Since you’ve been learning the importance of money management, you may have encountered the terms ‘financial security’ and ‘financial freedom.’ How do you define them? What are their similarities and differences? How can someone tell if they have achieved either of these goals?
Financial security refers to the concept that your money is ideally unlimited for your standard of living through an income stream. Basically, this means you have a constant source of income to pay for your wants and needs.
If this is the financial goal you’re currently aiming for, consider the following factors.
Financial security includes an emergency fund serving as a safety net for you and your family. It has to be at least 3 – 6 months worth of income to cover for loss of employment, urgent bills, and other unexpected costs.
Focusing on conservation is also rewarding while you keep your job or grow your business with the hope of an increased income.
Life insurance is a protection for your family in case of sudden death or a permanent disability. A long-term disability coverage provides security during illnesses or injuries, which can prevent you from earning an income for quite a while.
Financial security also includes a retirement plan or long-term savings for you to afford common living expenses, such as food, clothing, shelter, and transport when you say goodbye to the workforce.
Setting up a financial plan to make your money and income stream work for you is the basis of financial freedom. Getting out of a vicious cycle of acquiring debt is also one of the steps in achieving this goal.
Financial freedom without compromising cash flow is said to be possible. However, this is just ideal for those who can ensure they won’t lose their job or close down their business.
You can at least avoid risking your savings and investments with the following concepts.
The right attitude and belief that you can have a good standard of living are characteristics of those who will surely achieve their own financial freedom.
You must have the confidence to dream big! Visualise what you truly want in life and use it as your motivation.
Plan and action
Financial freedom is just an idea without a solid plan. You should break down your to-do list for your goals so you won’t get overwhelmed by the tasks at hand. Then you work out the usual bolts and nuts on different factors like budgeting, saving, and investments.
If you liked our “Financial Security and Financial Freedom — What’s the Difference?” and found some useful tips, check our blog space regularly for more info on getting out of debts and updates on the best budgeting apps in Australia.