Improving Your Financial Security in the Current Age – Part 1

What does it mean to be secure financially? Depending on your situation, the answer may be different today than it will be tomorrow. This question comes to mind because more than ever, there are a variety of forces that can put your financial life in peril. Around this time of year, because of my affiliation with the Financial Empowerment Conference hosted by Turner Chapel AME Church, my mind goes to the topic of emphasis for the conference and ongoing series of programs. The emphasis for this year’s conference series is how to “Secure Your Money in an Insecure World”. The conference will be held on March 8-9, 2024 at the church, and anyone interested is invited to attend either in-person or virtually, and you can register using this link. When we consider the idea of financial security, there are two broad categories that are probably most important to consider. The first is how you position yourself to have the ability to address your financial obligations and desires. The other is how you keep your finances and the data that is connected to your finances secure from external threats. With that in mind, we will embark on a two-part newsletter series aimed at helping you understand how you can better improve your financial security in today’s world.

Income is the Key to Financial Security
For Part 1 of this series, how you set yourself up for financial success and security, we are going to focus on the importance of income. Why? Because when it comes down to it, your ability to generate or have the income necessary to take care of your needs and wants is the barometer of financial security. However, it is not just the income you have right now, but the income that will be available into the future, so let’s explore that more fully in three areas.

Income Now
When it comes to feeling secure with our income right now, most of us would look at what we are earning, assuming we’re still working for our money. If you have advanced to the point where you are no longer working to earn a living, you very likely are looking at how much is coming in from sources of income like Social Security or a pension. In either case, the question being asked is whether that income is enough to pay the bills and take care of the other things that make life enjoyable. Clearly, it is important to know that your income is covering expenses you are expecting to have. It may be worthwhile to expand your thinking, however, to whether you are being as effective as you can be in managing the income that you have available. If your Income Now is coming up short, it may be that rather than there not being enough income, you may need to be more mindful about how you are using the income you do have to ensure that you are taking care of the most important things in your life. Another important piece of your current income security is protecting yourself from the threats to that income. For example, if you were to lose your ability to earn income for some period of time, you want to have provisions in place to still be able to run your household. That relief could come in the form of a cash reserve of available savings that would allow you to draw from it to cover your expenses until your income restarted. If the reason for your loss of earnings was due to illness or injury, disability income insurance could serve as a protection mechanism to help you bridge the gap until your normal earnings resumed. These are just some of the ways to secure your current income, but important ones because your available income is the lifeblood of your current financial security.

Income Later
While it is perfectly normal to be focused on current income and the financial security it provides us in the moment, it is also extremely valuable for your peace of mind to know that your future income needs will be covered as well. Even if your current needs are being met, you are likely to have some level of anxiety if you feel like you are going to be forced to struggle financially in the future. For that reason, it is important to plan and establish a strategy for taking care of your future income needs. It could be the need to pay for certain major expenses that will come in months or years down the road, such as replacing a car or buying/upgrading a home. For situations like that, you will likely need to set aside some of your current income and hopefully put it to work where it will generate a return for you so that by the time you are ready for the purchase, you have accumulated adequate funds for it. On the other hand, your future income needs may be for a higher level of expenses that you are likely to have. Considering the examples of the car or home, if you financed a portion of the purchase instead of buying them outright, you would likely be incurring a higher level of expense for a period of time to pay off that loan. Then, of course, there is funding your lifestyle when you are no longer working. Since most citizens receive a Social Security benefit, that can generate a base of income you can count on. For those who will receive a pension benefit in retirement, that can be another core piece of your income security. Otherwise, you are likely looking at drawing down funds from your personal savings and investments, or if you created sources of passive income (e.g. investment real estate), that could help to fund your lifestyle once you have left the world of working for pay.

Income if You’re Gone
The first two pieces of income security are easily understood and practiced by a large number of people. The last one, however, is sometimes not as deeply considered, unless you are inclined to ensure your loved ones are able to benefit financially from the life you’ve lived once you are no longer around. While we tend to think of income as a regular stream of payments, speaking more broadly, income can come in many shapes and sizes. You could share the assets you’ve accumulated with loved ones in the form of a lump sum payout or a series of payouts over time. If you want to do so in the most efficient and orderly way possible, it is very helpful to have a comprehensive strategy in place. Part of that strategy is having your estate planning documents in place to ensure your wishes are executed as intended by law, and there may be steps you want to take in terms of structuring to lessen the potential that what you pass on to your loved ones is eaten away in taxes and/or legal fees. Another way to secure income once you are gone is through the use of life insurance, which allows you to put away a relatively small amount of money and turn it into a much larger pool of income for your loved ones. While these approaches often will not benefit you directly, should you desire to leave a positive financial legacy well beyond your own life, they can provide you with the comfort of knowing you’ve secured your finances both in life and in death.

Stewardship Emphasis

You can have security and independence when you know you don’t have to rely on external forces or luck to meet your needs.

The Empowerment Channel |Volume CCXXII | Dedicated to Promoting Financial Education through Stewardship