For generations, the way most Americans defined success was a singular, mythic dream that included having a high-paying job, buying a home, driving a fancy car, and having a family. While that traditional American Dream isn’t dead, a recent study by MetLife reveals that our mindset has evolved into something much more complex.
I’ll tell you more about the new American Dream and give you 5 ways to build safety nets for your personal finances that give you financial security.
What is the DIY American Dream?
Our new outlook has been coined the “Do-It-Yourself (DIY) American Dream.” It’s the result of many factors, including:
- fundamental shifts in the way we view adulthood, marriage, and family
- our emphasis on social networking and sharing
- financial challenges due to the long recession
Americans are now taking longer to become financially independent. They’re staying single longer and declining marriage more frequently. The new DIY American Dream is less about family and career success and more about creating personal fulfillment, enjoying close friendships, and having enough money to support a desired lifestyle.
The American Dream has actually gone social because it extends far beyond our personal finances into our personal relationships. For the first time, the American Dream isn’t about “living large” and achieving massive wealth—it’s about attaining a comfortable and modest level of financial security.
Lifestyle now trumps materialism because the MetLife 2011 Study of the American Dream reveals that over 70% feel they already have enough. Our hunger for financial success has been replaced by the desire for financial security.
How to Achieve the DIY American Dream
While Americans’ financial goals are more modest, achieving them is still challenging due to the tough economy and our high unemployment rate. Americans don’t want to rely on traditional social safety nets, like government assistance. Instead, we want to provide financial safety nets for ourselves and we’re willing to take drastic steps—like relocating, downsizing, taking a second job, starting a business, or enrolling in job training—to create financial security.
But the troubling part is that while nearly three quarters of those surveyed believe they need a financial safety net to achieve the American dream, only 30% say theirs is adequate.
How to Create Financial Safety Nets
A financial safety net is simply a way to take control of your money and be prepared for the unexpected. It includes having an emergency fund to cover your living expenses if you lose your job or business. It also includes financial products such as health insurance, disability insurance, and a retirement account, that provide for you no matter what happens.
The exact types of financial safety nets you need depend on your personal and family situation, but here are 5 tips for how to create more security:
Tip #1: Live Within Your Means
Living within your means allows you to avoid taking on debt that can get you into financial trouble. The new American Dream is more about having a desired lifestyle and less about being materialistic. Creating a meaningful life that’s full of personal fulfillment, regardless of how it compares to your neighbors’ or your parents’ lifestyle is critical for achieving financial security.
Tip #2: Build an Emergency Fund
Having cash reserves that you never touch except in the case of a dire emergency, gives you the ability to withstand a financial hardship without having to solve the problem by going into credit card debt.
Build up your emergency fund by automating a monthly transfer from your checking account into an FDIC-insured savings or money market deposit account. Don’t even think about investing your emergency money. The goal is to keep your reserve fund completely safe so it’s there for you the moment you need to fall back on it.
Tip #3: Have Adequate Insurance
For most people, having an expensive medical treatment or debilitating injury could be the difference between financial success and bankruptcy. Insurance is inexpensive when you consider how devastating not having it could be to your finances.
Meet with an insurance agent about having enough of the right kinds of insurance, such as health, disability, life, and long-term care so you can protect the financial assets you’ve worked hard to accumulate.
Tip #4: Invest for the Future
Putting aside a minimum of 10% of your gross income for your future retirement is one of the best financial safety nets to create. Even if you receive Social Security benefits, they aren’t likely to be enough for a safe and happy retirement.
So be sure to max out every tax-advantaged account that you can, like a workplace 401(k) and an Individual Retirement Arrangement (IRA) before you put money in a taxable brokerage account. That makes the most of your long-term retirement savings.
To learn more about how retirement accounts work and the right ways to invest, pick up a copy of my book Money Girl’s Smart Moves to Grow Rich.
Tip #5: Diversify Your Income
Since you never know what might happen to your job or industry, having more than one source of income is a smart financial safety net to put into place. Consider ways to make money on the side by doing freelance work, consulting, or starting a part-time business that helps you pay the bills and gives you added security.
Branching out into a new work opportunity might mean you have to get up earlier or work weekends, but it can result in rewarding experiences, valuable personal contacts, and a stronger financial safety net to keep you and your family safe.
Photo credit: Wonderlane