How Can You Create Financial Stability?

Financial stability is important for everyone. Having adequate income to cover expenses, save for emergencies, and invest for future goals enables you to live the lifestyle you desire.

Understanding how to create financial stability can feel challenging if you aren’t earning your desired income, are struggling with debt, or are experiencing difficulty keeping up with the increasing cost of living. Fortunately, planning, discipline, and commitment can help you attain financial stability.

Why Is Financial Stability Important?

Financial stability impacts your financial health and emotional well-being. You shouldn’t experience stress and anxiety about paying your bills and investing for the future when you feel financially stable.

The impact of financial stability includes:

Better mental health: Reduced financial stress calms your mind.

• Improved relationships: Open communication about money creates trust and partnership.

• Higher quality of life: Feeling financially stable enables you to focus on personal growth and happiness.

• Resilience during crises: A stable financial position helps you navigate unexpected events.

• Financial freedom: Attaining financial stability enables you to make life choices without being overly restricted by financial concerns.

What Are Signs of Financial Stability?

Signs of financial stability include:

• Earning more money than you spend.

• The ability to pay your bills and loans while experiencing the fun activities you enjoy.

• Holding little to no debt.

• Having money in savings accounts and investments.

• Knowing that unexpected expenses will not ruin your financial standing.

• The option to take career risks because you have enough money saved in case a job change does not work out as expected.

• The ability to afford dining out, going on vacation, and other desirable activities without taking on unmanageable debt.

What Steps Can You Take to Achieve Financial Stability?

The following steps can help you manage your current financial situation and set yourself up for growing success:

1.  Develop and Follow a Spending Plan

A spending plan shows how much money comes in and where it goes each month. Understanding your saving, spending, and investing habits enables you to make well-thought-out decisions that help you attain your financial goals. The 50-30-20 Rule can be beneficial when creating a spending plan.

Feeling in control of your finances reduces financial stress, helping you feel financially stable. Regularly reviewing and adapting your spending plan ensures it continues to meet your needs and goals. 

2.  Build an Emergency Fund

An emergency fund is a savings or money market account with money set aside for large unexpected expenses. This safety net enables you to handle car repairs, medical bills, and other surprises, or to cover living expenses if you lose your job, without dipping into your other savings or investments or taking on debt.

The amount you should have in your emergency fund depends on your income and lifestyle. Although three to six months' worth of living expenses is recommended, you might want to save more if you work in a volatile industry or as a freelancer.

3.  Pay Down Debt

Debt falls into two categories:

1.  Good debt: Good debt adds to your net worth and long-term earning potential. Mortgages and student loans with low interest rates and fixed terms are examples of good debt.

2.  Bad debt: Debt with high interest rates and/or variable terms reduces financial stability. For instance, the high interest rates on credit cards compound the interest owed if the balances are not paid off monthly. Carrying bad debt can lower your credit score and ability to borrow money.

4.  Save and Invest

Putting money into savings accounts and investments enables them to grow over time. Aligning your savings and investments with your goals helps you set aside some of each paycheck to create financial stability. Investing in a 401(k), 403(b), and an Individual Retirement Account (IRA) can lead to a comfortable retirement.

5.  Increase Your Income

Earning additional income can help you pay off debt faster and save and invest more. Consider the following options to put your earnings toward your financial goals:

• Requesting a raise

• Moving to a higher-paying role

• Taking on a temporary or part-time job

• Securing contract work 

*This information is for educational purposes only.