What it means to have financial security, and how you can achieve it

I want to dive into the topic of personal finance, specifically how to create financial security for yourself. It’s a topic I’m really passionate about, partly because of my background, and because I like both money and numbers.

But don’t be discouraged, you don’t have to like either numbers nor money actually. What you do need is to understand the importance of looking after your finances. And it doesn’t require much time at all in your regular life. It only requires some time investment in the beginning in order to get the right habits in place.

Let’s first start by talking about what financial security really is, and why we need it.

Financial security is not a given

I come from a family with a history of financial insecurity. I know that not a lot of people have the same kind of background, some might even come from a family with a financial situation that lets them do literally whatever they want. The life we live through, the kind of insecurities, traumas and crises we go through, define what we think and feel about different things in life.

And my background has taught me about the need for financial security, not only for kids, but for myself as an adult. I’ve seen what can happen to people and families when money isn’t a certainty. And even the people who might have a great job, but who lack financial literacy, can easily end up in the same situation when the shit hits the fan.

If you don’t have the financial cushion to weather the uncertainties of society and our financial system, you can easily be bankrupt from the sudden loss of a job, or dramatic change in life circumstances. Luck is, however obvious it might seem, not a dependable factor to place your financial security on. Despite this, so many people don’t even know how to save their money on a regular basis.

They don’t understand the concept of paying themselves first. They don’t realise that money itself can make you more money. And they think that budgetting is for control freaks and financial nerds.

But that is far from true. With budgetting, like dieting, you can set the level of strictness and ambition yourself. If you want to feel good physically, you can’t eat like crap. You might not want six pack abs, but you simply don’t want to become obese, or have enough energy to get through the week of work while having energy over for your friends and family.

Same thing with budgetting. You might not want complete financial independence, or have millions in investments and financial instruments. But you want to have enough money to pay your bills and recurring costs, while having some money over each month to be able to go on a nice vacation with your family, or go on a cool trip with your friends. So, in the end, it’s a question of what kind of life you want.

Let’s start there.

What does financial security mean to you?

You have to first of all start by asking yourself, what financial security means to you? What would make you feel financially secure? And don’t just start by answering with “Having enough money to pay my bills.”, because yes, that is the accepted definition of financial security. If you don’t have that money on a monthly basis, then that is the first goal to get to. But the question still remains, and it’s an important one.

The purpose of the question is for you to reflect on what kind of life you want to live, financially. Like the examples mentioned before, do you want money to go on a nice vacation every year? Go on a cool trip with your friends? Maybe you want to be able to go into a store and buy a new set of clothes without having to check your bank account? Be honest here, because it’s your life we’re talking about.

You don’t have to get this set in stone, this is worth taking time to iterate on as you get a better understanding of what’s important to you. So start by understanding what’s the first real important thing you’d like to be able to do with the extra money you can have each month.

Then, you can start getting a hold of your current financial situation.

What is your current financial situation?

First, what does your income look like? Or income streams? Most likely you have your salary as your primary source of income. Get a hold of the money coming in, that’s your starting point.

Next, you have to look at what your spending looks like. Most importantly, what are your recurring costs? Rent, loans, electricity and water, food, subscriptions. The necessities that you have in order to pay for the lifestyle you have right now. I’m not talking about cinema tickets, dinners out or splurges on a new watch. I mean what you need to pay every month for the things you have committed to. Your home, and all the costs around that. Your own survival, like food.

Once you have your income, and your recurring costs noted down, you have the base of your financial situation in place. You know the amount of money you get every month, and the amount of money you have to give to others in order to stay alive and not end up in court.

At this point, you’ll know if you have any money left each month, or if you are living paycheck to paycheck without even splurging on anything. This is great, because the majority of people won’t even get to this point. They just know the salary they have and that’s the money they get to spend each month.

Armed with this insight, we can start to compare your current financial situation, with the one you want to have.

How do you get to the financial security you want?

First of all, you need to start managing your finances. And there are really two main approaches to managing your finances through a budget, really two ways of prioritising. And both of them comes down to setting a number. That number is not only different for the approaches, but it represents something different depending on which approach you choose.

Either, that number is the amount of money you want to save each month. It’s a fixed number that you want to make sure you put aside each month, for whatever goal you have. It might be to get to a certain financial buffer, pay for a vacation, or buy something cool.

Or, the number is the amount of money you spend each month. That number of course is an accumulation of the different numbers representing each type of spending you have on a monthly basis, such as rent, food, subscriptions etc.

What separates the approaches is what is important to you. Of course, you can use both of the approaches, if you want to be really serious. The level you set really is up to you.

But the first number, the amount of money you save each month, is for giving you the guarantee that in a set number of months, you’ll have a given amount. That is an easy way for you to save up for something, while giving you the freedom so spend the rest of your money as you like.

The second number, sets a strict number on the money you spend each month, giving you as much money as you want to be able to save and or invest.

Personally, I use a combination. I set a fixed number on the money I spend on things like food, housing, electricity, subscriptions. Then I have a set amount I have to save and invest each month. What’s left, in between these two numbers, is the money I get to spend however I like. Some months I spend it on eating out and doing fun things, and some months I end up saving it as well.

It comes down to the plan you put in place

So, in essence, you need to make a plan. A plan for how you get to the financial situation you want. Do you need to save a fixed amount each month so that you can pay for that vacation to the alps that you and your friends always talk about? Or do you need to set a fixed amount on the money you get to spend each month? Or a combination of the two?

This is where you come in. You need to be honest with yourself, both with the financial situation that you truly want, and what you need to do to get there. Managing money is just managing simple numbers in the end. As long as you have an income that can cover your basic needs, then it becomes a matter of managing that money.

And remember, that no plan is perfect, and rarely do they work on the first try when they meet the real world. You end up spending more than you budgeted for. Some unforeseeable expense came up that blew out your entire spending budget that month. This is exactly why you need to start managing your money. Life is chaotic, you will have to spend money each month on things you didn’t expect. Some months are worse than others. That’s why you do this. To weather the financial storms of society and of reality.

I hope you found this somewhat helpful at least. This was my first attempt on writing a more long form article and begin talking about a subject I am very passionate about, that is personal finance. I believe I have learned quite a lot over the years of both running my own business, being employed, and managed my own money as a tech worker for the past 11 years. The idea is to write more articles like this one, but focus more on different parts of personal finance.

Finally, I have read countless books on finance. Both on our economic system, self-help books on creating wealth, and books on pragmatic personal finance. These are the books I’d recommend to anyone looking to learn the fundamentals of personal finance and start managing your own money.