4 simple steps to financial stability

The steps to financial stability are so simple a child could understand them. That doesn’t mean it is at all easy. However with enough determination and the right advice, you’ll soon be on your path to building wealth. If you have no idea where to start, follow these four steps below:

1) Get Debt Free

Debt is toxic. Having unresolved debt not only loses you money the longer you have it, but can also put a strain on your relationships. Take a good look at your debt. It won’t cease to exist if you ignore it. Instead it will fester and grow like a parasite. The only way for you to be financially stable is to pay off your debts as quickly as possible.

Debts that must be paid off aggressively include credit card debt and unpaid bills. Student loans and mortgages are fine if they are controllable and you continue to make contributions to them over time.

Once you have a better picture of what your debts are, start making aggressive contributions to them. f the debt is too large to clear off in one go, set a fixed amount that you’d like to contribute and automate it. Most banks will allow you to set up frequent payments to a third party.

2) Save 6–12 months worth of expenses

This step is all about security. Having six to twelves months of expenses allows for a situation where you might be laid off work for a while, or if there are large unforeseen expenses. To figure out how much you will need to put away, have a look at your monthly spending. Include groceries, electricity gas and water, phone bills, rent, or anything else you pay for frequently. It is not necessary to include things such as entertainment or eating out.

3) Begin passive investing

This kind of investing can be done by anyone. The best place to start would be an index fund. An index fund is a diversified investment. The idea of this is that instead of just putting money away into savings, you put some away into a diversified portfolio of stocks. This is best done on auto pilot. Simply open an account with a good index fund — Vanguard is a fantastic option — fund the account, and then continue stashing away as much as you can into it each month. The only downside to this is that the minimum accounts can be very high, around $5000 currently for a Vanguard index fund. For those that do not have that kind of money, Acorns is another option. You can start with as little as $10, and they have an option where you can set up a frequent deposit.

Now the trick to this step is to let it grow. Plan not to take the money out for a minimum of 10 years.

4) Learn about active investments

This is the fun part! You could try your hand at picking stocks. You could also look into many other investments: stock options, futures, real estate, bonds. The opportunities are endless. The most important thing however is to make educated decisions. The first rule of this is to not buy into anything that you do not understand. Take your time to read up about different types of investments. A good rule of thumb is to not invest money that you couldn’t bear to lose. Dedicate a larger portion of your capital to long term investments than short term. It is also important to understand that if you actively invest, although there is the opportunity to make a lot of money, you could also lose it all as well. Know what you’re getting yourself into before you buy. However there is a lot of helpful information out there.

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