Most of us wish we were rich, but surprisingly financial stability might be even more important. According to Harvard Business School, having financial stability allows people to handle unforeseen expenses and daily hassles more easily, leading to less stress and higher life satisfaction. Even though people with higher incomes experience similar daily frustrations as those with lower incomes, they feel less negative intensity from these events due to their financial security (HBS Working Knowledge).
It’s not the inability to buy a mansion that makes people unhappy. Rather, it’s the inability to move beyond living paycheck to paycheck. If you’re not happy with your finances, greater financial stability will likely have a major impact on your sense of well-being.
What is Financial Security?
In short, it is having the financial resources to cover your current and future needs – like a place to live, food, clothes, etc – without going into debt. Note that this does not include WANTS. It includes having sufficient money coming in (income), debt that you can pay with that income and still have money left each month, and having savings and investments to available to deal with emergencies and to support your future (think retirement).
Why is Financial Security Important?
The obvious answer is that it leads to less stress when trying to live your life! But it is so much more than just less stress. Having money problems can lead to long-term mental health issues, like anxiety. From chronically stressing about where you are going to get the funds to pay your bills each month. That stress can really weigh you down! Feeling financially secure can help you feel freer and provide flexibility in your personal choices. For example, if you have the funds you need to cover an unexpected emergency and can use that you do not need to rack up credit card debt with high interest rates that you now have to budget for and do not have the funds to cover. That saves you the stress and the additional fees.
Follow these 6 steps and enjoy financial stability in your life:
First, Understand your income and expenses.
To do this you will need to track every cent you spend and make for at least a month. You’ll be surprised where all your money is going. Seek to move in a positive direction with your spending.
It’s important to know where you are now. List your assets and debts. Use a budgeting spreadsheet system to achieve this. Make sure to answer these questions while reviewing:
- How much can you cut back on your current spending? Look at the line items that are considered wants for help in cutting down your spending.
- What can you do to increase your income? A little more money each month can add greatly to your financial stability.
Next, Eliminate high-interest debt.
The average interest rate on credit card debt is nearly 23%. That’s better than the best investor can average in the stock market. High-interest debt is like a hole in your bank account that never stops leaking.
- When the high-interest debt has been eliminated, shift your focus to all the other debt that’s still left.
- Imagine how much easier your financial situation would be if you didn’t have any debt. It doesn’t require a lot of income to live well if you’re debt-free.
Meanwhile, Build an emergency fund.
Experts recommend maintaining an emergency fund worth 3-6 months of expenses. That’s a challenging figure for most families. However, even just $1,000 can remove a lot of financial pressure. This will make the inevitable trip to the emergency room and the unexpected car repair much easier to absorb. Want to learn more about emergency funds? Check out my article on it here.
Make Sure to Save for the future.
Contribute to one or more retirement accounts on a regular basis. Just $100 invested each month can eventually grow to over $100,000 in 30 years. Speak with your human resources department at work. They’re the experts regarding your benefits. If you’re self-employed, you still have several excellent options, too. You can invest in an IRA or even just a plain investment account. There are retirement accounts available for self-employed individuals, like a 401K or 403b, but they come with additional expenses. make sure to speak to an investment professional before you set up an account.
- A little bit of money can grow into a lot. Avoid becoming discouraged by your current cash flow situation. Consistency is key to making this step work.
Don’t Forget to Think before you purchase. Impulse purchases can have a long-lasting negative impact on your savings and financial stability.
- Set spending limits and stick to them. A smart plan for avoiding this is waiting 24 hours (or more) before making the purchase. When urgency is removed we often realize that we do not need the item in question. The urge goes away if you can put some space between the urge to spend and the act of pulling out your wallet.
- How many big purchases have you made in the past that turned out to be disappointing? It’s a common phenomenon.
Finally, Set goals.
Everyone knows that setting goals is important, but hardly anyone does it. Set short-term and long-term goals. Set aside a few minutes each week to review your progress. By reviewing your goals and your progress regularly, you’ll find that achieving them becomes much easier. It is best to start out reviewing monthly, and then adjusting. Once the goals are fine-tuned, review them quarterly. Finally, once they are in good order review at any time there is a major life change, like a new job, marriage, birth, divorce, or death
Achieving financial stability begins with small, deliberate steps. By prioritizing saving over spending, you pave the way toward a secure future. Start today with a meaningful, initial move—regardless of where you begin, financial stability is within reach!
Imagine a life free from financial worries—where happiness thrives once burdens are lifted. Address any financial challenges head-on now for a brighter, more fulfilling tomorrow.
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