How to become financially stable
6 ways to boost your financial stability
How you view financial stability may vary compared to the next person. However, there are some common grounds to defining financial stability and how you can get there.
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, if you’re of a pre-retirement age you’ll probably be saving money each month, and you are also free of any bad debts.
The biggest part of achieving financial stability is that you are not stressed about money, and even if something major changed in any area of your life, such as a health problem, you still wouldn’t be stressed about financial matters such as how to pay the bills.
How much is needed for financial stability?
How long is a piece of string?!
How much money you need to be financially stable depends on your cost of living and what your needs will be. To reach short-term financial stability, a person might only need to have 3-6 months of living expenses saved. Long-term financial stability might be having enough to retire without running out of money.
Let’s explore the top six ways you can become financially stable.
1. Get financially educated
A great first step to become financially stable is to start to educate yourself. Understanding money, investing, lending, insurance, and budgeting may seem challenging, but it’s not if you dedicate time to improving yourself and learning.
When you are informed about these areas, you’ll start making better future decisions and be more conscious of current financial moves.
And yes, the internet means you can teach yourself this!
2. Think ahead, including for retirement
Getting financially stable in the shorter-term is incredibly important. It’s easy to vision your success and plan for something over a shorter timeframe. As the results are soon visible, it’s also helpful to keep you motivated.
However, you also need to think long-term too and how you’ll be set later in life. It might be challenging to think about that 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 compounding investment returns helping you on your way to financial freedom.
How much you can invest may change over time, especially as life changes such as having kids or changing career paths may decrease or increase the regular sum you can invest. But, getting started is the main thing. If you don’t have a lot of money, that’s okay! You can start investing with as little as $5 with online platforms or simple investment solutions.
3. Increase your income
As you improve your budgeting and understanding of where your money is going, you’ll probably start 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 increasing your income. There are numerous ways you can do this:
- Starting a side hustle in your spare time
- Increasing your salary by promotion, overtime, or striving for bonuses and commission
- Get into the gig economy, like delivery app jobs
- Changing career paths
- Sell your knowledge and expertise as a freelancer/consultant
Making more can help ensure you reduce financial struggles and help you 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.
4. Build your financial plan
Have you ever heard of a plane taking off without planning where it would go? Probably not, which is why planning is key.
By not planning, you put your finances (and your family’s) at risk because you don’t understand big decisions about where you’re going. Therefore, it becomes a lot tougher making a lot of little decisions that add up to achieve the overall result.
If you want financial stability in your life, you must spend time creating your own financial plan, or paying someone like us to do it. Without this guidance and research, you’ll be decision-making blindly, just a like a plane taking off without knowing where it’s headed.
Think of your financial plan as a route map that will help you and your family navigate financial matters. It helps you layout goals, steps, and what you will need to do to reach financial stability. Just as planes take off with enough fuel to reach a backup destination, in case they need it, you’ll also build flexibility and contingencies into your financial plan.
5. If needed, repay any bad debts
If required, two debt payment options you might want to consider are:
- paying off the debt with the highest interest first; and
- paying down the debt of the lowest amounts to pay off things right away.
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, a quick Google search can point you in the direction of plenty of free budget counselors.
6. Live below your means
A big problem 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. This is commonly called lifestyle creep, which occurs when your standard of living improves to become more expensive as your income rises – which usually occurs as your career progresses. Soon after you get that long-awaited pay-rise or promotion, what you might have once seen as luxuries start slowly and steadily becoming life’s necessities.
If you want to get financially stable, unless you’re comfortably retired already, you have to start living below your means — spending less than you earn.
Learn more: how to avoid the lifestyle creep trap.
The bottom line – how to become financially stable
Here’s the top six ways for you to become financially stable:
- Get financially educated
- Think ahead, including for retirement
- Increase your income
- Build your financial plan
- If needed, repay any bad debts
- Live below your means, avoiding lifestyle creep!