There are many factors that can affect your financial security. Some of them are actually not financial in nature. This is why you should not focus on the monetary aspect of your life to determine if you are really secure financially. Some people think that having a 6-figure income is enough to secure their finances. But little do they know, there may be other factors in their life that will influence their security. That even with a 6-figure income, it will not be enough to make their personal finances secure.
According to a study done and published on PWC.com, Millennials are not really doing that great when it comes to their finances. At least, they are not feeling as confident as they should. 6 out of 10 say they feel stressed about their finances. One can assume that this is probably because of their student loans. 4 out of 10 respondents admit that they have student loans and 79% say it has a moderate to significant impact on their ability to meet their financial goals. 46% of the respondents said that their current financial position makes it hard for them to meet all their expenses each month.
Obviously, Millennials have a long way to go when it comes to financial security. But that is all the more reason for them to be conscious of the non-financial aspects of their life that can influence their finances.
4 things that influence the security of your finances
A study published on PewTrusts.org revealed the 4 influences that can affect the security of your finances. These are race, marital status, education, and parental status. The interactive data shows how consumers have varying financial positions because of these 4 factors. Here are some of the important highlights.
The annual income range of the 50th percentile, the data shows the following:
- For those who are single, have no college degree and no children:
- Blacks earn: $22,500 (with children earn $25,000)
- Hispanics earn: $22,500
- Whites earn: $27,500 (with children earn $32,500)
- For those with partners, with no college degree and no children:
- Blacks earn: $55,000 (with children earn $35,000)
- Hispanics earn: $45,000 (with children earn $35,000)
- Whites earn: $55,000 (with children earn $65,000)
- For those with partners, a college degree but no children:
- Blacks earn: $92,500 (singles earn $55,000)
- Hispanics earn: $112,500
- Whites earn: $112,500 (singles earn $55,000)
- For those with partners, a college degree and children, only Whites have a record of earning $112,500 annually.
As you can see, the race, education, and marital status have an effect on the annual income of a person. Couples have a bigger income – probably because two people are bringing in a monthly salary. It is also evident that a college education increases the annual income of a person too. Those who do not have a college degree earn $22,500 but those with a degree earn $55,000. You can also see the difference when it comes to those with children. All in all, it seems like the Whites and those with a college degree have a better chance at achieving financial security.
Let us see how it differs when we compare their wealth. The wealth savings range of the same group in the 50th percentile are as follows:
- For those who are single, have no college degree and no children:
- Blacks have: $500 (with children have -$300)
- Hispanics have: $7,085
- Whites have: $57,400 (with children have $15,400)
- For those with partners, with no college degree and no children:
- Blacks have: $40,000 (with children have $1,700)
- Hispanics have: $40,815 (with children have $14,100)
- Whites have: $221,600 (with children have $47,200)
- For those with partners, a college degree but no children:
- Blacks have: $185,300 (singles have $54,150)
- Hispanics have: $459,100
- Whites have: $566,342 (singles have $196,220)
- For those with partners, a college degree and children, only Whites have a record wealth savings range of $191,600.
Again, you can see that the difference brought about by having a college degree, a partner and even kids. For instance, Blacks have at least a positive wealth but if you factor in having kids, it becomes a negative figure. There is also a huge difference in the wealth of couples who have children and those who do not have any. You also cannot deny the influence that a college degree has on building wealth.
Let us see how the financial security fares for these people when it comes to their liquid savings. The liquid savings range of the same group in the 50th percentile are as follows:
- For those who are single, have no college degree and no children:
- Blacks have: $87 (with children have $75)
- Hispanics have: $574
- Whites have: $2,100 (with children have $401)
- For those with partners, with no college degree and no children:
- Blacks have: $1,040 (with children have $130)
- Hispanics have: $1,800 (with children have $500)
- Whites have: $6,500 (with children have $1,050)
- For those with partners, a college degree but no children:
- Blacks have: $5,700 (singles have $2,000)
- Hispanics have: $7,345
- Whites have: $16,000 (singles have $7,000)
- For those with partners, a college degree and children, only Whites have a record liquid savings range of $9,100.
As you can see, the same patterns are evident in when it comes to the liquid savings of all races. Having children makes it harder to have bigger savings – probably because these families have bigger expenses. Despite having a bigger income, their savings are not that different.
This clearly shows that even non-financial aspects in your life can have an effect on your financial security. However, you have to remember that you will always be in full control of your financial situation. While it is unclear how your race can affect the financial opportunities you will face, you have full control over the other three.
- A college education is important so it has to be prepared for. You can maximize the earning potential if you can go through it without student loans.
- Your marital status is also a factor so choosing a person to spend the rest of your life with should be done with their financial positions in mind. If the both of you will work, the combined incomes will increase your monthly cash flow. But if their financial habits are destructive, that can affect yours as well. The debts of the past are okay but they have to be willing to correct the mistakes of the past.
- Having children is something that you need to be ready for financially. You cannot just enter into it without considering how your finances will adjust to the expenses. It is a fact that you will spend more. Not only that, one of you may be forced to quit their job to take care of the child. The decrease in income and increase in expenses is no joke so you have to be prepared for it.
How to make your finances secure
In order to consider yourself financially secure, you have to be in a position where you are not scared that you will run out of money. You have to be confident that whatever happens, your finances are strong enough to help you surpass any difficulty in the economy – whether it is on a global, national or local scale.
To strengthen your financial security, here are tips that you can follow.
Have an emergency fund.
Not only will this help you meet unexpected expenses, it can also save you from debt. According to an article published on USAToday.com, 6 out of 10 Americans have less than $1,000 in their savings. In fact, almost half of the respondents in a Go Banking Rates survey said that they need to borrow money or sell possessions to meet an emergency that costs $400. It is also mentioned in the article that the lack of savings is not exclusive to low-income earners. Even those earning a high salary have the same problem. So if there is one task that you need to focus on, it is to build up your emergency fund.
Define your financial goals.
You should also think about setting financial goals. According to experts, setting a goal will get you one step closer to achieving it. People have a higher chance of reaching a target if they formally set it up as a goal. This is why you have to define what they are so your financial decisions will be aligned with that future goal.
Save for retirement.
Saving for the future is always a great way to achieve financial security. If you want to retire early, this is something that you need to work on. It is hard to retire at an early age if you are not financially secure. This is actually one of the signs that will help you know if you are already secure. Unless you are able to retire or on the right track in your retirement savings, you cannot say that your finances are secure.
Diversify your income.
Finally, you have to learn to diversify your income. If anything, this is the fastest way that you can establish the security of your finances. This will simply help you survive in case your current income is suddenly compromised. Setting up other sources of income will allow you to maintain a steady cash flow despite hard economic times.
Here is a video from AARP that provides 4 more tips that will help you achieve financial security.
