Everyone is trying to take steps towards financial stability. Unfortunately, that is easier said than done. Financial stability – and security – is no easy feat. While many of us want it, few are willing to take the steps needed to get there. So, if you’re serious about achieving financial stability, here are 9 steps to help you get there!
0. Create A budget
First off, I’ve talked about budgeting before, especially for beginners. I’ve even written a complete guide that can help you from start to finish. I understand that it can seem like a daunting task at first, but budgeting isn’t that hard – especially if you keep it simple. The main thing you need to focus on is spending less than you make. Once you have that down, everything else will become much easier! So, if you don’t already have a budget, get to it.
A good budget will make your life much easier and all of your financial goals that much easier to reach. Think of it as the prerequisite task before you get to do everything else.
1. Start An Emergency Fund
The first step towards true financial stability is fairly straightforward. Now that you make more than you spend, you can actually start saving some money. Your best bet is to build up an emergency fund, probably using a savings account with a high interest rate like the one Axos offers.
If you don’t know where to start with an emergency fund, begin by saving the equivalent of one month worth of expenses. Once you do that, you can build more or move on to the next step. Based on your specific case, you may want to eventually save up 6 months worth of expenses or more, but this is a good starting point for most people. If you can’t even save one month of expenses, you need to go back and redraft your budget.
2. Pay Off High-Interest Debt
Eliminating high-interest debt is one of the best uses of your money. Think of it this way, eliminating debt is a guaranteed return. As a general rule of thumb, I consider anything with an interest rate over 5% too high and an absolute emergency to take care of. Some people may disagree with that, but that’s my personal line. Avoid taking on new debt (that is part of what emergency funds are for) and tackle your existing debt with the best method that works for you.
The biggest caveat here is that you need to stay disciplined and be consistent to eliminate all of your debt. It will probably take a good deal of time, so don’t expect overnight success. Take your small victories and eagerly wait for the day when all of your major debt is gone!
3. Round Out Your Emergency Fund
Now it’s time to take your one month emergency fund and turn into into a 6 month emergency fund! This step is probably, at least partially, concurrent with step 2 (removing your debt). However, if you don’t have at least 6 months worth of expenses yet, take some time to get that saved up. Having a strong emergency fund is important, as it gives you a feeling of security and prevents you having to take on extra debt.
I know it’s easy to want to skip steps, but be patient. Your future self will thank you once you’re financially stable and secure!
4. Invest 10% Of Your Pre-Tax Income, Or 15% Of Your Post-Tax Income For Retirement
Now that your emergency fund is complete, and your “bad” debt is paid off, it’s time to focus your energy on investing. When you first start, your minimum should be to invest at least 10% of your pre-tax income or 15% of your post-tax income. This should be an absolute minimum goal, and without major debt it should be readily achievable. If your expenses are too high to do this, then go back and redraft your budget again.
For some people this may seem like a lot, and for others it may seem like nothing. The important part is to just take this step and give it your all!
5. Identify Long-Term Financial Goals And The Milestones Along The Way
This is the point where it’s normal to start thinking about how you need to plan for your retirement, or prepare for any other long-term financial goal. Now, you may still have a long way to go before you get there, but you can start checking off basic things. Think about using your employer’s 401(k) match or opening a Roth IRA.
Do some research and think about your long-term plans. Again, it’s okay for it to be a ways off. If retirement is your main goal, that’s fine. However, many people have other financial goals, and it’s important to specify them if you have them and keep track. The important thing in this stage is to set goals and not forget what they are going forward. Remember to focus on where you want to end up in the coming decades.
6. Augment Your Income With A Side Hustle Or Find More Ways To Save Money
Step six is where things start to get really fun. There are tons of lucrative side hustles these days, all you need to do is start one and stick to it for at least one month (preferably six months). I’m not saying a side hustle will make you rich by any stretch of the imagination, but adding in another source of income can make it much easier to get ahead.
So, build another source of income on the side and use it to fuel your investments. You can even use the money to invest in your own education, if you want to. This doesn’t need to be something that drains you or has a huge upfront cost, just try to have fun with it and do something you’re already good at.
7. Invest At Least 20% Of Your Income – 50% Or More For Early Retirement
Now that you have your goals, have increased your income, and the groundwork has been laid out – it’s time to take investing more seriously. Try to stretch yourself and invest at least 20% of your post-tax income, while also meeting your 401(k) match in addition to that, if you have one. If you can push yourself to do 25-30%, then that’s even better!
Depending on your financial goals, or how early you want to retire, you’ll have to invest more. If you want to retire a decade or more early, then you should try to invest 50% of your income. I know that’s hard, and it will probably take some lifestyle adjustments, but it will pay off in the long run.
8. Create An Estate Plan
At the end of the day, estate planning is an absolute must! Making an estate plan sets up your family and is a good way to get your finances in order. On top of that, it gives you a clear insight into the current state of your finances and can give you a good idea about where you need to end up. So, once you’ve made it to this step, if you’re having issues figuring out new financial goals, this is something you should absolutely do.
9. Make Time For Your Passions And Hobbies
By step nine, you’re certainly financially stable and likely secure. At this point, don’t forget to enjoy your passions as well as your hobbies. Working hard and securing your finances is great, but it’s also important to enjoy life.
Conclusion
Those are my 9 steps towards financial stability. If you have any tips of your own, let us know in the comments.
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