5 Steps to Become Financially Stable This Year

What is Financial Stability?

When you have reached a state of financial stability, you are confident and utterly stress-free regarding money. You are not worried about having the funds to pay your bills, saving monthly money, and being debt-free.

In the simplest way possible, being financially stable means spending less than you earn (or living below your means). You can pay for the basics of living (food, shelter, utilities) and still have money set aside for any unexpected bill, Many emergencies, and your future retirement.

Yet, I think the most significant 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.

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 you are just looking for some secret process that has never been shared.

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 straightforward.

1. Start Living Below Your Means

Many of us face a big problem: we live above our means. We fund a lifestyle that we clearly cannot afford for whatever reason that may be. To get financially stable, you must start living below your means — spending less than you earn. Steps to help you live below your means include:

Create a budget – list your monthly expenses and total monthly income, and put a spending plan 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 and car and being more money conscious of your food habits for a while. 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 building 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, which has a substantial interest in 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 debts by age group: Under 35: $67,400 USD, 35–44: $133,100 USD, 45–54: $134,600 USD, 55–64: $108,300 USD, 65–74: $66,000 USD, 75 and up: $34,500 USD. It’s a growing problem between student loans and consumer debt in the United States. After budgeting and starting to save, you want to put together a debt payoff plan.

Getting financially stable means eliminating your bad debt as fast as possible. This includes: Credit Card Debt, Student Loan Debt, Car Loan Debt.

You might want to consider two debt payment options: paying off the debt with the highest interest first or paying down the obligation of the lowest amounts to pay off things immediately.I chose the higher debt payments when I was doing this: my credit card and car payments. Then went to my student loan debt.

But it’s up to you and your circumstances how you want to go about this. Remember, credit cards have the highest interest rates and can snowball if you only pay minimums monthly. There are other options, 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 financial plan. Without this guidance and research, you’ll make decisions blindly. Not planning puts your finances (and your family’s) at risk because you don’t understand precisely what is going on or the impact in other areas.

Would you make a significant financial decision because it sounds like the right thing without having factual information or data? Hopefully, you answered no to that! Think of your financial plan as a roadmap to help you and your family navigate money. It enables you to lay out goals, steps, and what you will need to do to reach financial stability.

Your plan doesn’t need to be overly complicated but should cover your expenses, income, savings, spending trends, debt, insurance, estate planning, or wills.

4. Find Ways to Earn More Money

As you budget and understand where your money is going, you’ll start cutting 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 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.

5. Master Your 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 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 everything I did to teach myself about money and investing. It might be helpful to get you to master your 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 period. However, it would help if you also thought long-term and how you’ll be set later in life. It might be challenging to think about early on 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 money to compound, helping you reach your retirement savings goals.

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