Financial security vs financial freedom
On the subject of financial planning, terms such as “financial security” and “financial freedom” often get thrown around loosely. On the surface, they may seem like generalised terms that roughly mean the same thing, but when you dig deeper, there is a dramatic difference between them. While both are important and valid financial goals, understanding that difference could have a profound effect on your financial future.
So what is financial security?
Essentially, financial security focuses on conservation. If you are employed and earning an income, for example, financial security is all about ensuring that the standard of living you and your family enjoy is not put under threat.
For a start, this might mean ensuring that you are dedicated to your work, and take steps to improve your abilities and skills, so that your prospects for retaining your job or business and earning a greater income are strong. Beyond that, it might mean taking steps to provide a fallback position, such as saving three to six months’ of income in an emergency fund to cater for a sudden medical situation, loss of employment, or family crisis.
At a broader level, ensuring financial security should also include a personal insurance plan, which can replace your financial value to your family if you were to suddenly die or become permanently disabled. If you suffer an injury or illness that prevents you from earning income for an extended period, income protection insurance can offer extra security for you and your family.
Financial security also has relevance for your long-term saving and retirement planning. You might say that financial security in retirement means being able to independently afford the basic lifestyle requirements of shelter, food, clothing, transport, and other general living expenses.
At its core, however, financial security is conservatively focused on maintaining what you already have in the event of a crisis, sickness, or retirement. While certainly a worthy and sensible goal, it doesn’t look beyond those needs, or toward more ambitious targets.
Financial freedom is quite different
If you are financially secure, you can certainly get by — but what if you want a bit more out of life than just preserving a basic existence? Financial freedom, in essence, means having the resources to make decisions about what you buy, do, or see without having to worry about impacting your basic living standards in the future. It means having the freedom to fulfil dreams of where you live, how you spend your time, which travel destinations you can experience, and how you can support your family.
This kind of freedom is something that very few people are able to achieve, but it is not limited to those who are born into money, inherit money, or win the lottery. Financial freedom can be achieved by an ordinary working person if they have the vision — and employ the methods, planning and habits — to get them there.
It starts with an attitude
Financial freedom can be a realistic goal for many of us but it won’t happen by accident. The formula for achieving financial freedom involves several key aspects that need your deliberate action and attention:
- The fundamental characteristic of those who build their own financial freedom is an attitude and a belief that they can achieve a lifestyle beyond their current circumstances. This means having the confidence to dream big and visualise those specific things that you want to enjoy in life.
- Being clear about your dreams, and putting them down in black and white is the next step. Really owning your dreams in this way will give you the motivation and impetus to take action toward them.
- You then need to break down the financial requirements needed to get you to your goals — your financial plan. This is where the nuts and bolts are worked out on issues such as budgeting, saving, and investing. Without a solid financial plan, financial freedom will only ever be wishful thinking.
- Finally, you need to engage the help of those who have greater expertise than you. It may be hard for some of us to accept that we can’t do everything on our own, but the fact is that those who have really succeeded in any aspect of life have one common characteristic; they surround themselves with people who know more than they do.
If you are not simply satisfied with having financial security and you want true financial freedom, the potential is there for you, but there are no short cuts. Take action on all the steps outlined here and you can make it happen.
What does financial freedom mean to you? Share your thoughts below.
Republished with permission of Wyza.com.au.
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