How does one achieve financially stability in life?
People have differing opinions on what financial stability is: for some, it is the amount of investment they have made, for others, it is having a certain amount of emergency funds, and then, there are others who think it is the lack of debt. The truth is,
there isn’t one single trait that represents financial stability, rather, it is a combination of different factors.
To determine if you’ve attained (or close to attaining) financial stability there are 10 major signs you can watch out for. We’ve outlined them below.
The goal is to check at least 7 of the 10. However, don’t fret if only 1–3 of these signs apply to you, it is just an indicator there’s still work to be done.
Go through the list and see how well you’re doing.
1. Do you sleep well at night?
This is the most important part of being financially stable. Money worries is that one thing that can keep anybody up at night; thinking about house rent, school fees, feeding, etc. If these kinds of worries that make you toss and turn at night, then you’re probably experiencing some instability in your finances.
Financial stability comes with a certain amount of peace of mind.
There’s nothing like having the feeling of “I’ve got it covered.” It’s that confidence that helps you sleep well at night.
2. Can your emergency funds cover at least 3 months of living expenses?
Do you even have an emergency fund?
The sad reality of life is that emergencies do occur and can happen at any time to anyone.
Assuming your car breaks down or the refrigerator stops working, paying for repairs or getting a replacement should come easy without having a nervous breakdown or running helter-skelter.It’s wise to have savings set aside for these situations.
Experts advise that emergency fund should cover 3–12 months’ of living expenses i.e should you lose your job or become incapacitated such that you aren’t able to earn, you wouldn’t need to hassle over covering your basic needs.
3. Do you have a low Debt-To-Income (DTI) Ratio?
Your debt-to-income ratio is all your monthly debt payments divided by your gross monthly income. The lower the number you get as your DTI, the better your financial situation is. According to financial experts, a healthy DTI ratio is one below 30%. To reduce your DTI, you can either reduce your debt/expenses every month or increase your income.
4. When the need arises can you spend money on special occasions?
Birthdays, anniversaries, holidays, etc, do they make you anxious because you have to spend money?
Financially stable people are able to plan their lives and budget in such a way that it leaves room for “special occasion” expenses so that if someone close to them needs to celebrate a promotion, a new job, their birthday, or it’s summertime, these extra expenses do not leave a dent on their expenses. They have enough flexibility in their finances to accommodate the occasional spending spree.
Remember, money is nothing but a tool that is meant to make our lives better. One shouldn’t be afraid to spend on a special occasion or a special someone every now and again.
5. Do you have a budget?
Having a budget is important in order to attain and sustain financial stability. It prevents you from spending money mindlessly and helps you track where your money is going to. These two things make all the difference in the world when it comes to personal finance management.
6. Does paying bills require an in-depth plan?
A key part of financial stability is being able to forecast your bills beforehand and factor them into your monthly, quarterly or yearly budget, so you don’t break a sweat when it’s time to make payment.
Paying bills is something no responsible adult can ever run away from, thus, it makes great sense to plan for them.
7. Do you have another source of income?
Multiple streams of income are essential to financial independence and wealth building. Simply put, the more income streams you have, the more stable you will be.
It’s not advisable to rely solely on a 9–5 job in this fluctuating economy, with layoffs and pay cuts always right around the corner. It’s also advisable for entrepreneurs to have multiple ways of making money by offering a wide array of products/services, or by being involved in different ventures.
Multiple sources of income help you to avoid putting all your eggs in one basket and it is the most efficient way to build wealth.
8. Do You have Investments — short term and long term?
Saving is not the way to build wealth, investing is.
Financially stability can only be attained if you have short term and long term investments.
A mistake most people make is thinking that they need a lot of money to start investing. On the contrary, there are several investment options available that require very little capital. You just need to research, ask questions and you’d find them.
Don’t just save to spend, save also to invest.
9. Do You Live Below Your Means?
If you live above your means, no amount of income is ever going to be enough for you.
Financially stability is not just about having enough money to spend, it is also about knowing how to not spend all or most of your money. Prudence is a key trait of financially stable individuals.
10. Are you preparing for retirement?
Financial stability doesn’t only cover the present, it includes the future too. It is not just about having the most comfortable lifestyle when you are still young and able to work, rather, it is also preparing for the future, so you and your family can still be comfortable when you are old and retired. It is preparing for your future, so you can even retire early.
Retirement investing is a critical part of becoming financially independent.
So how did you do?
If you were able to check at least 7 of these, congratulations and keep up the good work. If you’re not quite there yet, don’t despair. It might take some time, but by making changes to your spending habits and earning more income, you can turn your finances around. Set goals for yourself and with some willpower, you would attain financial stability.
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