You probably have an idea of what financial stability feels like, and in your mind, you haven’t reached this point. Interestingly, many people have their own idea or definition of what it means to be financially stable. One might feel stability as long as bills can be paid. Others might not feel financially stable until they’ve paid off debts or built a 3-month cash reserve–an emergency fund.
There’s no single definition, but for the most part, financial stability is a state of being comfortable with your budget and feel you have enough income to meet your needs. This doesn’t mean you have to earn a ton of money to be financially stable.
On my financial wellness roadmap, I describe the five stages from financial literacy to financial freedom. Somewhere in your journey, you’ll gain a sense of financial stability and here are the signs that can keep you moving forward.
1. You Don’t Lose Sleep Over Money
Even if you haven’t hit all of your money goals, you might be financially secure if you’re able to sleep at night without worrying about your job, bills and the economy. This isn’t to say that you don’t have anxieties. But, unlike some people, your worries aren’t solely money-related.
2. You Can Pay Your Bills
I’m the type of person who likes to look on the bright side. I don’t like the increasing cost of living from rents to food to entertainment. It all seems to get more expensive. But taking a step back, I realize I can pay my bills and feel secure in that feeling. I’ve learned the fewer bills I have the less I have to pay. It’s a simple tactic that supports financial security. Lesson: Find ways to reduce your bills and lower your payments.
3. You Never Bounce Checks
Never having to use overdraft protection is a sign of being financially stable. This means you have adequate cash flow into your bank account to cover checks and debit card transactions. Additionally, you probably have a good routine of monitoring your balance so you don’t overspend. Lesson: Set alerts with your financial institution to notify you of your daily balances and transactions. You can also use free apps like Personal Capital to help you track your spending
4. You Don’t Use Credit Out of Necessity
There’s nothing wrong with paying for items with a credit card. Using a credit card responsibly can ensure you don’t create long-term debt. Financially secure people, however, don’t use credit out of necessity or as an extension of their incomes. Rather, credit is a choice – perhaps a tool to earn reward points or cash back. That’s why many people choose to use credit. Lesson: Learn how to pay off credit card debts quickly.
5. You Constantly Receive Invitations for Credit
If you receive more pre-approved credit card offers than bills, you may be financially secure. And if these credit cards feature low rates and attractive perks, you’re probably doing really well. These credit card offers are based on pre-screening your credit report. Lesson: Don’t get distracted and opt-out of pre-screened credit offers.
6. You’re Paying Yourself First
Many hardworking people can’t afford to put money into savings every week or month. Financial security isn’t only about paying bills and having minimum debt, it also involves having the disposable income to take care of financial needs when they arise. This means you have a savings strategy in place. Lesson: Pay yourself first with automatic transfers into a savings account each payday.
7. You’re Living Within Your Means
I once read a news article about a married couple who earned about $200,000 a year, yet they were seeking advice on how to handle their financial problems. I was intrigued and read a rundown of their monthly expenses. If I remember correctly, this couple paycheck was about $12,000 a month, after taxes and other deductions, yet they were spending roughly $2,000 more than their take-home pay. I say all of this to drive home a point stated earlier: you don’t need to earn a lot to be financially stable. Lesson: Calculate your cash flow and make a concerted effort to spend less than you make.
8. You Have a Backup Plan
Unfortunately, you can lose a job or go through something else that completely destroys your finances. However, you can maintain some stability with a backup plan, such as an emergency savings reserve with six to twelve months’ worth of income, or perhaps a side hustle to supplement your income. Lesson: Plan for the unexpected situations and have an emergency savings plan.
9. Others Seek Money Advice From You
You might think you’re not financially stable or secure but others may feel differently. Your close friends and relatives may observe your money habits and respect the wise decisions you’ve made. They may feel you have a firm grasp on your money, thus the best person to get advice from on saving, budgeting or managing credit. However, be mindful of the advice you share with family or friends. You don’t want to strain any relationship or stress yourself. Lesson: Help your friends and offer the websites you frequent (like phroogal), podcasts you listen to, and books you’ve read (like You Only Live Once).
To wrap things up. I might not know the exact definition of being financially stable is for you. But I know it starts with the right mindset. Getting to a point where you feel in control of your finances takes time. If you haven’t reached this point yet, don’t worry – it’ll happen. It takes time to shift your mindset and change your behaviors. Remain mindful of the financial decisions you make to benefit–and not hurt–your personal finances to reach financial freedom.