I remember the day like it was yesterday. My wife and I were in Target, trying to decide between dental floss and aluminum foil. Being newly married and still paying off my debt, we had no breathing room. We were not the picture of financial stability. Being financially stable means one thing – having peace of mind.
Standing there in Target we certainly did not have peace of mind. We were at a dead end, and had no idea how to improve our situation.
Fast forward nearly 20 years and a lot of things have changed with us, financially. We max out our retirement accounts every year, we pay off our credit cards in full each month, and spending just to spend holds little value to us.
How to Tell If You’re Financially Stable
There isn’t one single trait that represents financial stability. It’s the whole that determines whether or not you’re financially stable. Each situation is unique, and we all have different journeys.
Review the following signs and use them as a starting point to gauge how financially stable you are.
You Can Handle an Emergency
Emergencies happen all the time. How big of an emergency can you handle? A majority of individuals can’t handle a $400 emergency. Most experts say you need to have a 6-12 month emergency fund.
It may feel overwhelming to save that amount. Don’t let that stop you!
Start with a goal to save $250 and build from there. Being financially stable means you let emergencies roll off your back, financially speaking.
If you’re not currently saving, pick an online savings account that allows you to automate transfers, pays you something and has no minimum balance requirements.
You can do all of the above with a bank like Barclays – they pay 2.20 percent interest on your cash and making saving as simple as possible.
You Have No Problem Splurging on Yourself
What does splurging have to do with financial stability? A lot, in fact. It means that your budget can withstand that special purchase without a negative impact.
However, if you put it on your credit card without knowing when you’ll be able to pay for it, well, that’s a different thing altogether.
You Invest Every Month
This is a financial mistake I made for far too long. I thought I needed to have a lot of money to start investing, so I held back. Being financially stable means you invest regularly.
Whether that’s in your 401(k) plan or in an online brokerage account (here’s a list of the best online brokerages to choose from) or some other form, you’re actively growing your wealth every month.
If managing your investments seems challenging, using a robo-advisor like Betterment can help you invest money every month. If you’re more of a DIY investor, you can start with next to nothing by choosing an app like Stash Invest who allows you to start investing with as little as $5.
When you open an account with Stash Invest they start you off with $5 so you can start investing right away in stocks or ETFs.
You Have A Low DTI
DTI, or Debt-to-Income Ratio, measures your monthly debt obligations against what you make. Thus, lower is better. You can get a mortgage with a DTI as high as 43 percent, but that would be a poor choice for several reasons.
However, if your DTI is half of that, then you’re much closer to being financially independent as you will have more money to work with each month.
You Use Credit Cards Wisely
Credit cards can be divisive. I love them – between my wife and I, we have close to 40. We pay them off, in full, every month so we don’t deal with debt hanging over our heads.
Credit cards can be a great tool, when used wisely. Those who aren’t financially stable use credit cards to finance the kind of life they want but can’t afford.
If you use a credit card for convenience, to stretch your budget, or to earn rewards, then you’re likely financially stable.
You Pay off Your Credit Cards Each Month
See the above. If you pay off your credit cards in full every month then you’re financially stable. As someone who used to not do this, I can tell you from personal experience that the stress is not worth it.
You Don’t Fight with Your Partner
Finances are one of the biggest reasons for divorce in America. Whether that’s due to financial infidelity or some other reason, it can wreak serious havoc on a marriage.
Financial stability, on the other hand, means you and your spouse are on the same page and are working towards common goals.
You Can Sleep at Night
This is the most important part of being financially stable. Before we reached a moderate level of financial stability I couldn’t sleep at night. I was fearful about many things, such as:
- Handling an emergency
- Saving enough for retirement
- Paying all of our bills on time
Now, there’s a peace of mind where there used to be unease. Peace of mind is a huge indicator of financial stability.
You’re Not Underwater on Your Car
More than 60 percent of car loans are over five years in length, according to Edmunds. Additionally, the average car payment is over $500 per month. A financially stable person sees cars as a depreciating asset and thus believes it is senseless to owe more than a car is worth.
This doesn’t necessarily mean you don’t have a car payment, but it means you don’t extend the car loan for so long that you owe more than it’s worth.
You’re Not Scared of the Future
A financially stable person smiles at the future. They’re excited for the opportunities and what they may bring. Financial instability, on the other hand, stokes fear about what retirement may look like or if you’ll be free of debt.
Killing Debt is Your Top Goal
Attacking debt is the top goal of those seeking financial stability. Debt enslaves you to someone else and restricts freedom.
A financially stable person has a plan to kill debt or is already debt-free. If you have debt, consolidating it to a lower interest rate and paying it off is the best way to get free from it.
Compare rates at Even Financial to find the lowest rate from among 17 lenders and start eliminating it now.
You Live Below Your Means
Many financially sound people do one thing really well – they live on less than they make. This is by no means scientific, but I’d say saving at least half of your income is a good place to start.
It can even be done on a variable income, so it’s possible in many situations.
You Track Your Spending in Some Fashion
Budgets don’t work for everyone. That doesn’t mean you shouldn’t track your spending. Being financially independent means you know where your money is going and how it is working for you.
If tracking your spending is overwhelming, try a tool like Tiller to get started. Tiller pulls all of your banking information into a Google Sheet so you can see all of your spending, and it costs $5 per month after a free 30-day trial.
You Can Handle Large Purchases
Large purchases are somewhat relative; they can be anything from buying a new-to-you car or replacing the air conditioner in your house.
Regardless of what it is, you’re able to make large purchases (most likely because you’ve planned for them) with no sweat.
You’re Financially Naked with Your Partner
Remember the part about not fighting? Being financially naked with your partner is a big key to that. A financially stable person bares all things financial with their partner – not just the good parts, either.
A Job Loss Isn’t the End of the World
Don’t get me wrong. Losing a job can be traumatic. But financial stability allows you to roll with the punches of a job loss thanks to an ample emergency fund and other savings.
This allows you to take the best job for you and not jump blindly at the next job that comes along.
You Make Extra Money on the Side
I hesitated to add this to the list, but I think it fits. Making extra money can mean many different things. For instance, it may mean you actively take on new roles in your day job.
It may also mean starting a side hustle to earn a few extra bucks in your free time. It’s even better if you use the money to kill debt or invest. Below are just a few posts to help if you don’t know where to start:
- How to Make Money on the Side: 65 Ways to Make Extra Money Now
- How to Get Paid to Watch Videos: 11 Legit Ways to Make Extra Money
- 9 Legit Ways to Run Errands for Money
- 11 Legitimate Work-From-Home Jobs that Pay $20+ Per Hour
There are plenty of ways to make extra money on the side. In many cases you don’t need specialized skills, just a willingness to work.
You’re Not Underwater on Your House
Remember the section on car payments? Similarly, a financially stable person isn’t going to be underwater on a home.
If you are, that’s typically a sign of buying too much house or not planning. Houses aren’t investments in many cases but you want to build equity right away, if possible.
You Take Care of Your Health
I hesitated to list this one as well, but believe it fits. A financially stable person sees the impact health has on their finances – both short and long-term.
Your Net Worth Goes Up Each Year
This is really the culmination of everything. A financially stable person seeks to grow their net worth year after year.
While some of it is out of your control when you invest in the stock market, many other things are in your control. You’re avoiding debt, you’re saving more, and building streams of passive income to create an upward trajectory for your financial future.
You Control Your Finances – Not the Other Way Around
What do your finances look like? Are you in control of them or do they control you?
Financial stability means you have the control so you get to decide where your money goes, not the other way around.
You Can Buy What You Want
Financial stability provides the freedom to buy what you want. You’ve set aside the money and can do so with freedom from fear of how you’re going to afford it.
If this describes you, then you’ve reached financial stability.
Spending Money Just to Spend Doesn’t Appeal to You
The opposite of the above, you know you can afford what you want but you see other ways to put your money to better use. In short, spending simply doesn’t appeal to you – even if you can afford it.
You Automate Savings
Automating my saving was one of the first times I felt confident with my money. Before I was worried I’d need the money for a debt payment. Now I see it as a bill to my future self that works even while I sleep.
If you can automate your savings, then you’ve reached a level of financial stability. Just make sure to pick a bank that pays that more than .001 percent on your cash.
Again, banks like Barclays pay 2.20 percent on your cash and have no minimum balance requirements.
You Have Plans
This is purposely broad. A financially stable person plans for the future. This involves planning for many things, such as:
- Saving for retirement
- Buying life insurance – PolicyGenius is a great option to compare rates
- Saving for their children’s college education
The amount you save towards each of these is personal, but financial stability means you plan for them all, and others, so you can act with confidence.
You Get Rid of Bad Habits
It’s crazy how much we spend on our bad habits. We’re all prone to them, but a financially stable person actively seeks to cut those bad habits to save money every month and grow the money instead of wasting it.
Your Credit Score Doesn’t Scare You
Credit scores aren’t perfect by any means, but I remember where my credit score was when I paying off debt. It was scary.
A financially stable person has a good credit score so when they do need to borrow, they get the best rates possible.
Paying Bills Doesn’t Scare You
Does the thought of paying your bills every month make you break out into a cold sweat? Do you need to come up with an in-depth plan?
A financially stable person pays their bills each month with little fanfare as there are no surprises. Not only that, you still have money left in your bank account when all the bills are paid.
You Can Give Without Fear
I also hesitated to include this on the list. However, I believe a financially independent person can and does give out of what they have and makes a plan to do so.
You’re able to give with ease and not in fear of what it might do to your finances.
You Don’t Bounce Checks
This is one of the few things I didn’t do when I was mired in debt. A financially stable person doesn’t bounce checks. Now, I know mistakes can happen, but you get the point – you’re not actively bouncing checks all over town.
A financially confident person knows what they have in their bank account and doesn’t watch their checks bounce like a rubber ball.
Missing A Paycheck Doesn’t Scare You
Running our own business has caused me to be more comfortable with this, but a financially stable person isn’t afraid when they miss a paycheck.
They have funds in place to cover for emergencies and can deal with a temporary blip like this. Make sure you replenish the funds in your savings account when you do get paid. And if you can do that without batting an eye, congratulations. You’re financially stable!
The Purpose of Being Financially Stable
I think it’s important to remember that none of us are perfect. We all make mistakes and have hurdles to overcome. It’s also important to remember that financial stability is an ongoing journey, not simply a destination.
The goal of that journey is to grow in knowledge and your financial well-being. Both serve to living a life of freedom, not one of enslavement to others. That freedom allows you to make choices that benefit you in the long-run to live the kind of life you want.
What are some other signs of financial stability, in your opinion? What was the first thing that started the journey for you? How do you stack up against these signs?
Source: Frugal Rules