Your Future Financial Security Depends On You…And Only You

By Kevin, on May 11, 2010

Financial security is a common pursuit.  Whether you’re just starting out in the working world or you’re looking to retire, financial security or the pursuit of financial security is of large importance for you.  Unfortunately, a generation of Americans have been led to believe that the contributing factors to financial security come from anywhere but yourself.

Photo by bigburpsx3 via Flickr

American Dependence

For example, a generation of Americans have been made to believe that the only chance they have for financial security and a form of retirement is through the stock market.  Financial “experts’ have pointed to historical returns as a guaranteed path to financial security, even as stock markets get more volatile.  As long as your time horizon is long enough, you’re a guaranteed winner.

Meanwhile, these experts are winners every year regardless of performance due to the fees they collect for their advice.  The problem is that millions of Americans have had their savings fully invested in stocks rather than spreading it out over a number of asset classes.  Financial advisers will be quick to push diversification as long as it is diversification within a fully invested portfolio (so they can collect fees on every dollar).  Put simply, the stock market and the potential for outsized returns has become the only hope for financial security for far too many people.

Similarly, many individuals put their hope for financial security in external entities whether it is the government (through vehicles like social security or welfare) or perhaps a corporation (through a vehicle such as a pension).  Again, these can be contributing factors in your overall financial picture, but you should never fully depend on these financial tools.

Reality Revealed

Unfortunately, many of these things that Americans depend on for their financial security have been shown to be unreliable and volatile.  Let’s look at some examples.

• The Stock Market – Sure the historic gains are impressive, but the last ten years have been flat.  Furthermore, if you consider days like May 6th, 2010 when the Dow dropped almost 1,000 points in a matter of minutes, you can see the fragility to today’s market and trusting this market is difficult.
• Pensions – Pensions have been getting cut for years now as corporations and governments continue to fight under-funded pension programs.  When planning out decades of “retirement,” relying on a single pension for your security is a gamble.
• Government – Other government programs like social security are hardly reliable.  In 2010, social security paid out more benefits than it collected in taxes/fees for the first time ever.  The awful fiscal shape of social security is no secret, so can you really rely on this being available for you when the time comes?

Your Game Plan

My point in this article is not to convince you to abandon these common institutions such as the stock market, pensions and government programs, but rather to convince you that these are not bullet proof strategies.  While hopefully these entities will supplement and contribute to your financial security down the road, you’re playing a dangerous game if you depend upon them 100%.

Take some simple steps today to create a situation where you provide for yourself both today and for the future.  Then, any large stock returns and social security income you receive are just a bonus.

So, what to do?

First, get your lifestyle in sync with your income level.  By embracing a more frugal lifestyle with some margin between what you take in and what goes out, you will be able to save money now and be ready to live on less later.

Second, accumulate some basic savings and invest in assets outside the stock market.  This might be some cash savings, precious metals or maybe some real estate.  Diversify your assets across asset classes — don’t be fully invested in stocks no matter how convincing your adviser is.

Third, improve and keep up your earning power.  This is possible by honing your skills and expanding your abilities.  Whether you’re an employee or self-employed, the more you can do, the more marketable you are, and the more secure your future will be.

It seems like there is a great amount of uncertainty in today’s financial world.  Whether it’s 1000 point drops in the Dow or a European debt crisis, uncertainty definitely exists in today’s global economy.  Make sure you put yourself at the center of your plan for financial security.  As financial systems and economies struggle, I think self-reliance is going to continue to make a comeback.

Kevin is the writer behind 20smoney.com. 20smoney.com focuses on aggressive investing, developing income streams, money management and more with advice targeting 20-somethings. You can read more about his pursuits of online income and financial freedom.

Add Your Question or Comment (7 Comments)

1. kt:

   May 11, 2010 at 12:25 pm

   to add a little to the post, i think that one must also include God in the quest for financial freedom. It feels good when you get something and then thank God for it. All in all, i agree that one should start early investing and increase in financial education. I would like to be a winner in the great pantomime that is life and money
2. ctreit:

   May 12, 2010 at 10:36 am

   If you think about the various possible scenarios that can affect our economic lives negatively, I think that self-reliance is indeed the way to go. This is easier said than done though. During the Great Depression cash savings got eroded very quickly or even taken away by some European governments. Sometimes it is very difficult to figure out where to hide. Still, it is better to be prepared than to just keep your fingers crossed that somebody else will bail you out.
3. Money Reasons:

   May 12, 2010 at 12:16 pm

   Great advice! I especially like the idea of the investing some money in precious metals. I wish there were more types of investments that had a decent return (and wasn’t a con…)
4. TWS:

   May 12, 2010 at 4:54 pm

   Self-reliance is key. While its important to build a network, and to help others, its also important to have a self-reliant attidude. It may seem counter-intuitive, to willingly help while keeping a self-reliant attitude, but I think in the long run you’ll be ahead that way.

   Live within your means, build assets, and keep your earnings potential high. It means keeping an active mind, and personally managing your finances as well as your career.
5. Hollis Colquhoun:

   May 17, 2010 at 12:48 pm

   Four words that are essential to self-reliance are planning, saving and more saving. You are very right to emphasize having a game plan early on. No one knows what will happen with the stock, bond, commodities, Euro, et. markets (even the pros don’t know), but if you’re diversified in your investments and have emergency and retirement savings, you should be okay.
6. Ken:

   May 21, 2010 at 4:24 pm

   I have to agree with being diversified. I would never recommend having it all in the market. Living on less than you make…no doubt a good plan.
7. Jan:

   June 25, 2010 at 10:37 am

   I am not convinced of the metals move. Gold has been replaced with better metals. Historically, at one time, tulips were the thing to have. They were the trading power. The rich wanted them. How about those huge stones in South America or the shells in the Pacific islands. We once bought silver bullion and then tried to sell it at the high. We were laughed at. No one wanted the actual bullion!
   Our thought is farming land. If something should happen- we could go make due for a number of years.
   Otherwise we are cash in AMERICAN banks (not many of them are high yield) and stocks.