There is no 100% guarantee on financial security or safety—it is an illusion. Certainty is a mirage. The best security is knowing that you are flexible, resourceful, and able to roll with the inevitable punches life throws your way.
I recall the complaints of a hedge fund manager who was out of work in the financial meltdown of 2008. Yet, he couldn’t imagine doing anything other than manage his funds. I urged him to take a year off to travel and see the world. Travel would have given him the broader perspective he so badly needed.
On the radio, I listened to the unemployed web designer who complained that she couldn’t find work. There were no jobs after the dotcom meltdown, and she only knew how to do web design, nothing else. One would think that she descended from a long line of web designers and that was the only job in the world. Web designers, life coaches, blockchain programmers — these are brand new jobs that aren’t even a generation old.
More new jobs will sprout up in the future at an even faster rate. In fact, if you can’t find your ideal job, then you could probably just create it. Be the first to start a new profession! If, for some reason, I couldn’t be a life coach, then I could be a potter, a painter, a gardener, a chef, a writer or a waiter.
Never limit yourself to one job, and you’ll always have options. Security is knowing you have other options and useful skills that will weather just about any economic debacle. Security is also having some cash in the bank so that you can try out those options if the need arises.
Take a moment right now and jot down five possible alternative careers so that you don’t become blind-sided in the next recession. This way, you’ll see a pink slip as an opportunity to try something you’ve always wanted to do and not as the end of your career. Rather, you’ll see it as the beginning of the next career.
Security and safety are very common emotional needs. For that reason, the solution to feeling secure may have more to do with your emotional state than your financial state. In one sense, the poorest can take bigger risks because they have nothing to lose. If your financial assets are making you feel less secure, more worried or risk-averse, then you’ve missed the plot somewhere along the way. Or if you have amassed a cash pile but are still looking for that feeling of security, start by taking the Emotional Index Quiz to discover your top four personal and emotional needs. There are many ways to feel secure and safe that don’t have to do with money.
That said, if you have a three to six month cash reserve on hand for emergencies, then you’ll probably feel more secure (and happier) even if you don’t have the emotional need for security.
As any experienced financial planner would say, some people need a larger cash cushion than others. Some use a home equity line of credit for emergencies while others feel completely comfortable selling some stocks if need be. While annuities aren’t great if you plan to leave an inheritance, they may give you the security on knowing you’ll have a steady stream of income in retirement. You can mix and match until you get the balance right for your own needs.
Diversifying your income streams also creates security. If one thing dries up, then another source of income might be going strong. Will your business income keep coming in if the market crashes?
Most people think of diversification as mixing some bonds with some stocks. But true diversification is having completely different streams of income. You could have a mix of stocks and bonds (I like the US Government inflation-adjusting ibonds—you can buy directly from Treasurydirect.gov—but you can only buy $10K a year—I wish I had learned about these earlier. Or you can have income from rental property, royalties, patents, a business, employment, social security, or a pension. The more variety in your income sources, the safer you’ll be. Most people rely on employment income and then rely almost entirely on social security income to replace their employment income. This probably won’t keep you in the style to which you’ve become accustomed.
Let’s not forget the power of insurance to protect you from financial ruin.
Until you can self-insure, insurance can provide the safety and peace of mind you need to cover an emergency or expense you can’t afford to cover. Most of the bankruptcies in the US are due to uncovered medical expenses, so this is one area it really pays to insure. You might need term life insurance in the event of an untimely death if you have dependents. If you are the main breadwinner, then you’ll want disability insurance, as many more people become disabled than die prematurely.
Financial security can be created with a chunky cash reserve, diversified streams of income, and insurance.
But what if it is freedom you really want?
The FIRE (Financial Independence, Retire Early) community holds out the tantalizing carrot of quitting your job and never having to work again. They tout the incredible freedom of being able to do what you want, when you want to, of not having to take orders or play office politics or sit in boring meetings. Here is a recently FIRE-ed blog from the investor at Monevator.com enjoying his newfound freedom and relishing not having to go into the office.
I still remember the heady days some 20 plus years ago when I left my banking career in Manhattan to start my life coaching company. For years, I took Mondays off just because I could, and I had dreaded Mondays for so long! I took leisurely long lunches at the local Italian restaurant. Eventually the cache of that wore off. Now, I make my lunch at home and work Mondays through Thursdays and take Fridays off. The joy of being self-employed is that you can set your own hours. You can wake up when you want to. Although having kids and getting them off to school throws a monkey wrench into any sleeping in these days.
Just like security, there are many ways to feel free that don’t necessarily require that you’ve reached your magic number. For me, quitting my job at the bank and going into coaching full time was the ultimate freedom. I can choose who I work with, when I work, and I can set up my business any way that I like. There is no one bossing me about. I can try out ideas, experiment and have fun with my business. This is the real freedom– not having to do anything but having a purpose and a calling that I’d do regardless of whether I need the money or not.
At this point, reaching our FIRE number didn’t change our lives because we already were living our ideal lives. It just gives me the option not to do something I really love doing. That is the ultimate freedom!
You can do a quick calculation to find out what your magic number is, if you aren’t sure. If you want to quit that boring job, you don’t need to be financially free to do so, but you probably need a plan.
If you aren’t already on the path to financial freedom and an earlier retirement, you might be curious to learn how you can retire in ten years or less.
Get on the fast path to financial freedom, learn how in the Financial Independence, Retire Early (FIRE) Course.