What does financial stability mean?
You’ve probably thought about this question before, or even asked it yourself.
Because your personal finances are unique, you may have a different view of financial stability than the next person.
There are some common groundings to the definition, and ways you can arrive at it.
Here are some simple steps to help you achieve financial stability.
Table of Contents
What is financial stability?
Signs that you might be financially unstable
How to become financially stable?
How to Be Financially Secure With Low Income
Final Thoughts
What is financial stability?
You are no longer worried about money when you reach a stable financial position. You don’t worry about paying your bills. You save money every month and are debt-free.
Financial stability is defined as spending less than your income (or living within your means).
You can pay for your basic needs (food, housing, utilities), and still have enough money to cover any unexpected expenses, emergencies and future retirement.
But I believe that the most important part of financial stability is to not be stressed out about money.
When you don’t worry about unexpected costs or how you will pay your mortgage, rent or other debts, you have reached financial peace.
What is the financial stability of a person?
The amount of money that you will need to achieve financial stability depends on the cost of living in your area and your future needs. To achieve short-term stability, you would need to save 3-6 months’ worth of living expenses. Financial stability over the long-term would mean having enough money to retire and not run out.
Signs that you might be financially unstable
While I have covered the definition of a good financial position and what that means, I would like to first share with you some warning signs to indicate your finances may be unstable.
You may be unaware that you are in a state of instability, or even denial.
In 2013-2014 I was not in the best financial shape, but I chose to pretend that it wasn’t.
It wasn’t until I sat down and wrote everything down that I realized how serious my financial mistakes were.
These are signs of financial instability:
You have a very low emergency fund, or none at all
You’ve maxed out another credit card and are barely paying minimum payments
You have a low credit score or your score has dropped.
You’d be in financial trouble if you lost your job.
If you don’t know or can’t save for retirement, it is because you cannot afford to.
You have no money left after your monthly expenses
Overdraft or late fees are common.
You are constantly stressed out by money and lose sleep over it
It is more likely than you think that you borrow money from your family and friends.
You are drowning in debt because you make minimum payments, try to consolidate or push it off.
Here are a few warning signs. Five of these warning signs I had to deal with after college.
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You may fit in only a few or all of the signs.
It is important to not feel alone or ashamed, as many people from different generations also struggle with these issues.
You are definitely on the right track if you’re reading and learning about this article, as you want to make some changes in your financial situation.
Next, I will explain how to become financially stable. Here are the steps that I took to achieve a higher level of financial stability.
How to become financially stable?
In general, I believe that many people look for magical formulas when they are looking for answers to their personal finances or how to become financially secure.
You may be looking for a secret method that has not been discussed before.
You are wrong! There is no secret. You’re not alone. I too was looking for that in the beginning of my research.
In reality, achieving financial stability is a simple process.
- Live Below Your Means
Many of us live beyond our means. We finance a lifestyle we cannot afford, for whatever reason.
You need to start spending less money than you make if you want financial stability.
You can do this by:
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Create a budget. List all of your monthly expenses and your total monthly income. Then, create a plan to address your problems. Budgeting is important, but you shouldn’t get too hung up on it.
Reduce your bills: Food, utility, transportation and living expenses. It may be necessary to downsize your house, your car, or your eating habits. Get these under control. Trim, an app that negotiates savings and removes subscriptions on your behalf to help you save money, can be used.
Once you have a good idea of how much money you can save and when, you can start automating transfers so that you don’t see the money. CIT Bank offers a Savings Builder program that pays a solid rate of interest.
Money tools can help you. If spreadsheets don’t work, you may want to look at tools like Mint or Personal Capital.
- How to Create a Debt Repayment Plan
Here are some average debts by age group according to debt.org:
Under 35: $67.400
35-44: $133,100
45-54: $134,600
55-64: $108,300
65-74: $66,000
75 Years and Up: $34,500
Student loans and consumer debt are a growing issue in the United States. You want to create a debt repayment plan after you’ve budgeted and started to save.
To achieve financial stability, you must eliminate your bad debts as quickly as possible. This includes:
Charge Card Debt
Student Loan Debt
Car Loan Debt
You can pay off your debts in two ways: either pay the highest-interest debt first or pay the lowest amount of debt to pay it off right away.
When I did this, I chose to pay more for my car and credit card. Next, I went on to pay off my student loan debt.
It’s entirely up to you, and how you choose to proceed.
Remember that credit cards charge the highest rates of interest and this can snowball quickly if you only pay minimum payments each month.
You have other options, but I would recommend the National Foundation for Credit Counseling if you are in need of some assistance.
- Create Your Financial Plan
You must create your own financial plan if you wish to achieve financial stability. You’ll be making decisions without guidance or research.
You put your finances and those of your family at risk by not planning.
Would you make an important financial decision without concrete data or information, just because it sounded right? You probably answered no!
Imagine your financial plan as a map that will guide you and your family through the world of money. This plan helps you to set goals, outline steps and determine what you need to do in order to achieve financial stability.
It doesn’t have to be complicated, but it should include your income, expenses, spending habits, debts, insurance and even estate planning.
- How to earn more money
You’ll start to reduce your spending as you budget and understand where your money goes. Remember that you can only reduce your spending so much.
Earning more money is a big part of achieving financial stability. You can earn more money in many ways, including:
Start a side business in your sparetime
Your salary can be increased by increasing your career value
You can ask for a pay raise if it’s been a long time since you received one
Delivery app jobs are a great way to get into the gig-economy.
Sell your knowledge and expertise as a freelancer/consultant
You can reduce your financial stress by increasing your income.
Be careful to not fall into the lifestyle trap when you earn more money.
- Learn to Master Your Financial Literacy
Start by educating yourself. It may be difficult to understand money and budgeting, but if you put in the time it is not.
Spending time with your budget and debt is an excellent learning tool. You want to take it a step further and become a master of your finances.
You’ll make better decisions in the future and become more aware of your current financial situation when you have a good understanding of debt, budgeting, and investing.
You can learn this yourself!
This article is a detailed personal finance 101, and it covers everything I have done to educate myself on money and investing. This article may help you improve your financial literacy.
- Plan Your Retirement ASAP
It is crucial to achieve financial stability this year and within the next few months. It’s very easy to visualize your success and create a plan in a short time frame.
You should also think about the future and what you will need in later life. Early on, when you’re just putting your finances together, it can be difficult to consider the future.
Early preparation for retirement will give you an advantage, as you’ll have more time. You can then invest for years and let your money compound to help you reach your retirement goals.
The amount of money you have to invest and the amount that you require may also change with time. But getting an early start is important. It’s okay if you don’t have much money! With platforms such as Stash and Acorns, you can invest as little as $5.
How to Be Financially Secure With Low Income
Thank you for reading this far. I hope you found it helpful.
You may feel a little discouraged after all of that. If you’re struggling with a low income, it can be difficult to break out of the trap.
It’s more difficult to achieve financial stability when you have a lower income. It’s not impossible if you have a plan and are patient.
If you’re struggling to make money, the focus should be on finding new ways to make more.
Part I
The amount of income that is considered low can vary depending on the person, where they live, and their current expenses.
The first priority is to adjust your income to match your situation. Listen to me before you shout at me or say “No duh!”
Everyone can make some extra money with the gig economy and the internet. This is not for everyone, but it can change your life.
If you are currently working full-time and have a family, then side hustles can be difficult.
You have two other options for your full-time career:
Asking for a pay raise at work
Improve your salary by gaining certifications, working with others, changing jobs, networking etc.
Part II
The second part of this is to reduce expenses.
This is an important step if you are struggling to increase your income and financial stability is a top priority.
What to do if you want to save money?
Groceries
Living expenses
Transport
It’s not fun to sacrifice now, but you’ll reap the rewards in the future.
Even though your temporary cuts may only last for a year, or even a few months, they can have a dramatic impact.
Only you can decide how much you are willing to commit to each of these areas.
Will I ever be financially secure?
Financial stability can be achieved by anyone who is willing to learn, and patient with their money. It’s possible for anyone to achieve financial stability in less than one year, regardless of whether it is more difficult or easier for them. It may take longer to become financially sound, but keep on going!
Final Thoughts
Financial stability doesn’t mean being wealthy or reaching a certain number. Your mindset and how comfortable you are in your current life is what matters.
You want to be able to live your life as you choose, without being controlled by debt and money.
You’ll be more stable and at peace with your finances if you can control your money.
You can achieve financial stability by following these steps, maintaining a determined mindset and being patient.
