10 Signs You’re Financially Secure
Written by
Nicole Spector
Edited by
Susan Kim
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Financial security: What exactly is it? Essentially, it means you’re not only getting by, but getting by comfortably. Surveys have shown that most Americans do not feel financially secure, and it’s understandable why that’s the case. Wages aren’t keeping up with rising costs of living, inflation is still bullying our bank accounts and companies across sectors are carrying out mass layoffs.
Though it makes sense why you may be feeling financially insecure, it’s important to truly understand what financial security entails so that you can determine if your feeling is aligned with your reality.
Stephen Kates, CFP, principal financial analyst at RetireGuide.com and Annuity.org, walked us through the 10 key signs that indicate you’re financially secure.
You Have a Robust Emergency Fund
Expert recommendations for how much you have in your emergency fund vary. The most common suggestion is to have three to six months of living expenses at the ready, but you may want to listen to financial guru Suze Orman, who recommends keeping eight to 12 months’ worth of essential expenses in an emergency fund.
You may also want to factor in how many streams of income your household has.
“The more sources of income your household has, the less you may need to keep in an emergency fund,” Kates said. “If there are two or more income sources, either two jobs or a dual-income household, you can begin to reduce your emergency savings.”
Again, though, the more prepared you are, the better!
You Spend Less Than You Earn
Even millionaires know the importance of spending less than they earn. It’s a key trait of financial security and, in fact, ensures future financial security.
“If you spend every penny, you live on the precipice of financial troubles,” Kates said. “As the saying goes, ‘It’s not what you make; it’s what you keep.'”
You Contribute to a Retirement Account
Kates pointed out that retirement accounts — 401(k)s, 403(b)s and IRAs — are essential to setting yourself up for financial security in your golden years. If you are contributing the necessary amount to these funds, you have one of the telltale signs of financial security.
You Invest and Diversify
If your retirement funds and excess savings are invested into a diversified strategy, you’re also exhibiting a sign of financial security.
“Contributing money toward an account isn’t enough to beat inflation long-term,” Kates said. “Putting your money to work by investing in the market is essential for long-term growth.”
You Have Adequate Insurance Coverage
“Insurance is a vital piece of the financial puzzle because it protects you from unplanned and unexpected catastrophic issues,” Kates said. “Health, life, disability and property/casualty insurance all offer protection from the risks of life which might otherwise ruin you financially.”
Your Housing Costs Are Less Than 30% of Your Total Income
This sign of financial security is an increasingly tough one to achieve, thanks to rising interest rates and an inventory shortage driving up prices: having housing costs that are less than 30% of your total income.
“Housing is usually one of the largest expenses most people have,” Kates said. “The more you spend on housing, the less there is for other essential and discretionary expenses.”
You Have No High-Interest Debt
“Credit cards or other high-interest loans can quickly eat away at your ability to save and spend,” Kates said. “Avoiding or eliminating this kind of debt is a huge step toward financial security.”
You Can Balance Needs Versus Wants
When budgeting, it’s essential to have a needs section and a wants section, with needs taking high priority over wants. If you’re financially secure, you should be able to comfortably balance these two concepts.
“Money shouldn’t be a stressor or something that you struggle to manage,” Kates said. “Building good financial habits will anchor you to achieving your financial goals.”
You Are Stable in Your Career
Various sectors are in the throes of layoffs as companies look to cut costs, so this one may not be easy. But if you are secure in your career and able to safely rely on the income you make, you’re doing good.
“A stable job or career allows you to focus your attention on other aspects of your life without worrying about where your next paycheck will come from,” Kates said.
You Have a Clearly Defined Financial Plan
Financial security isn’t only about being safe in the moment; it’s about being safe for the long haul. This means having a solid financial plan in place that you are regularly referring to and refreshing.
“Plotting a course for what you need to achieve financially will help you create the day-to-day habits you need to reach your goals,” Kates said. “Outline a clear plan that includes how and why you want to achieve certain goals.”
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