Financial security is the ability to earn money on hand. The word often refers to any type of financial asset, although its legal definition differs by country. For example, it can be bonds, stocks, mutual funds, or any other secured financial instrument. But in the United States, financial security is defined as the ability to earn interest from money deposited in an account, or cash payments received through electronic transfer.
Interest earned on financial securities results in income. In order to receive the full benefit of the interest, it must be held in escrow for a specific period of time. This period of time is called a period of deposit. A company may receive interest from its own stocks, government securities, or debt issued by its customers. Most financial securities that are measured by the dollar figure are also available in foreign markets.
One of the major differences between financial securities and bonds is that income accrues immediately as cash payments, with no reinvestment needed after the period of deposit has elapsed. A company can use financial securities to finance its operations, accumulate long-term capital, meet debt obligations, or purchase goods and services needed to continue operating. Since equity securities carry no interest during their holding period, companies may use them as instruments of debt repayment. However, they cannot be used to finance operations in which the company’s tangible assets are not immediately available, such as purchasing plant and equipment and paying employees.
Companies may also use both debt and equity securities to finance their business. Because bonds carry a coupon, which is similar to the price per share of the underlying stock in a company, companies use debt securities to raise long-term debt and purchase short-term debt. The financial institutions that facilitate corporate borrowing use certificates of deposit (CDs) in the same way as banks use accounts receivable.
Within the United States, most financial security transactions take the form of federal bonds, treasury bills, commercial paper, and bank notes. Within the United Kingdom, most financial transactions take the form of Northern Ireland bond issues, Scottish government bonds, and credit debt issued by the European Union. Most European countries issue sovereign bonds, which are backed by special government bonds issued by the European Union. The remaining world financial securities are issued by governments, corporations, and other financial institutions.
Saving for a financial security requires adequate knowledge of the ups and downs of the market, interest and inflation rates, and how to increase and decrease your savings. As more people are unable to adequately fund their daily expenses, inflation makes some items increasingly expensive, and others become completely necessary. In addition, if you want to increase your savings, it is important to have a reliable source of funds, such as a pension or a family fund. To increase your financial security, also consider changing your lifestyle. For instance, if you spend more money on non-essentials, you will have fewer expenses when emergencies or other life events arise. Finally, remember that a financial security is not complete without insurance: Life insurance is one of the best ways to ensure that your surviving family members are provided enough money in case of your death.