What does it mean to be financially stable?
A question you’ve probably asked yourself before or are even contemplating about right now.
But because personal finances are very unique to you, how you view financial stability may vary compared to the next person.
However, there are some common grounds to the definition and how you can get there.
Below I wanted to explore some simple steps that can help guide you to some financial security.
What is Financial Stability?
When you have reached a state of financial stability, you are confident and completely stress-free when it comes to money. You are not worried about having the funds to pay your bills, you are saving money each month, and you are also debt-free.
In the simplest way possible, being financially stable means you are spending less than you earn (or living below your means).
You are able to pay for the basics of living (food, shelter, utilities) and still have money set aside for any unexpected bills, emergencies, and your future retirement.
Yet, I think the biggest part of achieving financial stability is that you are not stressed about money.
You know you’ve reached financial peace when you aren’t worried about an unexpected cost or panicking over how you’ll pay your rent, mortgage, or any accrued debt.
How much money is financially stable?
How much money you need to be financially stable depends on your cost of living and what your needs will be. But to reach short-term financial stability would be to have 3-6 months of living expenses saved. Long-term financial stability would be having enough to retire without running out of money.
Signs You Might Be Financially Unstable
Although I covered the definition and a bit about what it means to be in a good financial place, I want to share some warning signs that your finances might be a bit unstable first.
Sometimes you may not realize you are on the verge of instability or you might be in some form of denial.
Back in 2013-2014, I knew I wasn’t financially in the best shape but chose to pretend it wasn’t bad.
But until I really reflected and wrote down what was happening, I didn’t realize how bad my money mistakes were.
Here are the signs of unstable finances:
- Very low emergency fund or you have none at all
- Maxed out one more credit cards and barely making minimum payments
- Your credit score is extremely low, or the scoring has been sinking
- If you lost your job, you’d be financially screwed immediately
- You are not saving for retirement because you can’t afford to or know how to
- After your monthly expenses, you have nothing leftover
- Late fees or overdraft fees happen quite regularly
- Money is constantly stressing you out and losing sleep over it
- You end up borrowing money from family or friends more than you want to admit
- You’re drowning in total debt because you’re making bare minimum payments, trying to consolidate, or trying to push it off.
These are just some of the handful of warning signs. And five of the above, I dealt with for a few years after college.
Maybe you fit into only a few of the signs above or maybe them all.
The important step here is not to feel ashamed or feel that you are alone — as so many people of different generations are battling these too.
But the great news is you are learning and reading this post, looking to make changes with your finances.
In the next section, I’ll cover how you can become financially stable. These are the steps I took in order to reach a new level of financial health.
6 Ways to Become Financially Stable
Generally, when searching for answers about personal finances and becoming financially secure, I think many people are hoping for magic formulas.
Or just looking for some sort of secret process that has never been shared before.
If that is your thinking, I need to tell you that there is no secret formula! Don’t worry, in my early days of researching I was hoping to find that too.
But in reality, the steps to becoming financially stable are really straightforward.
1. Start Living Below Your Means
A big problem I think many of us face is that we live above our means. We fund a lifestyle that we clearly cannot afford for whatever reason that may be.
If you want to get financially stable, you gotta start living below your means — spending less than you earn.
Steps to help you live below your means include:
- Create a budget – make a list of all your monthly expenses, your total monthly income, and put a spending plan in place to correct your challenges. Try not to get hung up on budgeting too much, but in the early stages, you should create one.
- Lower your bills – Living, food, transportation, and utility bills. This may mean downsizing your home, car, and being more money conscious of your food habits for awhile. But get these under control. You can use an app like Trim that helps negotiate savings and removes subscriptions for you to save money.
- Start prioritizing your savings – Practicing paying yourself first and build that buffer for emergencies and other “life happenings.” You can set up automatic transfers once you know how much you can save, so you never see that money. I like CIT Bank’s Savings Builder that has solid interest on your cash.
- Use money tools to help you – If spreadsheets aren’t enough, look into some tools to help you like You Need A Budget, Mint, or Personal Capital to keep you on track.
2. Put Together A Debt Payoff Plan
According to debt.org, here are some of the average debt by age groups:
- Under 35: $67,400
- 35–44: $133,100
- 45–54: $134,600
- 55–64: $108,300
- 65–74: $66,000
- 75 and up: $34,500
It’s a growing problem in the United States, between student loans and consumer debt. After budgeting and starting to save, you want to put together a debt payoff plan.
Getting financially stable means eliminating your bad debt and as fast as possible. This includes:
- Credit Card Debt
- Student Loan Debt
- Car Loan Debt
Two debt pay options you might want to consider are paying off the debt with the highest interest first, or paying down the debt of the lowest amounts to pay off things right away.
I personally chose the higher debt payments when I was doing this which was my credit card and car payment. Then went to my student loan debt.
But, it’s up to you and your personal circumstances as to how you want to go about this.
Just remember, credit cards have the highest interest rates and can really snowball if you are only paying minimums each month.
There are other options as well, but if you need some help I recommend checking out the National Foundation for Credit Counseling.
3. Build Out Your Financial Plan
If you want financial stability in your life, you must spend time creating your own financial plan. Without this guidance and research, you’ll make decisions blindly.
By not planning, you put your finances (and your family’s) at risk bcause you don’t understand exactly what is going on or what the impact might be in other areas.
Would you make a big financial decision because it sounds like the right thing, without having concrete information or data? Hopefully, you answered no to that!
Think of your finanical plan as a roadmap that will help you and your family navigate money. It helps you layout goals, steps, and what you will need to do to reach finanicial stability.
Your plan doesn’t need to be overly complicated but should cover your expenses, income, savings, spending trends, debt, insurance, even estate planning or wills.
4. Find Ways to Earn More Money
As you are budgeting and understanding where your money is going, you’ll be starting to cut back on your spending. This is great, but remember that you can only cut back so much.
A big part of becoming more financially stable is going to be earning more money. There are numerous ways you can do so like:
- Starting a side hustle in your spare time
- Increasing your salary by improving your career worth
- Asking for a raise if you are long overdue
- Get into the gig economy, like delivery app jobs
- Sell your knowledge and expertise as a freelancer/consultant
Making more money can help ensure you reduce financial struggles and can be more at peace.
But be warned, you want to be careful not to fall into the lifestyle creep trap as you make more money either.
5. Master Your Own Financial Literacy
A great way to become financially stable is to start to educate yourself. Understanding money and budgeting may seem challenging, but it’s really not if you dedicate time to learning.
You are already spending time on your budget and debt, which is a great learning tool. But you want to amplify that further so you become the master of your finances and develop good financial habits.
When you are informed about debt, investing, and budgeting — you’ll start making better future decisions and be more conscious of current financial moves.
And yes, you can teach yourself this!
I wrote this in-depth personal finance 101 article, which covers all that I did to teach myself about money and investing. It might be helpful getting you to master your own financial literacy.
6. Plan for Your Retirement ASAP
Getting financially stable this year and in the shorter-term is incredibly important. And it’s easy to vision your success and make a plan for something in a shorter time period.
However, you also need to think long-term too and how you’ll be set later on in life. It might be challenging to think about early on and when you are just piecing your finances together.
Preparing for retirement early, will give you a massive advantage as you have time on your side. This gives you years of investments and your money to compound, helping you reach your retirement savings goals.
How much you can invest may change over time and maybe the amount you need can alter too. But getting a head start is so important. If don’t have a lot of money, that’s okay! You can start investing with as little as $5 with platforms like Stash or Acorns.
Tips to Become Financially Stable With A Low Income
If you’ve made it this far, I thank you and hope it provided some clarity for you.
Yet after all that, you may be a bit discouraged. It can be a hard trap to breakthrough if you are battling low income, especially as expenses keep rising every year.
I’m not going to sugarcoat it, it’s much more challenging to achieve financially stability with a lower income. But, it’s not impossible either if you put a plan together and stay patient.
But out of all the steps mentioned above, your focus if you are struggling with making money, should be finding ways to earn more.
Low income can also vary from person to person as it depends on where you live and current expenses.
One priority is to change your income status relative to your personal situations. Before you yell at me and say “No Duh!” hear me out.
With the internet and gig economy, everyone has a chance to make money on the side. Not everyone is going to get rich doing this, but getting extra cash can be a game-changer to your plan.
Yes, side hustles might be challenging if you have a full-time job and family to take care of currently.
So your other two options are for your full-time job/career:
- To ask for a raise at work (or find out what you need to do or show in order to get a raise)
- Work on improving your salary worth (certifications, shadowing others at work, switching jobs, networking, etc.)
Part two of this, is to cut back expenses mercifully.
I’ve never been a fan of pushing extreme frugality, but if financial stability is a priority for you and your income growth is challenging, this is step is a must.
Where to cut back hardcore:
- Living expenses
You’ll be making some sacrifices now that aren’t fun, but the long-term payout and reaching your financial goals will be worth.
Your temporary cutbacks might only last a year or maybe a few, but can have dramatic and lasting impacts.
But only you can determine how committed you want to be to these areas.
Will I ever be financially stable?
If you are willing to learn and be patient with your money, financial stability is achievable for anyone. While it may be more challenging or easier for some, it’s possible to become financially stable in less than a year. However becoming fincnially sound may take longer, but just keep going!
Financial stability isn’t about being rich or reaching a particular number. It’s all about your mindset and the comfortability you feel in your life currently.
You want the freedom to live on your terms and not be controlled by money and debt.
The more control you have over your money, the more stability and peace you’ll find with your finances.
By following the steps above, keeping the right determined mindset, and being patient — you will find your own form of financial stability.