Becoming Financially Secure

Part of attaining financial security is effectively managing both debts and income. Debts should not exceed one’s ability to pay. Income should be greater than outgoing obligations. A good rule of thumb is to have no more than 30 percent of income going to credit card debts and loans, and 50 percent when owning a home that requires a mortgage.

After considering income, an individual should make sure the rest of income is directed toward investments both long-term and short-term. A short-term investment would include a money market fund for emergencies. A long-term investment would include investments for retirement such as in a mutual fund or stable stocks. In other words, one should pay themselves first, depositing into investments before paying obligations.

The second phase of being financially secure is to live modestly as well as protect families and children for the long-term. Living modestly means foregoing lavish spending and living within one’s means. Protecting the family means holding sufficient life insurance policies in case a breadwinner dies so as to cover the mortgage on one’s home, possible college needs and extra to pay off outstanding credit. When saving for the long-term, time is on one’s side. It is not how much one invests, but the length of time involved to get the maximum out of compound interest. The longer one has to retirement and so on, the more that will accumulate. Lastly, an individual can employ the services of accountants and financial advisers to lead the way to financial security.