MOST of us were told to go to school, get a good education, and get a good job. But then we became adults and realised that having a lucrative career does not equate to financial freedom. Some retirees had high-paying jobs but now have little or no retirement income. How is that possible? There are various reasons why this situation exists.

Last week I had discussions with a retiree who has re-entered the workforce. Though he is receiving a monthly pension, it is not enough to maintain his standard of living. I listened as he spoke glowingly about the prestigious post he held before he retired. He disclosed that the business ceased operation and the funds he had earmarked for investment evaporated, as money was needed to replace the lost income while he searched for new a job. Retiring remains a distant goal, based on his financial responsibilities. Financial security is the effective management of money to provide future financial stability and have enough financial resources to cover expenses when they arise without increasing debts. It involves managing discretionary spending by living within one’s means. You don’t have to be wealthy to attain financial security. It’s a goal open to everyone but requires discipline, perseverance, and commitment.

To achieve financial security, it’s important to have an emergency fund to cover at least six months of expenses for unforeseen or necessary spending. Based on financial responsibilities six months of living expenses can prove inadequate to meet major unexpected expenses. Therefore, an emergency fund target of 12 months of living expenses may be a realistic target. Earning an income that is enough to meet monthly expenses without resorting to loans can assist in reaching the goal of financial security. Managing debt is also crucial in achieving financial security. Being debt-free or having much-reduced debt frees up money for increased savings and investments.

The size of your pay cheque will not guarantee financial security. How we manage our money will determine our financial security. There are high-income earners who struggle with mounting debts and who are financially insecure because they are poor money managers. Investing in various asset classes, such as real estate and stock, can assist in achieving financial security. Seek to acquire assets and reduce liabilities. Assets include your residential home, property, motor vehicle, retirement account or pension, savings, and investments. Royalties and patents are intangible assets that can provide passive income on a long-term basis. Liabilities, on the other hand, refers to what you owe and include your loans, credit card debts, rent, mortgage, and other financial obligations. Therefore, ensuring a positive net worth helps in achieving financial security. Net worth is the difference between the value of your assets and liabilities. A positive net worth goes a long way in reducing financial stress. Saving and investing for the long term will minimise financial stress about the future. Planning for retirement early reduces financial stress. If earnings from your full-time job are not enough, consider adding a part-time job, side hustle, or freelancing.

Investing in stocks and bonds provide passive streams of income, which are ideal for creating financial security. I recently met with another individual who is on early retirement due to failing health. He shared that his pension payout was a lump sum payment, which was spent on medical treatment. Fortunately for him, there are additional funds available which he plans to invest in bonds to provide retirement income.

If you seek financial security it will be necessary to develop good financial habits. Be prudent with your finances. Have a diversification investment strategy. Create a plan for short-term and long-term goals. Design a budget and stick to it. Review earnings and expenses periodically and make necessary adjustments. Automate your bill payments if possible as this helps to keep bills up to date, avoid instant gratification, and reduce the risk of late payments. Automation of pension contributions and investments is also important to grow funds and benefit from compound growth.

Self-investment is also necessary for financial security. Continuously learning and acquiring new skills will enhance your value and marketability. Your income is a wealth-building tool. Use it to your advantage. A research that was published in the
Journal of Behavioral Finance found that investors “non-consciously” use an initial investment amount as an anchor. This means that subsequent investment amounts are influenced by the size of the initial investment. Therefore, if the first investment amount is small, the future investments are likely to be small which results in investors investing less money in the long term. Researchers conclude that the initial amount invested, illogically “biases” future amounts invested.

It is recommended that investors should make a rational decision on the amount that they can afford to invest based on their earnings and spending activities. Many individuals pay the minimum balance on credit card debts without rational thinking, thus increasing indebtedness. Founder and CEO of Ramsey Solutions Dave Ramsey said: “Money is not just math, it’s behaviour”.

He opined that 20 per cent of personal finance is knowledge and 80 per cent is our behaviour. A competent financial advisor can assist in designing a plan that can help you to achieve financial security.

Grace G McLean is a financial advisor and retirement specialist at BPM Financial Limited. Contact her at gmclean@bpmfinancial. or visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self. E-mail her at livingaboveself@gmail.com