Have you ever had trouble falling asleep, worried about what would happen if you—fill-in-the-blank with your nightmare—lost your job, tanked your business, got sick and needed expensive treatment?
Do those thoughts swim in your subconscious and keep you from fully enjoying your life (or a good night’s sleep)? Stop and consider what it would take for you to feel financially secure.
Of course we all define “secure” differently.
Maybe you need money stuffed in your mattress in order to sleep at night.Or you’re perfectly content when you can pay your bills without harassing phone calls. It’s all a matter of what makes you feel safe.
So how do you build security?
Let’s start with your career. A successful one is stacked with lots of variables and unknowns, whether you work for yourself or someone else. To maximize your chances of growing your income, consider adopting four key practices:
Continue to learn and grow. Unless you do the work to keep your skills relevant and meaningful, you can find yourself out of the game. Keep learning meaningful skills and habits. Think out of the box. As Marshall Goldsmith says, “What got you here won’t get you there.” If your crystal ball is on the blink or you’re just too entrenched with today to have an angle on future possibilities, explore different perspectives. Read Fast Company, watch TED talks and other forms of brain candy. Know your competition, both internally and externally. What are other professionals, businesses and your colleagues doing? How are they positioning themselves differently and what can you learn from that? Track your actions, successes and failures. It’s about knowing yourself and being aware of what you are great at—and what you might need some help with. Understand when your energy is high and when you need a recharge. By keeping a log of your activity, you can see yourself more objectively. One key point: failures taken to heart are killers; it’s much more useful to ask yourself what you did well and what you could have done better than to beat yourself up over mistakes.
So your career is chugging along and you’re making investments in your future. But financial security also means paying attention to your outflow—your expenses.
Think of your expenses in two categories: fixed and discretionary. Fixed costs are your rent or mortgage, taxes, debt payments, utilities, food, etc. While you can control some fixed costs to a degree (i.e. utilities, food, clothing), you have a pretty good idea of what HAS to be paid each month. Almost everything else is discretionary—vacations, entertainment and anything else that doesn’t fall in the category of pure necessity. You want to:
Know your numbers. Having an idea is not the same as knowing. Understand exactly what it costs to pay your fixed expenses and decide how much of your surplus you’re willing to put towards discretionary and how much towards savings. Make your savings payments first. Put your target contributions away before you start making discretionary spending choices. Whatever you have left over after all expenses have been paid can be used for additional savings or targeted projects. Chart your progress. If you know what you expect to save and spend, project out 3, 6, 9 and 12 months ahead and then test your results. If something’s not working at each quarterly review, zero in on what and make adjustments. Plan your taxes. Underpaying your obligation can be not only costly from a budgetary standpoint, but you can easily rack up penalties and interest. You can wipe away a sizeable chunk of your savings with a miscalculation of your tax liability.
And finally you want to create a safety net. It’s not only a pile of readily available cash, it’s insurance that protects you from BIG problems. Because creating security is all about the “what if’s”. In composing your safety net:
Understand the risks that you are insuring. For example, if you have debt, a young family or an expensive life-style, Disability Income, Life insurance, Liability and Umbrella coverages are all important. If you have a great deal of wealth, get yourself enough liability protection. Remember, security is knowing that you have identified where and how an event can have a substantial impact on your life. Don’t buy into the “features and benefits” that some insurance brokers lead with. Illustrations of cash value 30 years into the future is like reading fantasy fiction. Ask good questions about internal costs, guarantees and policy limitations and exclusions. Disability insurance is all about the definitions and exclusions—don’t buy coverage until you understand what triggers coverage and what will lead to a denied claim. There is no such thing as a “rule of thumb” when it comes to your emergency fund of cash. The amount that is right for you is dependent on many factors, such as whether you are a one or two person earner family, your fixed costs, how much debt you carry and your occupation or profession. This is an area where being conservative is important. What if it takes you a year to find a new job?
Financial security is not an impossible dream with the right knowledge and effort. It doesn’t happen overnight, but you can start right now and create a plan that helps you put your head on the pillow at night.
