Financial security is something everyone strives to accomplish, yet only a few actually do. Many people go through life from paycheck to paycheck, with their financial stability hanging by a balance; an unplanned excursion or an undesired medical bill and the stability crumbles into ruins. Fortunately, financial security is something you can slowly build in small, baby steps. Regardless of where you are, financially, these five steps can help you achieve the security you’re looking for in your personal finances.

Have a Savings Buffer

Credit card balances and personal loan payments on top of your monthly expenses can completely cut any margin of error you used to have. One huge bill or a week of unpaid leave of absence can be all that separates you from a financial down spiral. A rainy-day fund or buffer is a simple yet potentially life-saving idea. It’s an amount of cash in your checking account that is either two week’s worth of your pay or at least $500, whichever amount is higher. This number can be different for every person, but regardless of what it is, it should be your new “zero”, which means your account cannot drop below that buffer number.

Account For All Expenses

Monthly rent, utilities, food, and gas are common expenditures and collectively take up at least half of people’s monthly income. Unfortunately, these aren’t the only one-time or recurring expenses that people deal with. There are entertainment subscriptions, interest on outstanding loans, maintenance expenses for assets, such as your vehicle, property tax, etcetera. If you’re a freelancer or self-employed contractor, you also have a 1099 MISC, which is the W2 form counterpart for employees, for your taxes coming in every start of the fiscal year. Not paying these charges on time can lead to hefty penalties and fees. Identify all expenses for the month or year to ensure that you save enough for them.

Invest Your Extra Cash

A savings account with $1,000 in it will yield $1 each year on average. That means that parking $1,000 on a savings account will net you $10 at the end of the year. The amount is infinitesimal compared to what you could be earning with higher-yielding assets that involve slightly higher levels of risk, like stocks, bonds, indices, futures, and even cryptocurrencies. Investing your money, however, should not be confused with trading it. The latter involves a higher level of risk and is closely associated with gambling. Investing implies a safer approach towards capital appreciation, whether it’s buying stocks that have the potential to double in value over the next five years or one that pays out quarterly dividends to its shareholders.

Employ Cost-Cutting Measures

Penny-pinching might sound ineffective when you look at the short-term effects to your personal finances. Over time, however, the wealth accumulated through penny-pinching habits can create an additional buffer for those unwelcome financial woes or as extra capital for your investment portfolio. Regardless, don’t be afraid to cut costs by bringing your own paper bags when shopping for groceries, buying food in bulk and meal prepping for the whole week, cancelling your non-essential subscriptions, and so on.

Don’t Quit Your Day Job Without a Backup Plan

Perhaps a very common trend in today’s generation is leaving work prematurely. As a result, the transition from employed to unemployed becomes financially messy. Before resigning from your current job, make sure you have enough savings to cover for at least three months worth of rent and expenses, or better yet that you have a new job position lined up.

Final Thoughts

Financial security isn’t something people find along the way; it’s a process that takes time to build up. When trying to secure your financial future, focus on long-term positive habits and lifestyle changes rather than short-term savings and extra income. Go for career choices that will actually help you become financially independent years down the line and build on wealth-generating habits and skills that will provide you a retirement nest.

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