Feeling Secure

I love going to bed. There’s something comforting about lying in the darkness, wrapped in the sheets and blankets, knowing the wider world is unlikely to intrude. What bad could possibly happen? To me, there’s no safer place.

No doubt others feel differently, finding a sense of security elsewhere—in their SUV safely separated from other drivers, in the hefty balance in their checking account, in their large house fenced off from their neighbors, in their modest monthly financial obligations, in the fairly predictable stream of dividend income that flows each quarter into their brokerage account, in their collection of firearms, in their detailed financial records listing assets and expenses, in the wealth of possessions they’ve amassed over the years, in their pantry, refrigerator and freezer full of food. We all want to feel secure, but we all find it in different places.

This is clearly linked to the well-known phenomenon of loss aversion, which is our tendency to get more pain from losses than pleasure from gains. What is it that we need to feel safe from losses? How we answer this question drives how we manage our money.

For instance, I don’t budget or closely track my expenses. I don’t have a separate emergency fund. Indeed, I don’t keep much in cash and bonds, though I’d likely stash more in conservative investments if I wasn’t continuing to earn enough to cover my living costs.

But at the same time, I avoid debt and I look to pay bills as soon as they arrive, because I don’t like owing money. My desire to feel safe also drives my day-to-day reluctance to spend, though these days I’m more willing to splurge on trips and eating out, one result of my cancer diagnosis.

What we need to feel safe feeds into our risk tolerance—a notion usually associated with how much investment risk we’re willing to take. But our risk tolerance shows up in multiple ways:

• The insurance policies we buy and the coverage each policy offers
• How much emergency money we hold
• How far we live below our means and hence how much financial breathing room we want in our day-to-day finances
• How much debt we carry
• Our mix of stocks, bonds and cash investments
• How broadly we diversify our stock and bond portfolio
• How much attention we pay to FDIC coverage and the financial strength of our insurance companies, and how broadly we spread our money across financial institutions

I used to think that there were “right” ways to manage life’s financial risks. But I’ve come to realize that what folks need to feel safe varies widely—and, if the financial cost isn’t too high, who am I to quibble?

That brings me to today’s question: What do you need to feel financially safe?