Most of us want to feel financially secure.
How we feel about our financial situation is highly personal.
Quite often I speak with people who are worth millions of dollars but are concerned about their financial security.
Other times I speak with people who are focused on a certain figure or level of wealth, presuming that when they get there they’ll have an ongoing sense of financial security they don’t currently feel.
Sometimes, I talk with others who have far less in material terms, but feel a lot more comfortable about their place in the world and what the future holds.
Personally, compared to most of my clients I’m in the latter category. I have less than most of my clients, but I often feel more secure than them financially. (At least, when I first start working with them!)
Objective and subjective factors
There tend to be two unique aspects linked to a feeling of financial security: an objective aspect, and a subjective, psychological, emotional aspect.
Objective factors linked to feeling secure
If you’re genuinely impoverished and don’t know whether you’ll have enough money to buy food or have a roof over your head from one week to the next, then you’re likely to feel financially insecure.
But for most people, the feeling isn’t quite so extreme.
Feeling secure is often correlated with objective factors, such as having:
- Wealth, in general terms. If you have equity in your home, and you a decent portfolio of investment assets, you’re likely to feel secure. To a point, the more you have, the more secure you’re likely to feel.
- Liquid wealth, specifically. Some people are “asset rich, cash poor”. It’s much easier to be “asset rich, cash rich”, so you have money available for emergencies and opportunities. An extreme example is someone who is very wealthy on paper but who can’t take advantage of this wealth: entrepreneurs with all of their wealth tied up in their business, or property investors who have a lot of equity but are only just servicing their obligations. Another classic example: farmers.
- Confidence in your ability to generate an income. If you have skills, knowledge, experience, and contacts, and you’re confident you can find work at short notice, this makes a big difference. A more specific example: a business development manager for a specialist product or service might earn as much as a medical specialist, but they might not have the same level of confidence in maintaining the same income for decades.
- Strong familial and social relationships. Having people who can help you if the worst were to happen, can make a huge difference in terms of your sense of financial security.
Some of these factors show up on a balance sheet (eg financial capital). Others don’t (eg professional and social capital).
Either way, however, you can work on these. I know from experience that these objective factors make a difference.
Subjective factors linked to feeling secure
Many of us have financial insecurities, and these can stem from understandable, objective realities.
Having said this, some people feel a lot more secure than others, even if their objective circumstances are similar.
There’s a huge subjective, psychological, emotional aspect to feeling secure.
In fact, some people can feel insecure their entire lives, even if they have every advantage imaginable.
I often speak with people who are worth millions of dollars but are still concerned about their financial security. Aside from any technical financial advice they receive, the most important message they can take away from working from me is a deeper sense that “I’m going to be okay”.
Financial insecurity that’s divorced from objective circumstances can result in unhealthy outcomes. It sometimes leads to people working at the expense of almost everything else in their lives. Sometimes it leads to being unnecessarily, and counterproductively, frugal (“spending dollars to save cents”).
There have been times when I’ve been privileged to see the realisation dawn on someone that despite what they previously thought, they are fine. It’s a special moment to see someone’s relationship with money switch.
When I reflect on these experiences, I’m reminded of the saying: “Before enlightenment, chop wood, carry water. After enlightenment, chop wood, carry water.”
Sometimes, your circumstances don’t need to change in order for everything else to feel like it has changed.
Some observations about financial security
- Having a sense of security isn’t “black or white”. You can have varying degrees of security. Lots of people, for instance, say they don’t feel especially secure, but are still prepared to make big decisions like buy houses, buy relatively expensive cars, and have children. If you felt completely insecure you wouldn’t do any of those things: you’d spend as little as possible, make as few commitments as possible. The decisions we make often suggest some degree of security, in the sense of having confidence and faith in the future – even if we don’t identify it as such.
- There can be contradictions associated with security, and this is encapsulated by entrepreneurship. Being an entrepreneur, for instance, can feel extremely insecure. The relationship between what you put in and what you get out is often far from linear. However, successful entrepreneurship can also create its own, deeper sense of security than most employees will ever have. In my own experience: I love the fact that I have lots of employers (clients) rather than a single employer. I’ve also discovered that’s much easier to find individual clients who are a good fit for me and my services, than to network and job search for an ideal employment role.
- Feeling secure (or not) is closely linked to your relationship with uncertainty and your feelings about the future. This can work both ways. If you’re optimistic, this is probably related to feeling secure. If you’re extremely pessimistic about the future (for example, you think the world will go to hell), however, you might also think there’s less time to wear the negative consequences: “Eat, drink, and be merry, for tomorrow we die”.
FIRE, security, and some personal thoughts
I think this is where I diverge from a lot of people in the FIRE community.
There seems to be a sense of wanting/needing to work towards a specific figure, with a presumption that it’s going to provide you with a degree of financial security going forward. (This isn’t the case with every individual, but I’ve seen it enough to see the link.)
I don’t think you need to be “financially independent” – whether that be “LeanFI” or “FatFI” or anything in between – in order to feel financially secure. In fact, I think pinning any psychological sense of security on a number like this is similar to chasing the pot at the end of the rainbow. You won’t get there.
In my own case, I’m not FI in any technical sense of the word. But I am in a position where if I simply covered my expenses between now and the age of 65, I’m pretty confident I’ll have a comfortable retirement based on compounding returns of my existing investments. Based on my professional background, I’m also very comfortable that I won’t have any problem covering my expenses. I also have loved ones who would help if I needed (and vice versa).
Security, foundations, and giving back
Beyond that basic level of security, anything else is gravy, and isn’t likely to add much to my own sense of financial security.
However, there’s still room to move.
To use a metaphor: think of “security” like a foundation for a building. The security I personally feel is like a foundation that’s strong enough for any building I’d want to live in.
Perhaps I’ll want to build a bigger building. Maybe I want to construct a building that can shelter and help lots of people.
Additional security may be gravy – but in this context, it can be a foundation for taking additional risks, allow me to help others beyond my immediate circle of concern.
In doing so, I can do it from a place of psychological comfort and confidence. It’s feels much better than using insecurity as fuel.
My questions for you
What does financial security mean for you? What does it look and feel like?
If you don’t feel financially secure, is it because of objective factors, subjective factors, or some mix of the two?
If you felt financially secure, what would you do differently?