What does it take to feel financially secure? 1
It’s not necessarily lots of money. Earning more than $75,000 a year “does nothing for happiness, enjoyment, sadness or stress,” according to a study in Proceedings of the National Academy of Sciences.2
Financial security is about mindset and actions. And it’s more achievable than we may think.
Recently, the U.S. Consumer Financial Protection Bureau (CFPB) set out to systematically understand financial well-being. It found that financial well-being really depends on your behavior, how you get and manage information, and some personal traits.
The good news is most are learnable skills.
What is financial well-being?
After surveying a range of everyday people, financial experts, and research, the CFPB defined financial well-being as:
Your ability to meet financial obligations today and tomorrow, a feeling of security about your financial future, and your ability to make choices that allow you to enjoy life.
The four hallmarks of financial well-being are:
- Having control over your day-to-day finances
- Being able to absorb a financial shock
- Being on track to meet your financial goals
- Having the financial freedom to make choices that let you enjoy life
Think about them like this:
I feel secure when I can...
Control my finances—day to day, month to month
Absorb a financial shock
I feel free when I can...
Make choices that allow me to enjoy life
Remain on track to meet my financial goals
People with a strong sense of financial well-being tend to perceive they have the following:
- Control over their day-to-day finances. They’re able to cover their “needs,” meeting expenses and paying bills on time, without worrying about not having enough to get by.
- The freedom to make choices that make life enjoyable. They can also afford their “wants,” from being generous to friends and family to occasional splurges on themselves.
That’s why money alone isn’t a reliable measure of well-being. We all value things that give our lives meaning and purpose. These "things" are often relationships and experiences. And they don’t have to cost a lot of money.
Behaving your way to financial security
The foundation for good outcomes starts with good habits. Here are some key financial habits identified as critical to financial security:
Mindfulness about spending
Call it being frugal—it’s an awareness of choosing to spend less money. Try labeling things as “needs” and “wants” to exercise spending mindfulness.
Mindfulness about lifestyle
Think less in terms of “sacrifice,” more in terms of being content with what you have. It may be easier and less stressful to adopt a mindset of contentment than to feel you’re constantly sacrificing.
Careful about credit
Most financially secure people avoid carrying credit card debt. But many also view credit cards as part of their safety net. They’re willing to use credit to stay on course—for example, using credit to repair a car that’s needed for stable employment.
The financially secure tend to view any debt other than their home mortgage as a threat to their well-being, and something that should be effectively managed.
Doing what it takes
They believe income from stable employment is more important than the work itself. They’re willing to do what it takes, even working jobs they might not have imagined themselves doing.
Financial security is less about money itself, and more about how we behave with the money we have, learn, and perceive ourselves in relation to money and finances.
1 Source for this entire document except where noted: CFPB’s Financial Well-Being: The Goal of Financial Education