Have you ever met someone who does not seem worried about money? They may have more cash for the purchases they desire, or, they are always capable of paying off their monthly bills in full, even the unexpected ones. This person is likely to be financially secure.
What does being financially secure mean? It can mean something different to everyone, but someone who’s financially secure usually doesn’t have to worry about making ends meet each month.
They might also have extra income for things like spontaneous purchases. The great news is you can learn how to be financially independent with a little effort. Keep reading to learn the nine actions you can take for financial security.
What does being financially stable mean?
Financial stability is confidence about your finances. Generally, people with ample financial resources live below their means.
This means that they earn less than they pay out each month, leaving them enough money to save and plan for the future.
Financial status can vary from person to person. For example, you might feel financially secure when you can cease living month to month. You may want to think of stability as debt-free and having a fully funded emergency account.
While your concept of financial security is distinct, it’s important to be familiar with your financial situation. Before you become more financially secure, you need to know where you stand.
An excellent starting point is taking a financial health assessment. The Consumer Financial Protection Bureau, for example, offers a quiz you can use to evaluate your financial well being.
What causes financial instability?
Financial stability is only part of the equation. You must also consider what the factors that lead to financial instability are.
Financial instability comes from any event, habit, or circumstance that leads to overspending.
You may make yourself sick through financial indiscretions. For example, you may lose too much money on unnecessary purchases. You may be financially unstable because you took on too much debt, such as buying a sports car with unaffordable monthly installments.
However, financial instability sometimes stems from events beyond our control. Financial emergencies can cause financial instability.
For example, you lose your job due to corporate downsizing. You still have to pay your mortgage, car payments, and credit card bills.
However, you currently lack the income from your job to pay these expenses. You probably feel financially insecure because you are concerned about how you’ll pay your bills.
instability does not have to be a life sentence. It is possible to change a pattern and build healthy habits that lead to stability.
How to become financially stable
Anyone can become financially independent if they adopt the right attitude. For most people, this entails a shift in perspective. It is easy to view your financial status and view it as something that is happening to you.
Wealthy donors, however, have full control over their finances-even if their plans are suddenly disrupted by an unexpected event.
And now you know the meaning of “financially stable.” Use these nine tips to get started.
1. Get to know your current financial situation
You’ll be in a very poor financial position if you do not know your present financial situation. You might even be surprised at how much you’re saving and much more comfortable than you thought!
Take stock of your finances, savings, and income to get a better idea of your financial situation. This will show you how you are spending your money or if you’re overspending.
Tracking where your money is spent each month is crucial in maintaining financial security. Use a budget software or keep a spreadsheet of your expenditures for several months.
You can divide your costs into categories and create graphs or charts to show how much of your spending goes into each category. Visualizing where your money goes makes it easier to determine where you should economize.
In addition, your mental state also plays a big role financially. As you monitor your spending, take note of how you feel when you spend money.
For example, you go shopping after work and spend more than you want to on new clothes. You realize you were stressed when you went shopping and used the purchases to try to destress from work.
Some costs, such as rent, are needed. Others, such as eating out, are not.
However, just because an item isn’t required it doesn’t mean it’s not something you’d want to give up. Financial security does not mean being deprived of enjoyment at all. It merely means that you need to prioritize where you spend your time and money.
A smart idea is to take your spending tracker and list all your monthly expenditures from most important to least important. Calculated expenses, such as rent and insurance, should be at the top. As you scroll down the list, however, you can decide what you want to spend your money on.
You know this isn’t an expense you can afford to completely cut out. On the other hand, you seldom use your Netflix subscription.
Dining out would rank higher than Netflix on your priority list. When it’s time to cut expenses, you know that you can eliminate the streaming service first.
Starting a budget is a great way to improve your financial wellbeing. Budgets allow you to allot your income every month. You’ll be able to determine where your money is going and how much you can save.
Budgeting may sound difficult, but your budget can be as simple as you want. Begin by listing your monthly earnings and expenses to assess whether you’re overspending. From there, follow budgeting practices to create a budget that works for you.
Contrary to popular belief, a budget doesn’t have to be rigid. In fact, the best budgeters often change their budgets when they require it to accommodate their changing financial circumstances.
If you find your budget is too tight, consider adjusting it to suit your current spending habits. As you are cutting back on your expenses, you’ll be able to revise your budget with more room for savings.
2. Use goals to become financially stable
Setting financial goals prepares you for financial success. Goals provide a tangible item or event that you can reach only if you strive toward it. This helps you stay organized and prevents you from wasting money.
Prepare both short- and long-term financial objectives. Short-term goals generally occur within the next few years. Saving $1,000 in six months, such as, is a short-term goal.
Long-term goals are set over a period of many years to several decades. For example, saving money to buy a high-quality car in five years is a long-term aim. Saving for retirement in 30 years is also a long-term goal.
By following the SMART goal process, you can increase your chances of reaching your financial targets.
Short-term objectives are generally smaller than long-term goals because you have less time to spend on them. They may be a smaller part of a grander objective.
For example, you need to declare bankruptcy. Your short-term goal is to pay off one of your debts within a year.
Other types of short-term objectives include:
Long-term goals may have a lengthy time period before they can be accomplished, so it’s important to create a financial plan with intermediate targets. It’s essential that you build and follow a financial plan in order to attain long-term goals.
For example, your plan may include automatically depositing part of each paycheck into a 401(k)-retirement account.
Some common long-term goals include:
Achieving long-term goals every year isn’t always simple. Set mini goals for your long-term goals, which will help you stay the course.
3. Adopt a frugal lifestyle
An important factor of financial security is being able to live within your means. This simply means not spending more than you earn.
By saving money, you preserve other funds. This can enable you to pay down debt faster or save for a rainy day.
However, frugality doesn’t mean having to deny yourself of fun or frivolous spending. If it did, you would be more likely to burn out.
Instead of saving money, make sure to budget for more fun. That way, you won’t feel guilty if you go on an unplanned shopping trip or spend a lot on an expensive dinner.
4. Avoid unnecessary debt
While some people don’t enjoy owing money, some debt is necessary to a lot of people. Getting a mortgage, for example, lets you own a home without paying the full amount up front. In addition, student loans can help you get a college degree that will lead to more opportunities for work.
Debt becomes a concern, but it’s a problem if you use debt thoughtlessly. For example, you shouldn’t go into debt to pay for a vacation. Even if you go, the trip doesn’t need to be expensive.
You can determine whether or not new debt is necessary by asking one question:
Is this new debt critical to maintaining and improving my future financial situation?
Borrowing money to pay for a wedding may not be the best financial decision. However, taking out a loan to start your own business might give you financial security in the future.
5. Build emergency savings
Emergency funds help you save money on unexpected expenses. If a financial emergency occurs, you will have the money to cover the expense.
Most people put emergency savings in a bank account at their local bank. This makes it easy to transfer money to a checking account or withdraw money from an ATM.
In an emergency situation, you can simply withdraw the money you need from the account. Don’t forget to replace it afterward, however, so you don’t run out.
Use these recommended practices when creating your emergency fund:
6. Pay yourself first
If you’re financially secure, you have healthy savings for emergency expenses, debt repayment, and future needs. A great way to save is to pay yourself first. This enables you to save money before you spend it on your expenses or purchases.
For example, you would receive a $3,000 monthly salary and intend to save your earnings of $500. For the first $500 of your paycheck, you would transfer it to your savings account. Then you may use the remaining $2,500 for rent, gasoline, food, and other necessities.
This helps you to budget your spending, which could save you a lot of money in the long run. It also saves you from wasting your money quickly, because the money won’t be in your account long enough to spend it. Paying yourself first is a great way to build healthy habits.
It’s generally recommended to save first using automated payments. By paying yourself manually, you may be tempted to skip saving, which can cost you in the long run.
Many employers allow you to divide your paycheck by direct deposit and deposit a specified portion of your earnings directly into a savings account on payday. You can also set an automatic transfer to your savings account when your paycheck is deposited.
7. Improve your financial literacy
How do you feel when you encounter a new topic?
You may feel overwhelmed by new information or confused by complex ideas, leaving you feeling discouraged.
As you become more knowledgeable and more familiar with the subject, your self-confidence increases.
This is also true for personal financial literacy. Learning about your funds and how to manage them can be difficult.
As you gain experience, you’ll discover that you save money and earn money more efficiently. You’ll start making your money work best for you, rather than just getting by.
The only way to become wealthy is to start working. You’ve been the first to take this step if you’re reading this article.
The Clever Girl Finance resource library also has over 30 free personal finance courses to help you better manage your money. All of the courses are free!
8. Make financially stable career moves
Financial literacy and career literacy go hand in hand. Your job is where most-if not all of your monthly income comes from. By advancing your career, you give yourself a better shot of becoming financially secure.
Be aware that as you make more money, it’s not difficult to become more extravagant. As your income rises, it’s easy to spend more than you originally intended to. After all, you can afford it!
Lifestyle creep can quickly cancel your increased earnings. For example, your new job increases your monthly salary by $2,000. You decide to leave your $ 500 per month apartment and buy a house with a $2,500 mortgage.
You haven’t spent all of your new income, but you haven’t saved any either.
You may also have to shell out more money each month for the maintenance of your home. Overall, you are much less financially secure than before.
Each additional chance you find might be the next step in your career. This may entail a higher income or better work-life balance.
Keep an eye out for new career opportunities, such as
The first step is to be open-minded. You could ask your boss if there’s anything new you can do or are interested in learning.
You might also be best served by reaching out to your former coworkers and telling them you’re seeking new opportunities.
Are you interested in running your own business? Starting your own business could be for you. The Small Business Administration’s guide to starting your own company breaks the process down into simple steps.
You don’t have to start with a large company. A part-time job that takes up an hour or so per week will help you get started as a business owner.
These jobs are common for military personnel, who can use their spare time to make money. Driving a ride-share service, delivering groceries, or pet sitting are some alternative occupations.
I won’t overstate it: going it alone takes a lot of time.
Whether you want to go into a new profession or improve your current one, learning new skills will make you more valuable.
Learning something new can also make you feel fulfilled in your job. It also improves your flexibility.
For example, your current assignment is being terminated. Because of what youâ€™ve learned while working at the company, you can step into another position without jeopardizing your position.
Make sure to focus on both technical and soft skills when learning. Technical skills refer to methods, processes, and information that help you perform a specific task or activity.
As an example, a nurse takes an examination class for a new kind of treatment. After graduating, she will be able to administer the treatment to patients.
Soft skills are personal traits that help you interact with coworkers, customers, and leaders. These abilities are not restricted to one job type or industry. For example, critical thinking and teamwork are useful skills in any profession field.
9. Save room for fun
It’s crucial to learn how to live modestly, but it doesn’t have to greatly limit your enjoyment.
Anyone with financial means understands the importance of taking time off and relaxing. This includes setting aside small amounts of money and splurging on fun activities.
You can still make good financial decisions when you focus your budgeting on fun. Let’s say you set aside $300 a month for dining out, but if you would rather save some, you can divide your allowance into daily meals. You can use the enclosed approach when walking.
For example, you place $50 in an envelope when dining. You are only permitted to spend what you’ve got in the envelope. After dinner, you have at least $250 available for additional dining.
Get on the right track to being financially stable
Reaching financial stability can often take hard work and time. You might make mistakes along the way.
This does not mean you should not try, and you will ultimately succeed! Even a small step in the right direction can help you become financially secure.
Every smart decision you make brings you closer to prosperity and financial security.