Very few things touch the lives of almost everyone in the world; money is one of them. Regardless of whether you're from a small village or a big city, you'll likely need to deal with money at some point in your life.
Likewise, you'll probably be aiming for financial stability in your life. But what does it mean to be financially stable? For different people, financial security means differing things. And even if you have a good idea of your financial goals, it can seem like a long road ahead to try and reach them.
This post will cover all of this by going over a few common characteristics of “financially stable” people and providing you with some tips to help you get on your way to financial stability (whatever that means for you).
What Does it Mean to Be Financially Stable?
Depending on your financial situation and long-term financial goals, being financially stable can differ wildly from person to person. That being said, here are a few things that most people who feel like they are financially stable have in common.
It's hard to be financially stable when you have the burden of debt on your shoulders. Whether it's student loan debt, credit card debt, or personal loans, any kind of debt can seriously impede your ability to feel comfortable with your finances.
This isn't to mention the sky-high interest rates on a lot of debt nowadays. Some credit cards have interest rates as high as 30%, which means even a little money owed can snowball into a huge issue. Being debt-free is something that almost all financially stable people have in common.
All Needs Met
Another indicator that you're financially stable is if all your basic needs are met. If you have enough money coming in to cover food, transportation, and living expenses, you're well on your way to financial stability.
Of course, some people may not feel content with just having their needs met, but generally speaking, this is a good first step to take towards being financially stable.
Saving for Retirement is Possible
Most people don't want to work for the rest of their lives. As such, saving for retirement is an important goal for most working class individuals. Those that are financially stable often have enough money that they can comfortably put some away for retirement and even invest some.
Leftover Money On Hand
Life isn't just about work, and financially stable people recognize that. Typically, if you're financially stable, you'll have some leftover money after all the expenses to spend on your own hobbies and passions in life.
Better yet, a lot of financially stable people are able to make money doing what they love, creating a benevolent circle of money-making and enjoyment in life.
Tips to Help You Gain Financial Stability
Feeling confident in your finances is crucial to achieving financial stability. To help you work towards long-term financial stability, here are 7 tips to implement. It will take time and effort, but if you follow these tips, you'll be well on your way to being in the financial situation you want.
Invest in Yourself
People tend to forget that the greatest asset you have is… you! The first step towards financial stability is investing in yourself. Just like money in the stock market, any investment you make in yourself will compound over time.
Investing in yourself can include:
- Getting a college / university degree
- Learning a profitable skill that can be applied in the workforce
- Exercising more often and maintaining a good sleep schedule
- Reading books about personal finance and self development
- Honing your interviewing skills
There are lots of books, classes, and websites you can access that will give you the ability to invest in yourself.
Pay Yourself First
When most people get their paycheck, they pay off their expenses and debt first. Then, whatever money is left over is used for personal leisure. There is typically no money that is left for savings or investment.
The easiest way to reverse this is to pay yourself first. When you receive a paycheck, take 10-20% of it and put it into your savings account. Then, you can use the remainder of the paycheck for whatever you'd like.
By paying yourself first, you are making your own financial well-being a priority, instead of the wellbeing of those to whom you owe money or owe bill payments.
Follow a Budget
A budget can be as simple or as complex as you want, but the important thing is to have one that you will stick to. Instead of being more improvisational with your finances, a budget allows you to plan ahead and consider what is important to you.
To create a simple budget, lay out all your expenses and all your income in any given month. Then, if your expenses are greater than your income, see which ones you can cut out of your life. Alternatively, you can see where you might be able to pick up extra income, but the former choice is easier.
When making a budget, just be sure to make it realistic so that you actually follow it. Regardless of how tight a budget is, it's no use if you never follow it.
Pay Off Your Debts
Debt can make it extremely difficult to achieve your financial goals. Once you have paid yourself first and outlined a budget to follow, make it a priority to get rid of any high interest debt you owe.
This could include credit card debt, student loans, or any personal loans that you may have taken out. The scariest part about debt is that even if you make the minimum payments, the debt could grow larger and larger and eventually compound to an amount that is completely unmanageable.
Save Up For An Emergency Fund
Life doesn't always go as planned. And when it doesn't, you'll want to make sure that you have the financial cushion necessary to withstand the shock. The best way to prepare for whatever life has to throw at you is to save up an emergency fund.
A lot of people neglect to save for an emergency fund as they feel like they will never need it, but this can actually hamper your ability to maximize savings and investments. If you happen to be in a rush for money, but don't have an emergency fund on hand, you might need to resort to high interest credit cards or dip into your retirement savings.
This fund is for if something unexpected in life happens. For example, if a flood occurs, or if you have some sudden accident that needs a lot of medical bills, or if you lose your job, you can use your emergency fund to cover you while you recoup. Typically, an emergency fund is 3-6 months worth of your salary.
Invest For Retirement
Statistics show that the average American has no retirement savings. Without retirement savings, you'll need to keep on working until you die. It's hard to feel financially stable knowing that.
If you want to reach financial stability, you need to start planning ahead for when you don't want to work anymore. Investing for the future is a great way to do that. Using the 10-20% you've saved (up above), invest in long-term assets that will compound and grow your wealth over time.
Many employers offer 401k programs that you can take advantage of to save even more. You'll be surprised at what a little bit of consistent saving and what some compound interest can do for your future.
Grow Your Wealth
Beyond achieving all of the steps above, if you still don't feel financially stable, consider taking some excess money and finding alternative ways to grow your wealth.
If you have a keen eye for investments, consider investing in larger assets like real estate. Successful real estate investing will take a lot of work, but at the end of the day, you can enjoy the benefits of appreciation from your property and consistent cashflow.
Most of the richest people on earth are entrepreneurs, so perhaps consider starting your own business. This is especially good advice if you're not enjoying your current profession. If you grow your business big enough, you might even be able to quit your job and just follow your passion wholeheartedly.
If being your own boss doesn't sound appealing to you and you'd rather aggressively save, you can check out the FIRE (Financial Independence Retire Early) movement. People that are part of the FIRE movement tend to be able to save much more money and are able to substantially speed up the process to retirement.
What is Financial Stability and How to Achieve It
Regardless of what being financially stable means to you, it's important to stick to your long-term financial plan if you want to improve your financial health.
Even if it gets hard on some months and you feel like you're running out of fuel, you must push on. In regards to making your personal finances better, it's not intensity that matters, but rather consistency.
Jeff is a current Harvard student and author of the blog Financial Pupil who is passionate about learning, living, and sharing all things personal finance-related. He has experience working in the financial industry and enjoys the pursuit of financial freedom. Outside of blogging, he loves to cook, read, and golf in his spare time.