Financial security is the cornerstone to achieving many of life’s goals – owning a house, retiring early, or taking a few years off work to travel and see the world. Learning how to be stable financially starts with financial literacy. The better you understand all aspects of money management, the better you’ll be at analyzing your income, debt, and expenses.
So, if you’re looking to make better financial decisions, you’ve come to the right place. Here’s a guide on how to achieve lasting financial stability.
How to Be Financially Stable
Financial concerns are a frequent facet of everyday life; they’re practically inescapable for most people. Fortunately, there’s not just one route toward financial health. Your path toward financial stability will differ greatly from your peers, even those with seemingly similar incomes and
lifestyles. But there are some basics everyone needs to get ahold of.
1. Track spending
When you don’t track your spending, you’re essentially making crucial financial decisions without a plan. The only way to keep your spending in check is to know how much you’re spending and on what. There are plenty of free budgeting apps, which means you can find one
that works for you. In just a month, you can find recurring charges for subscriptions you barely use, or you might find out that ordering is derailing your financial goals.
2. Create a budget
The goal of budgeting is to prioritize your long-term financial well-being. It’s about figuring out how much you can afford and creating a manageable plan to manage debt. A budget is also key to living within your means.
Here’s a tip: Budgets aren’t meant to be restrictive. They’re a tool meant to improve your daily cash flow and financial health. Also, without a budget, you might find yourself borrowing just to make ends meet. Review your budget regularly to ensure and adjust your spending accordingly.
3. Pad your emergency fund and save
Uncertainties are a fact of life – unforeseen expenses, unexpected medical bills, unemployment, or even appliance breakdowns are some uncertainties that can derail your goal toward financial security. It’s crucial to have 3 to 6 months of after-tax expenses saved up. That’s not to say you have to keep it in a regular savings account as they’re often low-yield. You can invest this money as you like, but the investments have to be both liquid and low-risk.
Saving is also where the concept of paying yourself first comes in. It simply means automatically routing money to your savings account before you get a chance to spend it.
4. Start planning for retirement
You’re never too young to start saving for retirement. Truth be told, the earlier you get started, the better off you’ll be – take advantage of compound interest. Learn about your employer’s pension plan and contribute to it. It’s also a good idea to create an individual retirement account where you can save and invest some extra cash.
5. Create a debt management plan
It’s vitally important to have a debt amortization plan for your credit card debt, student loans, personal loans, and even mortgage. Debt isn’t always a bad thing. Good debt, such as a mortgage, has the potential to increase your net worth and enhance your quality of life. Bad debt, on the other hand, can lead to overwhelming bills.
Pay off the highest-interest debt first, especially credit card debt, as it can easily get out of hand.
It’s also a good idea to pay off your smallest debts first while making minimum payments on your other debts to avoid default penalties. But if you feel like your debts are unmanageable, bring in a personal finance consultant to help you sort them out.
Your Financial Future Starts Today
Achieving long-term financial stability is a process. And it helps to have some guidance along the way. What’s more, working towards financial stability doesn’t have to be an exercise in selfdeprivation. Contact Gurian to get started on your journey.
