Financial security is simply having enough money to meet all your financial obligations. It is what most people work towards. You can tell that you are financially secure if you can answer yes to each of the following questions:
- Do you have control over your day to day finances?
For you to have control over your finances, your income must outweigh your expenses. If you find yourself struggling to pay your bills on time and in full, it is a sign that your financial health is in dire straits and you need to take action. A great first step is separating essential and non-essential spending and pausing the latter until you can afford it. You may also consider increasing your streams of income to cover costs.
- Can you absorb a financial emergency?
Most Kenyans cannot answer this question in the affirmative. A financial emergency is any cost, which you didn’t plan for and is difficult but compulsory to pay. Usually, you only have a limited amount of time to cover it and may face serious repercussions if you fail to. The most common financial emergencies include medical bills, job losses, and home and car repairs. You can soften the impact of such emergencies by starting and regularly contributing to a rainy day fund.
- Are you on track to meet your financial goals?
Financial goals are savings, investment or spending targets you set for yourself which you hope to achieve within a certain amount of time. They are determined by your stage in life, priorities and financial ability. How close you are to achieving them is a good indicator of your financial security. If you are constantly having to readjust your goals in order to divert your finances to more pressing needs, you may need to reevaluate your financial position.
- Can you afford some non-essential wants?
An important signifier of financial security is being able to afford more than just the things you need. You should also be able to make financial decisions that allow you to enjoy life. This doesn’t necessarily mean that you must afford everything you want in order to claim to be financially secure. Examples of non-essential expenses include going on vacation, buying a car, eating out and shopping.
In conclusion, financial security is an important milestone to work towards. It’s okay if you are not there yet, just as long as you put in constant effort to achieve it. To speak to a financial advisor about achieving financial security, email firstname.lastname@example.org.