Financial stability is about building confidence and security in your financial situation. While it’s something most people want, it’s not always easy to achieve. Becoming financially stable involves eliminating your debts and being able to live comfortably on your income with money left over. If you’re currently just squeaking by or living with rising personal debt, it’s time to make a change. Here are five things you can do to bring your financial goals within reach:
1. Have a Full Understanding of Your Finances
The first step to becoming more financially stable is to understand the big picture regarding your personal finances. A surprising number of people don’t know the precise balance of their checking and savings accounts at any given time. Others struggle to tell the difference between their gross and net incomes. It’s pretty difficult to achieve financial stability if you don’t understand your monetary situation. Without knowing how much money you bring in and where it’s slated to go, you’re more likely to overextend yourself financially.
Before you sign an apartment lease, buy a house, or even get medical insurance, you need to ensure you can afford the associated payments. Income verification is one of the quickest and easiest ways to gain a better understanding of your finances, and luckily after you go through the process, you get a copy of your report. You’re able to verify the accuracy, and it gives you a clear picture of how your finances look. That way, you can be more fiscally responsible going forward.
2. Live Below Your Means
Once you know precisely how much money you bring in each month, it becomes easier to establish a budget and live below your means. To do this, create a spreadsheet listing your monthly income and all your recurring payments. These should include things like mortgage or rent, food, car payments, credit card payments, and utility bills. Whatever is left over is money you can spend or save at your discretion.
It may be tempting to blow all your discretionary money on vacations and movie nights. But doing so will not help you achieve financial stability. Instead, try to save at least 10% of that money for your future. Give yourself a budget to help you manage the remaining money wisely and avoid spending it all on frivolous items.
3. Create an Emergency Fund
Every person should have an emergency fund to help them deal with unexpected expenses. Without such a fund, a flooded basement or medical emergency could undo all your progress toward greater financial stability. As the name suggests, an emergency fund can protect you from the financial upheaval that can come with unexpected expenses. It provides a safety net if you lose your job, get in an accident, or need to make home repairs.
Your emergency fund should be easy to access at any time without penalties. Many people choose to put their emergency money into a regular savings account, so they can access it anytime. What you don’t want to do is throw money into a retirement savings account and call it an emergency fund. If you need to access that money prematurely, you’ll have to pay hefty penalties. For this reason, your retirement and emergency funds should always be kept separate.
4. Pay Off Your Debts
Debt is a silent killer of goals and dreams. For the temporary convenience of instant purchasing power, many Americans are giving up their future financial stability. The average American has more than $5,000 in credit card debt alone. When you factor in the bloated interest rates attached to many major credit cards, the real cost of credit card debt is even higher.
If you have credit cards, your goal should be to pay them off as soon as possible. To do this, you may need to make some sacrifices for a while. But once the debt is paid off, you’ll feel a weight come off your shoulders as you move closer to a monetarily stable future. To avoid falling back into the credit card debt trap, cut up your cards. If you decide to keep one credit card, discipline yourself to pay off the balance every month.
5. Invest in Yourself
You invest in a lot of things throughout life. Your home and car are some of the biggest investments you’ll probably ever make. But have you thought about investing in your future? Many young people put off saving for retirement because they think they have all the time in the world. But if you don’t start now, you may find yourself a year or two from retirement without any savings.
To set yourself up for a financially-stable retirement, you should prioritize saving enough money now. Use an investment calculator to determine how much money you’ll have in retirement based on your current monthly contributions. Even if you don’t have much money to put toward retirement, the important thing is that you begin saving as soon as possible. The magic of compound interest can turn a small amount into a large amount of money down the road.
With inflation, high interest rates, and the rising cost of living, it can be hard to get a handle on your finances. But most people can improve their monetary situations if they create a clear plan of action. Follow the steps above to minimize your debt, maximize your savings, and meet your financial stability goals.