to make sense out of it.
What is Financial Security?
Consumer Financial Protection Bureau (CFPB) describes financial well-being or security as “a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow them to enjoy life.”
What this means in practice is that an individual can weather the unplanned and unavoidable “financial shocks” in life. They can save money to cover the unexpected car repair or hospital bill without worrying if they will be short on money for basic necessities like food or rent. Also, they can take a day off work to care for their sick child without fear they will fall behind on their bills. They can choose when and how to invest in future opportunities like education, buying a house or taking a vacation. And most importantly, they can be thrown a curve ball by life, as we all inevitably are, and catch it without derailing their financial footing.
A few people may stumble into financial security—a wealthy relative may die, win a lottery, get promoted at work or a business may take off. But for most people, the only way to attain financial security is to save and invest over a long period of time.
Time after time, people of even modest means who begin the journey early enough reach financial security and all that it promises: buying a home, educational opportunities for their children, and a comfortable retirement. If are reading this, financial security and eventually financial freedom should be one of your goals in life if you are yet to achieve it.
Achieving long-term financial security is a process that begins by establishing short-term stability in the way we make, manage and multiply money.
Three Pillars of Financial Security
In the publication “The State of Financial Security 2020: A Framework for Recovery and Resilience”, the Aspen Institute explores the precarious financial situation of millions of people in the U.S. and what to do about it.
They also defined a framework for understanding and addressing the challenges of household financial insecurity, one that acknowledges that financial insecurity is a many-headed beast, the product of a series of failed or failing systems across the public and private sectors.
Specifically, there are three essential building blocks of financial security, namely:
1. Routinely positive cash flow to cover expenses and allow for savings;
2. Personal financial resources to support household resilience, wealth, and well-being; and
3. Public and private benefits that can provide a functioning safety net to fill in gaps in the current economic system and protect individuals against financial catastrophes.
We discuss each of these in more detail in the text and infographic that follows:
From the report and infographics above, we can see that building your financial intelligence and personal resources remains the fundamental strategy to achieving financial security. This framework widens the aperture to call out other systems that are also essential and shows how they are connected. It acknowledges that cash flows into and out of households (or your pocket as an individual) is a core component of financial security.
Financial Security as a State of Being
Like I mentioned earlier, financial security means being able to pay the bills (without having to check account balances first), and not being worried about where the next paycheck is coming from. But beyond the physical state of having the money when it’s needed, financial security is also a state of mind or being.
The state of being financially secure refers to the peace of mind felt when you aren’t worried about money. Often, this means having enough income to comfortably cover expenses with some surplus left for some savings , being debt-free, and having a couple of safe investments.
People believe you need to be a millionaire or even multi-millionaire to be financially secure. However, there have been countless entrepreneurs, athletes, and film stars who’ve made a fortune and then lost it all.
The truth is, you don’t need a mansion, sports car, or private jet to be financially secure – you don’t even need to have paid off your mortgage. What you basically need is to ensure you are out of debt, have your income exceed your expenses, save the surplus, build an emergency fund and have some goal-based investment portfolio.
Ultimately, a state of financial security just means that you’re in control of your money, and you’re not worried about paying the bills or covering an emergency. For many people, this often entails any or all of these four things:
1. Being debt-free – is a prerequisite to achieving a deep sense financial security. Bad debts (ones used to acquire liabilities) are guaranteed to weigh you down and make you uncertain about your life.
2. Being in control of personal finances – this means knowing how to budget your money. Budgeting is the process used to control money – to tell it where to go, instead of wondering where it went. When you’re in control of your money – your income and expenses, you’re far more likely to feel financially secure.
3. Feeling prepared for financial emergencies – this is required to maintain your state of financial security. Living pay-check to pay-check without savings, buffer or suitable insurance is guaranteed to affect your sense of financial security.
4. Steadily increasing financial security over time – this is because watching your savings and net worth grow is definitely going to make you be and feel more financially secure.
For more tips on how to achieve financial security in 10 easy steps, read this article by Oberlo.
Financial Security as a Feeling
Generally, “a feeling of security” is a feeling of being safe and free from worry or uncertainty.
This implies that besides being a “state of being” financially secure is also a “feeling”. It means, a feeling of not having worries about feeding your family, paying your bills or other money needs.
If you feel financially insecure, you might experience symptoms such as anxiety, fear, envy, jealousy and poor financial decisions.
Funny enough, both the poor and the rich are liable to feelings of financial insecurity, unlike “state of being”. The poor suffer from financial insecurity arising from the demanding conditions in which they live their daily lives – uncertainty about the future, the lack of confidence about a sustained income, the risks from natural and manmade disasters, unexpected illness and becoming victims of crime or violence – while the rich experience financial insecurity in a different way.
According to Psychologists, some of the richest people live with fear, insecurity and a sense of inadequacy about their wealth. The fear of losing what they have or being cheated out of their wealth leads some to mask, hide, hoard and live in miserliness disproportionate to their wealth. This insecurity about wealth among the wealthy might come from a poor sense of self-worth, or an underlying sense of shame or feeling of being undeserving or incapable of owning so much wealth.
One would think that having enough money in your emergency funds or having your money well invested and working for you (state of being financially secure) is enough to engender a feeling of financial security, but that is not always the case. It is one thing to have money, and another thing to have the satisfaction that comes with feeling financially secure.
Why does this happen? Why do people feel insecure even when they have enough money to meet their needs and wants?
The answer is that we are anxious when we do not know what to expect about the future. We feel financially insecure and afraid when we think that what we have may be lost. We are insecure when we believe that what we have is not adequate, or is not in keeping with what is expected in the social circle that we belong to.
Financial security is first of all, a state of being and then a feeling.Obot Essiet Jr.
Talya Miron-Shatz, a postdoctoral research fellow in the Woodrow Wilson School of Public and International Affairs at Princeton hinted that there is more at play in obtaining peace of mind – a feeling of financial security – than simply having cash.
“Even if you are making a hundred grand a year, if you are constantly worried that you are going to get fired, that you are going to lose your health insurance or that you are simply not sure you are going to ‘make it,’ you are not going to be happy,” she said.
People who have high levels of financial well-being feel in control of their day-to-day and month-to-month finances. They cover their expenses and pay their bills on time, and generally they do not worry about having enough money to get by. This is not just about having money, it’s about managing it.
When you manage your money well, the “state of being” financially secure will translate into a feeling of financial security which will empower you towards activities that will make you to be even more secure…and the cycle continues.
Bringing It All Together
From our discussion so far, you can see how financial security is BOTH a state of being as well as a feeling. You have also seen how the two work together to reinforce each other. You can have enough money in the bank. But whether we feel financially secure, safe and satisfied about it, is a matter of the mind.
Applying this knowledge to your own financial life might help you feel more satisfied with the decisions you make. When you face a financial choice or task, consider how your actions might affect your financial security both as a state of being and as a feeling, today and in the future.
Did you like what you just read? Do you have further inputs to add to this question of financial security as a state of being or as a feeling? I really want to hear from you. Please share your thoughts in the comments below.
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