A big part of maintaining a good quality of life requires that a person has a certain level of financial stability. Very rare is the person who is going to be satisfied with their life when they have a lot of debt and no money in the bank. For a lot of people, that creates too much pressure and stress.
If someone were to think about their financial situation, it would be prudent for them to consider where they are financially at this time. They should also be thinking about the future, that point in time when they are ready to retire. After spending their entire adulthood working hard, do they really want a lessor quality of life in their “golden years?”
While people still have the ability to improve their financial situation, they should be thinking about how to become financially sound. The term financially sound often means different things to different people. Generally, it refers to having financial security or freedom.
What is financial security or freedom? For the answer, please continue reading.
What is Financial Security?
In order to be financially secure, money issues should not play a role in how a person lives or feels. A financially secure person can best be described as someone with liquidity, savings, and manageable debt. The term manageable debt refers to a person having the ability to meet their debt obligations without question or pause.
For the most part, a financially secure person has money in the bank today and savings starting to accumulate for the future, including retirement. They also have enough discretional money to enjoy life now. That could include any of the following pleasures in life:
- Owning a home where they want to live
- Driving a reasonably new car at all times
- Having the ability to eat at a nice restaurant without having to look at prices
- Being able to take regular vacations to exciting destinations
- Feeling good about spoiling the kids a little
- Being able to shop and buy without “buyer’s remorse”
Considering how many other things can cause stress in a person’s life, they could benefit by putting themselves in a financial position where they don’t have to worry about money.
How to Become Financially Sound
Maybe, a particular individual feels they don’t have the kind of financial security they want or need. As long as they know where they currently stand, they should be able to see a path towards financial freedom. At some point, they will need to ask themselves about how to get to financial independence.
The reality is financial freedom is not easily attainable. It takes a lot of time and effort to position oneself in a situation where money worries can be set aside. In order to do that, there are certain barometers a person can use to determine whether or not they have financial freedom. Here are a few ways to establish financial freedom and soundness.
Getting Beyond Living Paycheck to Paycheck
The inability to save money is a major sign of financial instability. If someone doesn’t have enough savings to cover an emergency, they are living on the edge because emergencies come up all the time.
To establish financial soundness, a person needs to get beyond living paycheck to paycheck. That refers to not getting to the end of each pay cycle without money in the bank. As long as a person is not having to stand at the bank waiting for the next paycheck to hit, they have some level of financial freedom.
Freedom of Time
People with money issues never seem to have time to just enjoy life. They are constantly dealing with financial problems, which is a very draining task.
A big part of having financial freedom is having the gift of time. This is in reference to having time to take leave from work for a while or having time to enjoy the little pleasures in life without worrying about where the next meal is going to come from.
Not Having to Worry About Retirement
It’s very difficult for someone to establish a quality of life and then have to take a step backward when it’s time to retire. After all, everyone should want just as much financial freedom during retirement as they have during their working years.
In terms of planning for retirement, financial freedom refers to having a constant amount of money going into savings on a regular basis all the way up to retirement. Of course, that amount of money can be enhanced with a successful investment portfolio. As long as someone has a strong sense they are building for retirement, they should have enough financial freedom to enjoy life now.
Not worrying About Debt
There is no financial freedom for someone who is tethered to creditors. At some point, people in this situation will eventually get caught up in the cycle of debt. Financial freedom exists when people have the right kind of debt and can easily manage it.
As for how to get to financial independence, it’s incumbent of the individual to avoid unnecessary debt. That means only using credit cards when they are able to fully pay them off at the end of each month. If someone is accumulating credit card debt, it’s an indication they might be living beyond their means. That is not financial freedom.
In reference to the right kind of debt, that would include secured debt for a home or auto. A really financially independent person could pay cash for a house or car. The world is not filled with those kinds of people. Still, a person with secured debt could consider themselves financially independent as long as they can meet their debt obligations and still save.
Anyone who wants financial freedom can have it as long as they make it the primary financial goal in their life. A financially independent person is financially free today and financially ready for the future.