Financial stability is a topic that seems like a distant dream to a big number of people, and for good reason — to be financially stable, you need to be able to do difficult things like budgeting, which requires discipline and perseverance all the way through.
But financial stability is not impossible to achieve — especially if you have a list of steps you can follow to do so.
In this post, we will outline some of the most helpful steps you can start taking today to head towards financial stability. But first, an important definition we should clear out of the way.
So, What Is Financial Stability?
This is a question you’ve probably asked yourself before or are even contemplating right now. You might have a faint idea of the definition, but is that really enough?
The thing is, how you view financial stability may differ from how someone else sees it because personal finances are unique to each individual. But there's one definition in particular that most people can agree with.
In its most basic form, financial stability is like some sort of financial “zen” — for starters, it's a state in which you don’t worry about paying your bills because you know you will have the funds to do so.
You're also debt-free, or you have “good debt” (money you owe for things that produce wealth), and you have money saved for your future goals. You even have a solid emergency fund in case of a rainy day.
So, financial stability isn't about being rich, and it's not about having a particular sum of money either — it's more about having a considerable lack of stress about money, enough so that you can focus your energy on other parts of your life.
You may think that not having to worry about money is something dreamlike, yet financial stability is definitely achievable by anyone, albeit not effortlessly. Start by following these 10 steps, and you will start having an easier time before you know it.
#1 Earn Income By Doing Something You Enjoy
Most people's primary income source is their job, which is also the best place to start your journey into financial stability.
A job that pays you a nice and steady income is good, but the true jackpot here would be to find a job that gives you a steady income and that you enjoy doing as well.
Doing work that you enjoy will make everything easier. For some people, this means changing careers (like switching to software development, for example). It could also mean changing companies because you don’t like the culture or values that don't align with your own.
Another path you could take is getting a part-time job, freelancing or even starting your own business. It comes down to being happy when you work. After all, we spend most of our adult lives at work.
#2 Start Budgeting
Ah, budgeting. A useful tool that most people cringe at when mentioned.
But like we've shown in our post on budgeting tips, budgeting is a lot easier than you might think, and it's a powerful way to get your finances in check.
It’s easy to spend more than you can actually account for if you don't carefully track how much you’re spending. When you start budgeting, however, you can track where your money is going, which is a perfect solution to this problem.
Most personal finance experts recommend one effective plan that's easy to follow, and that is the 50/30/20 rule:
- Spend 50% of your income on necessities (like rent or mortgage, utility bills, food, car payments, or transportation to and from work).
- 30% should go towards wants, which are not essential but are impossible to live without. Not indulging every now and then will make you feel miserable pretty quickly, but it's important to avoid overspending on non-essential things, particularly if you're working towards your financial health and stability.
- The last 20% should go towards savings, which will allow you to accomplish most financial goals you set out to achieve in the long run.
#3 Live Below Your Means
As we've mentioned before in our post on personal finance tips, living below your means (or LBYM) is a pretty simple concept that many find difficult to follow.
We live in a world where we are constantly bombarded with ads that tell us what we “should” buy and how we should spend our money. It's easy to end up spending money on things that we don’t really need and even spending more money than what we actually have.
If you regularly spend more money than you make, you can’t expect to have anything left for savings. In fact, you're doing the complete opposite; you're accruing debt. Living below your means to have money to spare at the end of each month is essential to accomplish financial goals like paying off debt and setting up an emergency fund.
Living below your means can only work if you've got a budget going on. Your budget tells you how much money you have, how much you make and how to spend it. This makes it easy to avoid overspending.
#4 Create An Emergency Fund
There’s always a chance that you lose your job and have to get by for a bit with no regular income. Maybe your car repairs are finally catching up to you, or you need to take an unplanned trip.
And while you can't really predict the future, you can certainly avoid or at least soften the blow of anything bad that happens to you by preparing for it in advance.
That's what an emergency fund is — a way to protect yourself from the unexpected. You need to make sure that an unforeseen event won't break your bank.
An emergency fund will cover a big part (or maybe the entirety) of these expenses and will help you when everything seems lost. It also serves as a way to ease your mind by giving you a backup plan.
By the way, avoid skipping an emergency fund in favour of saving for retirement. Some people do this and end up having to pull money from their retirement account whenever a big, unexpected expense comes up.
Removing money early from your retirement account should always be a last resort, as it detracts from your retirement savings, and you’ll probably have to pay penalties for doing so.
#5 Manage Your Debt
There are few things that are as crushing to your dreams of financial stability than having pending debt.
Once you know how much you can comfortably spend and once you have an emergency fund set up, your next priority should be to focus on getting rid of debt.
For starters, prioritize paying off any credit card debt you have and avoid future debt as well. Also, take care of any loans you have as soon as possible — this will save you money in the long run because you’ll have to pay a lot less in interest, a silent killer of financial stability.
Of course, we're only talking about bad debt here, that is, debt for buying expendable things like a new pair of shoes or an expensive bottle of scotch. These things won't bring you any financial benefit in the end, so overspending on them is the worst thing you could do.
Good debt, on the other hand, is acceptable. You probably won't be able to buy a house in cash so getting a mortgage is an unavoidable type of debt. After all, if you made a good investment, the house would probably increase in value over the years, offsetting the loss in interest.
#6 Invest In Yourself
Whenever possible, you should look for ways to invest in yourself. By this, I mean that it's worth it to invest time, energy, and money to teach yourself the skills, improve your personal image, and maintain good health.
Learning things that have little to do with your career can help you just as much as having a solid set of work-related skills. This is because employers like well-rounded employees that can be of use in multiple ways, and they also want someone who shows drive and ambition to improve themselves.
At the same time, your health is vital for your success — after all, nothing drains a savings account like medical bills. While you can’t prevent all illnesses, a healthy diet with regular sleep, limited stress, and exercise can make you far stronger.
#7 Focus Only On Your Finances
This step may sound like a strange piece of advice, but we live in a time where we're constantly comparing ourselves to other people and their achievements. This could prove to be a fatal mistake for your own finances, as it could lead you to overspend in order to try and keep up with the achievements of your peers. In order to reach financial stability, make sure you only care about how much you currently have and how you can use that to reach your own goals.
You should also forget about the “right way” to do things. Sure, some financial decisions are better than others, but many things in personal finance depend on, surprise surprise, the person. There isn’t a one-size-fits-all method of reaching financial stability for everyone.
Lastly, if you create a savings goal and you miss it, don’t beat yourself up for doing something wrong because it won't solve anything. The best thing you could do is evaluating what went right and what went wrong, then using that information to improve.
#8 Invest In Your Retirement
It's hard to find a reason to invest in your retirement when you're young — after all, the time you'll be needing those funds always seems to be so far away.
But if you want to reach financial stability, you also need to plan for the days when you won’t have a salary. This is especially true if you have any plans for when you retire, like travelling, moving to the beach or taking some dancing classes. Those are all great plans to have, but you sadly can’t do them without money.
Even if you don’t have a lot to save for retirement, prioritize it — you will thank yourself in the future. One huge reason to do so is that thanks to the magic of compound interest, you'll earn far more in the long run if you start early.
#9 Find Ways To Earn More Money
As you are budgeting and understanding where your money is going, you’ll start to cut back on your spending, which is great! But there's also a limit to the amount of money you can cut back.
For this reason, it would be really useful to find ways to earn more money beyond your job, which would be your main income source. And fortunately, there are plenty of ways you can achieve this.
For example, you could use money-making apps and start a side hustle that way. Or you could take a look at ways to earn passive income like selling stock photos, doing some affiliate marketing, starting a blog, etc. You could even consider investing in income-producing assets.
If everything were perfect, you would be capable of staying within your budget every month. Your car would never need repairs, and you would never lose your job.
Sadly, things hardly go the way we want them to go. Sometimes the unexpected strikes, and in other times you have to spend more money than you want to. This is fine, and it happens to the best of us. Whenever these things happen, you have to make sure you don't get discouraged.
Even when things aren’t going well, follow through. Stick with your budget even if you have a losing streak of days, months or even years, and don’t worry about doing things perfectly, either. Just try your best to follow these steps and try to become a little better every day.
Becoming financially stable can be hard, but it doesn't have to be some sort of distant, unattainable dream.
There are plenty of small but powerful steps you can take in order to achieve financial stability: some of the strongest being focusing only on your finances, getting rid of any debt, creating an emergency fund, and getting started with budgeting in order to accomplish your financial goals and start saving more money.
By following these and the rest of the 10 steps listed above, you'll make the task of achieving financial stability far easier, and you'll be able to remove most money-related stress from your life.