Everyone wants financial security. Ideally, we all want to reach a place where we are free of financial stress and don’t have to worry about money. Unfortunately, for many of us, this dream is not yet a reality. Only 23% of US adults say they are financially secure. What is even more disheartening is that 32% of these adults believe they’ll likely never achieve financial security.
Let’s bust this myth right away. Financial security is not a far-fetched dream reserved for the immensely wealthy. In fact, it’s a very subjective state that can mean different things to different people. It can also be a realistic goal once you understand it.
In this article, you’ll learn the fundamentals of financial security, including its significance and benefits. You’ll also learn how to gauge your financial situation and then take the necessary steps towards financial freedom. If you’re someone seeking long-term stability, peace and some promising wealth-building strategies, this guide is for you.
What Is Financial Security?
Financial security is a state in which you can sustain a comfortable lifestyle for the rest of your life while also being prepared for any unexpected emergencies. Put simply, it means having enough financial resources to take care of your living expenses and unseen financial requirements without worrying about where the money will come from.
What Is the Benefit of Having Financial Security?
Financial security is not just about managing your finances well. It’s about everything that follows. Finances are among the most important factors for overall wellbeing. Being secure financially can improve your life in almost every major aspect.
Financial Freedom
Money allows you to make good decisions, including some life-defining ones concerning studies, career, marriage and beyond. But more importantly, it gives you room to bounce back if your decisions don’t pan out as expected. This freedom to make more mistakes is among the greatest draws of money. Financial security gives you access to this freedom.
Long-term Stability
Financial security not only improves your present financial condition but also takes care of your future. You are secure not because you have enough to handle your expenses right now. You are secure because you can comfortably handle both expected and unexpected future expenses.
Reduced Stress and Anxiety
Poorly managed finances often lead to mounting debts, maxed-out credit cards and a poor quality of life. The result? You end up stressed, unhappy and unsatisfied. Securing your finances can help you come out of this stress or, better yet, avoid it altogether.
Peace of Mind
Although peace of mind depends on several factors—many of which are very subjective—financial stability remains an important one across cultures and demographics. In fact, financial wellbeing directly impacts overall mental health. This only makes it more crucial to pursue financial security.
Are You Financially Stable? Signs to Look For
While achieving financial security takes time and consistent efforts (as we’ll detail below), knowing whether you are financially secure is only a matter of observation. Just watch out for these factors to gauge your financial situation:
1. Budgeting
If you want to be financially secure, the very first step is understanding what your present financial condition is like. How much do you earn? How much do you spend every month? What are your biggest and most common expenses? Are you overspending? How much do you save? Are you saving enough?
Budgeting involves not only answering these questions accurately and honestly but also creating a plan to optimize your finances according to your goals. It’s not just a spending plan but a systemic way to control your expenses.
2. Net Worth
Your net worth is the difference between your assets and liabilities. To calculate your net worth, add up all your loans, mortgages, credit card debts and any other money you owe to others. Then subtract this amount from the sum of all your savings, investments and any other assets that have monetary value.
A positive net worth is a prerequisite for being financially secure. If it’s not positive, making it positive could be the first milestone towards financial well-being.
3. Debt Levels
Though it’s important, a positive net worth doesn’t ensure financial well-being. Someone with a positive net worth can still be financially insecure. This occurs if they exhaust their monthly income in their expenses and debt payments with little savings or investments.
So, assess your debts. If you are debt-free or can manage your debts comfortably without compromising on your savings, investments and living expenses, you’re likely in a good position. However, if repayments are a hassle, they could signal a lack of financial stability.
4. Emergency Funds
An emergency fund is a safety net that catches you when your finances fall. It can be a health emergency, a sudden layoff, a resignation or one of a myriad of other unannounced surprises that snatch your income away overnight.
On these occasions, you need a well-defined emergency fund. Ideally, it can take care of your expenses for at least a few months while you try to get back up. If you don’t have such a fund yet, you risk losing financial stability overnight.
5. Retirement Planning
While an emergency fund can see you through a few months of no income, your retirement savings can see you through decades after you stop working full-time.
The sooner you start investing, the bigger corpus you will have by retirement, and the better quality of life you can afford in your post-retirement years. That’s why retirement planning is essential for ensuring financial security.
If any of these factors don’t seem to be in good shape in your case, don’t stress. Just keep reading. The next few sections are about just that.
How to Be Financially Stable: Practical Steps to Take Now
Let’s come to the most important question: What can you do to achieve financial security? As it turns out, the task is not as simple as ticking off tasks on a to-do list. It’s a continuous process that takes years of discipline, self-control and constant planning.
Nevertheless, the first part of securing your future involves securing your present. So here are five steps you can take now to become financially stable:
Step 1: Start Tracking Your Finances
Before you take any steps, start monitoring your finances first. Calculate your total monthly income from all sources. List down all your expenses—from the necessary ones like rent, EMIs, food and clothing to non-essential spends like movie nights or dinners.
Try to assess your income and expenses this way for a few months to get a well-rounded idea of your finances. You can manually track your expenses on a spreadsheet or use tracking tools like Simplifi, Rocket Money and Monefy to automate the process.
Step 2: Create a Budget
Once you get familiar with your spending patterns, you can analyze your expenses and control them according to your goals. Creating a budget is the best way to do that. Start with categorizing your money into the following three groups:
- Needs: Essential expenses like house rent, groceries, loan EMIs, etc.
- Wants: Non-essential expenses like movies, subscriptions, gifts, dinners, etc.
- Savings: Money you don’t end up spending
Once you have this complete picture in mind, you can set goals for each group based on your needs. You can also identify unhealthy spending patterns and take active steps to eliminate unnecessary spending. This will enable you to meet your saving goals. Use online budgeting tools or a simple system like zero-based budgeting to keep you on track.
Pro Tip: Keep updating your budget as your income, expenses and goals change.
Step 3: Build an Emergency Fund
According to Pew Research, over half of American adults don’t have emergency funds for even three months. If you are among them, building emergency savings should be among your first priorities right now.
Factor in all your essential monthly expenses (including debt repayments) before you set a goal. Most experts recommend having enough funds to cover at least three zero-income months, though your goal can be larger based on your financial situation.
Try setting a monthly savings goal and set that amount aside—ideally in a zero-risk place like a high-yield savings account. Remember that you want your emergency savings to always be there for you when you need them, so avoid putting them in risky instruments like stocks, equity mutual funds or crypto.
Step 4: Get Rid Of Your Debts
Of course, most of us cannot—and need not—pay off everything in one go. But you can prepare a plan to efficiently manage debts. If needed, you can consult a credit counseling agency for help.
If you have multiple debts, these strategies can help you eliminate your debts faster:
- Debt Avalanche Method: With this strategy, you pay the minimum monthly dues on each debt instead of the full EMIs. The remaining amount goes to the debt with the highest interest. This way, the highest-interest debt is paid off first. Next, you focus on the next highest-interest debt, and so on.
- Debt Snowball Method: With this strategy, you pay the minimum on each debt while allocating the remaining amount to the debt with the smallest principal. The smallest debt is paid off first. Then, you shift to focusing on the next smallest debt.
- Debt Consolidation: If possible, you can also take on a new debt to eliminate all other debts. This will make repayments more convenient, as you just have to pay one EMI every month to pay off this one debt.
Debt repayment calculators can help you know how long it will take you to eliminate your debts with different strategies. You can check out the ones from Credello, Bankrate and Calculator.net and try them out yourself.
Pro Tip: Check out this debt management guide for detailed steps on getting out of debt.
Step 5: Automate Your Savings
Automating your finances can be of great use if you want to simplify financial management. Here are some ways to automate your savings:
- Ask your employer to directly deposit your salary into a savings or checking account (or both).
- Set up automatic payments with your creditor(s).
- Set up automated monthly debits from your savings account to your retirement account.
- Use apps like Acorns for saving and investing the spare change from your purchases.
- Automate your investments.
You can start with automating a few things, such as debt repayments and savings. Once you get more clarity on your long-term financial goals, you can set up more automatic payments for things like investing and retirement. This brings us to the next section.
Developing a Long-Term Financial Plan for Future Security
Once you’ve stabilized your financial situation for the present and the near future, it’s time to zoom out on the bigger picture. After all, financial security is incomplete without future-proofing your finances. This is what makes long-term planning so crucial.
Because financial security is quite subjective, the specifics of it will depend on your unique needs and goals. Nevertheless, these strategies will help your personal financial plan.
1. Setting Your Goals
While your short-term financial goals usually include debt repayments, emergency funds and big purchases, your long-term goals may look entirely different.
When thinking decades down the line, you may also want to consider things like marriage (if you aren’t married), children and your life with your family. Factor in all big expenses you will likely face, such as a house purchase and children’s education.
Ask yourself questions: What kind of life do you want after retirement? Do you want a quiet, low-key life away from the hustle and bustle, or do you want to travel the world? How much money do you need for that life? Are you earning enough to meet your goals?
Once you’re clear on these answers, you can set specific goals accordingly. Even if you are far away from retirement, you’ll get a rough idea about whether you are on track.
2. Investing Wisely
Do you know that the prices of consumer goods have increased by over 87% in the last 25 years? In other words, what cost $1000 in 2000 costs over $1870 in 2025.
This is what inflation does to money. If you want to beat inflation, you must ensure your money grows at rates much higher than inflation. That’s where investing comes in. This is a core part of planning for financial security.
You can invest in various investment instruments, such as:
- Stocks
- Mutual funds
- Exchange-traded funds (ETFs)
- Corporate and municipal bonds
- Real estate
- Gold and other commodities
Let’s understand this with an example. Say you start investing $1500 every month in some mutual funds, which grow at the rate of 10% on average for the next 20 years. By the end of this period, you’ll have over $1 million!
That’s the power of compounding, and investing allows you to reap its benefits.
However, remember that unlike savings accounts, each of these investing options comes with risk. So, it’s always a good idea to diversify your investments across multiple instruments or consult a financial advisor if you are not sure about where to invest.
3. Planning for Retirement
Once you have set goals for your retirement, it’s time to plan your retirement savings accordingly. If you are a salaried employee, your employer will likely offer one of the three most common retirement plans: 401(k), 403(b) or 457(b).
- The 401(k) is the most common retirement plan for employees in the private sector.
- The 403(b) plan is similar to 401(k) but is offered by public schools, some nonprofits and government agencies.
- The 457(b) plan is for employees in some local and state governments.
In each of these plans, you can decide on an annual contribution amount and have it automatically deducted from your paycheck. Many employers match some or all of your annual contributions, so make sure to check if yours does.
If you are a self-employed professional, you can open an individual retirement account (IRA) with most major banks.
4. Estate Planning
Let’s say you have planned your finances for life. Still, there is one last thing left to do: planning your finances after your life.
Estate planning involves deciding what happens to your money and other financial assets after you die. Or, for any reason, become incapable of managing your finances. It can include many things, such as:
- Designating your heir(s)
- Deciding on the custody of any minors
- Planning for estate taxes
- Settling any pending liabilities
- Setting up life insurance
Unlike budgeting, saving or investing, estate planning is not something you can do on your own. It’s always best to consult an attorney, who will then help you set up a will and complete other steps of your estate plan.
Of course, you may not have to worry about estate planning if you are in the early stages of your career. Yet, as far as life insurance is concerned, the sooner you start, the better.
Final Thoughts: Financial Security Is a Journey
Probably the most important thing to note about financial security is that, for most of us, it’s a journey. Unless you’ve chanced upon wealth that can see you and your family for the rest of your lives, becoming financially secure will likely take years of planning, readjustments and consistent action. But here is a secret—it’ll all be worth it.
So set the wheels in motion. Start by assessing your current financial situation and take steps accordingly. Start building an emergency fund if you haven’t yet, create a plan for settling any debts and start tracking your finances before shifting to goals farther away. Your journey towards a peaceful, stable and stress-free financial life starts now.
Photo by Eugenio Marongiu/Shutterstock
