Being Financially Stable (3 Articles)

23 min readNov 23, 2022

~ Wednesday, November 23, 2022 Blog Post ~

1) WHAT DOES IT MEAN TO BE FINANCIALLY STABLE?

Source: https://www.fastinvest.com/en/blog/what-does-it-mean-to-be-financially-stable

Everyone wants to be financially independent, stable, responsible, or happy; however, what does that actually mean? Is it having all your debt paid off? Is it having lots of money in a savings account? Or is it being in a higher socio-economic class?

As Robert Kiyosaki said, “The key to financial freedom and great wealth is a person’s ability or skill to convert earned income into passive income or portfolio income”.

The lack of financial understanding by consumers has been signaled as one of the main reasons behind personal financial problems faced by the majority of people. Too many people just don’t know savvy financial decision-making, which does not bode well for families, their communities, or the country.

What is Financial Stability and How to Achieve It?

Financial stability might sound confusing, but it’s just a way of describing the financial system when it’s fulfilling its fundamental roles. Being financially stable means being confident about your financial situation by keeping a healthy balance between your income and your expenses — you should be able to cover your expenses without struggling. Becoming financially stable is achievable, and it’s entirely in your hands. Your financial behavior will lead to a permanent economic existence, and depending on how you look at it, there are several components to follow for financial freedom:

1. Take Control of Your Expenses

Keep an accurate list of the money coming in and going out. Add up each cent for a month, so you actually know your budget and where it comes from and goes. Get rid of any unnecessary expenses.

2. Set-up an Emergency Fund

Financial stability begins with knowing you can handle an unexpected expense with ease and not panic. The most common advice is to have 3–6 months of all your expenses stashed away.

3. Balance Your Debt Repayments

Having debt does not mean you are financially unstable. Those who handle debt well are most likely building a good credit history and increasing their credit score. It’s crucial to maintain a good credit score, and you can help this along by charging only as much as you can afford to pay off each month.

4. Protect Your Assets

Protecting your assets, future investments, and personal information against scams, tricks, and traps is another critical aspect of financial stability. Knowing your rights and consumer protection is a vital part of keeping your finances in order.

5. Diversify Your Income

If you only have one stream of income, you’ll have nothing left if you lose it. Other sources of income could come from a side job, a rental property, or investments.

6. Save and Plan For Your Future

Putting away money for retirement or pay for college for your children will help you become more financially stable. Avoid impulse purchases. These are one of the most negatively affecting aspects of your financial stability. Fix this problem, and you’ll notice immediate and positive effects.

7. Investing is Essential

The best investment you can make is investing in yourself; it will pay you dividends for a lifetime. First of all, build up a strong financial background to jump into the investment pool. Investing is an ever-evolving, complicated process that requires knowledge, vision, and intuition. Although we claim to be rational decision-makers, we are emotional human beings affected by our moods, values, crowd psychology, past experiences, fear, and greed. Investing is also a science because to succeed, you must understand and apply scientific principles like diversification, asset allocation, valuation, correlation, probability, and much more. Staying ahead of the market and studying emerging vehicles for investment is also critical. For example, the latest investment boom in cryptocurrencies has left many experienced investors scratching their heads and missing out on colossal returns. It’s normal to fear what we don’t know, but no successful investor can afford to miss an opportunity of that magnitude for their lack of knowledge. Investing your money will help build financial stability. Make your money grow by investing in stocks, bonds, and mutual funds. Most investments come with a level of risk, though, so always seek the help of an investment professional before diving in.

8. Always Set a Goal

Making a goal for the future is vital to mark for the agile financial literacy, and it will give you something to work towards. Small and large goals both work to motivate you. Try setting a goal to earn an extra €100 a month. Or just try to set a goal to be debt-free in 18 months. Both give you something you can focus on.

Financial stability can mean different things to different people. In part, the way you feel about money or personally obtained experiences may affect your comfort level of financial security and mobility.

Economic Mobility Explained

Economic mobility is the ability to change your wealth by moving up or down in your socio-economic standing. It’s calculated by looking at your income, total earnings, or wealth.

Mobility can be difficult depending upon the socio-economic status you were born into, as well as where you were born into it. Research has found that children born into poverty (the bottom 20%) have only a 2.8% chance of moving into the top 20%. In essence, depending upon where you were born, your opportunities for upward mobility may be weak.

The hope for many parents is that their children will make more money than they did. The trend, however, has been declining. Of people born in 1940, 92% earned more than their parents had. For children born in 1984, that number dropped, with only half of those children making more than their parents had. While there are other factors at play, such as The New Deal boosting the middle class, over the years, the middle class has shown the most significant declines in mobility.

One of the best ways to improve your mobility upward is through education. With a college education, it’s possible to start on a higher rung with a higher income right out of the gate. Unfortunately, college has become more and more expensive; thus, if you’re not already in the upper-middle or upper class, paying for a college education may seem out of reach.

Financial Knowledge and Its Features

Financial knowledge is the ability to manage the money in different usage, including the monitoring of day to day financial matters in the market and making the right choices for “financially literate” people’s needs.

But can financial knowledge be linked conceptually to financial stability? Let’s review some of the stylized facts in this modern and exciting literature:

1. Financial Knowledge as a Foundation

Individuals who are more financially literate have been shown to make more economically sound decisions pertaining to real estate purchases, insurance purchases, investing, saving, tax planning, retirement planning, pension, and insurance planning. More generally, people who are more financially literate make better financial decisions (Lusardi Annamaria and Olivia S. Mitchell 2014).

2. The Importance of Financial Capability

From an institutional perspective, increased financial capability can contribute to client protection and social performance target assessment by financial institutions.

3. Financial Literacy Forms Our Worldview

Recent evidence shows that financially literate individuals in the US are more likely to start their own business and perform better while in business (Klapper Leora F, Lusardi Annamaria, and Georgios A. Panos 2016). At the macro level, and in view of looming debt and retirement crises around the world, salient political choices − recently involving voting in referendums − are determined by attitudes towards redistribution, immigration, austerity, as well as the working of economic partnerships and monetary and fiscal unions, etc. Such approaches are likely to depend upon the understanding of the basics of macroeconomic accounts and public finance. Recent evidence shows relationships between financial literacy in the UK and perspectives to the Scottish referendum, the EU referendum, and towards immigration (Montagnoli Alberto, Moro Mirko, Panos Georgios A, and Robert Wright 2016).

4. Financial Knowledge Improves Well-Being

Evidence shows that financial knowledge is a crucial determinant of wealth inequality. 30–40% percent of retirement wealth inequality in the US is accounted for by financial education (Lusardi Annamaria, Michaud Pierre-Carl, and Olivia S. Mitchell (2016)). Ultimately, financial knowledge can contribute to increased levels of overall well-being, along with higher levels of satisfaction relating to income, retirement, housing, and financial situation.

How to Invest Smartly?

Investing may sound like a daunting task. First, most people live day-to-day and do not have extra money to spend. Second, there are so many options it can be challenging to choose. Like with any other undertaking, investment skills are honed through experience. But instead of learning from your own mistakes, you could take advice from those who’ve been there and done that:

1. Start with Making a Plan

Having no plan leaves you vulnerable to emotional triggers and panic decisions. And as the old saying goes, if you don’t know where you’re going, any road will take you there. To remain grounded and adhere to a sound long-term investment strategy even when the market conditions are unsettling, you need to have a personal investment plan that addresses the following aspects: your investment goals and objectives; your risk appetite; the benchmarks you will use to assess the performance of your investment portfolio; asset allocation; portfolio diversification.

2. Diversify Your Portfolio

The point of diversification is to help you manage the risks that can hurt your portfolio. However, it is only valuable if the new asset added to the portfolio has a different risk profile. For example, adding another P2P consumer loan from the same market or category to your P2P investment portfolio can cause your investment performance to replicate the averages. Looking from a more high-level perspective, it is smarter to add an independent and even an opposing source of return to your portfolio than to load it with more assets with a similar risk profile. Never put all your eggs in one basket and never spread them across so many baskets that your investment returns become average.

3. Always Make a Thorough Research

You should never trust anyone more than you trust your own research and due diligence. Many honest, knowledgeable investment advisors are doing their best with the knowledge and information they have, but that doesn’t mean they know what the future holds. Investing is a gamble, no matter where on the risk scale your assets are. It’s always best to operate from the assumption that the investment advice you receive is biased (because everyone is biased). You are the only person who doesn’t have a conflict of interest with your wealth.

4. Stay Stable and Balance Your Emotions

Not many traits can benefit an investor as much as good temperament does. To succeed in the long run, you must be able to tune out the noise and hop off the emotional roller coaster. So don’t go chasing the crowd and changing the direction of your investment strategy every time a new fad comes along. Build resistance to the emotional triggers and don’t try to time the market — you are an investor, not a Wall Street trader.

5. Stay Attentive but Fearless

The thought of failing induces fear in many of us. It is sometimes so strong that it puts us off from even trying. But letting fear get the best of us can have crippling effects in the long-run. It may hinder our ability to learn, to be present, and to give it our best effort. And in the case of investing, it curbs our potential to amass wealth over time. The secret to successful investing is not higher IQ or financial education; it is usually self-control. Procrastinating on your decision to invest is costing you money every day.

You might think that simply clicking your finger and winning the lottery would solve all your problems. It’s been proven that instant money isn’t the problem solver you once thought–recall the stories that come out of lottery millionaires going bankrupt after a few years or even months. But more than just having money, you must also know how to be stable with it. Having financial stability doesn’t mean being wealthy, but it means no longer living pay-check to pay-check. You have actual control over your spending, and you might not have millions in your bank account, but you don’t worry either.

2) What Does It Mean To Be Financially Stable?

Updated: October 11, 2022 By Robert Farrington

Source: https://thecollegeinvestor.com/21120/financially-stable/

What exactly does it mean to be financially stable?

That question draws out as many answers are there are hues of colors in the rainbow.

Financial stability means different things to different people.

And especially now that we have entered a new year, there are a lot of us who have set goals on what our version of financial stability is.

Additionally, if we are being completely honest, even when we do know what it means to be financially, getting started and getting there can seem like moving a mountain.

We’ll tackle all of that in this post.

Before we get all technical though, we decided to ask a few folks what being “financially stable” meant to them.

Here are some of those answers.

What Others Think

Jummy from Good Naija Girl had this to say:

“For me, being financially stable means I make enough money to cover all my bills and then have enough to cover any unexpected costs — like a car breakdown — without panicking and wondering where the extra cash will come from.”

Bay Simpson from Entrepreneurs Nook said:

“Becoming financially stable means that my family and I have all that we need to thrive now and in the future. By “thrive” I mean, beyond the basics, I want to have enough to cover things like vacations and educational experiences that will help my family and me live fuller and richer lives.”

Queenette, a mom of three and relationship blogger said:

“Once my assets and investments — not my work income — can cover all our family’s living expenses each month plus the extra , we are financially stable.

Fred, a San Diego local who is married with one child chipped in:

“Becoming financially stable means being completely debt-free, being able to pay your monthly living expenses with extra money left over. It means having the freedom to do whatever, whenever, without worrying so much about getting back home because you are going to get fired for taking more time off than you should have.”

As you can see, the answers are varied but a recurring theme in all of them is the idea of being able to cover the “basics” while having some extra money left over.

But is that all?

Depending on how you look at it there are 5 major components to living financially free — this is not a rigid framework but one you can adapt to fit your own financial situation.

Here Is What Being Financially Stable Looks Like

All basic needs met/bills paid monthly
Have a buffer of money left over each month after basic needs are met — this could be any amount but to start out it can range between $500 — $800
Pay off any debt you might have — student loans, credit card debt, mortgages, car loans. Any debt that is taking money away from your account each month qualifies here.
Save 2–5% of your income
Invest 2–5% of your income

Since we will all have to retire at some point, if you are participating in a work-related 401K retirement plan this is even better since you will have that in addition to whatever savings, plus interest accrued on your savings, you make and any income you make on your investments.

But I Don’t Make Enough Money…

Perhaps you are reading this blog post and thinking to yourself “But I hardly have enough to cover my basic needs let alone have a $500 buffer !”

A simple solution to that particular problem is for you to start a side business.

We have written extensively about side businesses/side hustles on the blog.

Check out these posts on the subject.

50+ Ways to Make Money Fast by Side Hustling

30 Passive Income Ideas You Can Use To Build Real Wealth

It is possible for you to start a side hustle pretty much anywhere in the world these days.

From driving for Uber or Lyft to renting your spare bedroom on AirBnB to starting a freelance business.

No time for a side hustle ?You could also negotiate a higher salary at your current job.

All of these can be used to answer the question of creating a financial buffer each month so you are not scrambling to make ends meet let alone save 2% of your income.

Paying Off Debt

When it comes to paying off debt, it always helps to look for programs and opportunities to pay the debt off faster.

With student loans for instance, a number of forgiveness programs exist if you work in certain professions of if you are a member of the military or Peace Corps.

Look for such and take full advantage of them.

We have also talked about how making 2 payments per month on your student loans can be helpful.

Scholarships are also another area to look if you would like to fund your education or your child’s without taking out so many loans.

Here are some posts on how to become debt-free.

Student Loan Forgiveness Programs By State

The Top Ways To Get Student Loan Forgiveness

Savings And Investments

When it comes to savings and investments, you have everything from high-yield savings accounts like certificates of deposit to government bonds to very affordable stocks.

The habit of saving and investing although it seems slow and undramatic, has made many millionaires over the decades.

Posts to check out on how to start saving and investing in earnest and regardless of your income level.

How to start investing after college for 22–29 year olds

Getting started investing in your 30’s

Final Thoughts

The new year is always a great place to start with the goals of becoming financially free.

It does not matter how many financial mistakes you’ve made in the past. Each new day is an opportunity to start over and this tips can help you get there.

Question for you: what does it mean to you to be financially stable? Your thoughts and comments are welcome below.

3) 10 Steps to Reach Financial Stability

Derek Silva, CEPF® OCT 01, 2022

Source: https://smartasset.com/retirement/10-steps-to-reach-financial-stability

Imagine a world where you don’t have to constantly stress about money. You have enough to cover your bills, regular expenses, hobbies and more. Beyond that, you want to manage your finances so you end up able to afford the lifestyle you truly want to live. These things are all possible when you achieve financial stability. To get there, there are a number of important steps you’ll want to follow.

A financial advisor who serves your area can help you set goals to reach and maintain your financial stability throughout your life.

What Does It Mean to Be Financially Stable?

When you are financially stable, you feel confident with your financial situation. You don’t worry about paying your bills because you know you will have the funds. You are debt free, you have money saved for your future goals and you also have enough saved to cover emergencies. Financial stability isn’t about being rich. In fact, it isn’t a number at all. It’s more of a mindset. When you have financial stability, you don’t have to stress about money and you can focus your energy on other parts of your life.

This may sound like a dream, but financial stability is something you can achieve. It will take some time and you will need to put in the work. If you follow the 10 steps below, though, you’ll be well on your way to reaching your financial dreams.

Step #1: Make your finances personal.

It’s very important to say this right off the bat: your personal finances are personal. That doesn’t mean personal in the sense that you can’t talk to anyone about your money. Making your finances personal means focusing on your situation and not worrying about anyone else’s situation.

This is one of the most important things for helping you to reach financial stability. We live in a culture where we constantly compare ourselves to others. We are told that we need to live a certain lifestyle because that’s how successful people live.

Block out all that noise! Forget about keeping up with the Joneses. It doesn’t matter if your friends earn more money than you. The only thing that matters is how much you have and how you can use what you have to reach your goals.

Another important part of this rule is forgetting about the “right way” to do things. Yes, some financial decisions are generally better than others. However, many things in personal finance depend on the person. There isn’t one specific method or timetable that’s best for everyone.

If you create a savings goal and you miss it, don’t beat yourself up for doing the wrong thing. Just look at what happened. What went well and what didn’t go well? Use that information to improve for next time.

Step #2: Your most important investment is yourself.

Before you ever think about investing money in the stock market, you should look to invest in yourself. Invest the time, energy and money to teach yourself the skills you need. This includes college degrees. It also includes other knowledge and skills. Learning things that don’t directly relate to your job can sometimes help you just as much as work-related skills. Employers typically want well-rounded employees who can contribute to a company in multiple ways. They also want someone who shows the drive and ambition to improve themselves.

Did your interviewing skills hold you back from getting that dream job? There are classes, books and online resources that you can use to improve for next time. Improving your skills is always a good investment. It opens you up to more opportunities and increases your career-earning potential.

At the same time, your health is vital for your success. One thing that drains a savings account very quickly is medical bills. While you can’t prevent all illnesses, a healthy diet with regular sleep and exercise can go a long way. That also means limiting your stress. Find ways to relax and unwind.

Step #3: Earn income by doing something you enjoy.

The primary way for most people to earn money is through a job. So if you’re thinking about financial stability, the best place to start is with a job that pays you a steady income. Even better is to find a job that you enjoy.

Doing work that you enjoy will make things that much easier. For some people this means changing careers. It could mean changing companies because you don’t like the people or structure at your current company. Maybe the key for you is to get a part-time job and to start freelancing. That may not sound like the conventional way to do things, but your happiness (and sanity) is more important that following convention.

Step #4: Start and follow a budget.

That’s right, budgeting. You’ve most likely heard this advice before. Budgets aren’t as bad as they may sound though. A budget is just a tool to help you spend money on the things you want to spend money on.

First of all, why is a budget important? When you keep a budget, you can track where your money is going. It’s easy to spend more than you should if you don’t actually know how much you’re spending. So more than anything else, a budget helps you keep track of your money.

Once you know how you spend your money, you can make a plan. There are always essential things that you have to spend money on. That could include your rent or mortgage, utility bills, food, car payments or transportation to and from work. These essential things should make up about half of your spending. (Experts generally recommend that your rent/mortgage not make up more than 30% of your monthly spending.)

Then you should try to put 10% to 20% of the remaining money toward your future. That means your retirement account, emergency fund and other savings accounts. Once you do all that, you can live off the remaining money. To make sure you don’t overspend, you might want to figure out how much you should spend each month on common things like eating out or buying clothes. Regardless of exactly what you spend money on, try to spend purposefully. Put your money toward the things that are important to you. Then cut back on the rest.

Step #5: Live below your means.

Like creating a budget, this is advice that many people have heard. The trouble is that many of us have a hard time following it. As mentioned in step one (Make Your Finances Personal), we live in a world where we constantly hear about the things that we “should” buy. It’s very easy to spend money on extra things that we don’t need. However, living below your means is key for your long-term financial success. If you regularly spend all of your money, or more money than you make, you can’t expect to grow any savings.

Living below your means works in tandem with budgeting. Your budget tells you how much money you have and can spend each month. Then you can work with that number to make sure you don’t overspend.

Step #6: Create an emergency fund.

Before you think too much about putting money into retirement or toward your debt, you should work to build an emergency fund.

An emergency fund is a way to protect yourself from the unexpected. There’s always a chance that you lose your job and have to get by for a bit with no regular salary. Maybe you need to make a big car repair or take a trip you hadn’t planned for. An emergency fund will cover some or all of the costs and help you through a tough time. An emergency fund will also ease your mind by giving you a backup plan.

Sometimes people skip an emergency fund in favor of saving for retirement. Then a big expense comes up and they have to pull money from their retirement account in order to cover it. Removing money early from your retirement account should always be a last resort. It detracts from your retirement savings and you’ll probably have to pay penalties. For example, you have to pay a 10% penalty if you make early withdrawals from a 401(k).

Step #7: Pay off your debts.

Debt will always make it difficult to reach financial stability. Once you know how much you can comfortably spend (through budgeting) and once you have an emergency fund, focus on getting rid of debt. Pay off any credit card debt you may have and avoid future debt on your cards. Have student loans? Make extra payments to get rid of them as quickly as possible. Just because you signed a 10-, 20- or 30-year payment plan doesn’t mean you can’t pay off your loans sooner. Paying your loans sooner will actually save you money in the long run because you’ll pay less in interest.

The only caveat here is a mortgage. If you have a mortgage, you have some time to pay it off. Prioritize all other debts before your mortgage. You should still make all your mortgage payments, but put extra money toward your other debts first. Once you have your other debt paid off and once you have savings for retirement (step eight), then you can focus on paying off your mortgage early (if you want to).

Step #8: Save and invest for your retirement.

When you’re young, it’s hard to think about retirement. Why should you save money for something that’s decades away? Unfortunately, this thinking is why the average American has no retirement savings. If you want to reach financial stability, you also need to plan for the days when you won’t have a salary. This is especially true if you have any plans for retirement. Want to travel after you retire? Want to volunteer or take some local classes? Those are all great things, but you can’t do them without money.

Prioritize your retirement now and you will thank yourself in the future. Even if you don’t have a lot to save for retirement, start now. Someone who starts early will earn more in the long run thanks to the magic of compound interest.

As you think about saving for retirement, start with your work. Many employers offer a 401(k) or 403(b) plan. Take advantage of those, especially if they offer employer matching. Employer matching is when your employer will match some or all of the contributions you make to your company retirement plan. Not taking advantage of employer matching is like passing up free money.

If your employer doesn’t offer a retirement plan, you can open an individual retirement account (IRA).

Step #9: Make sure to have some fun.

When you focus on saving money or paying off debt, it’s easy to forget about fun. After all, fun like things usually cost money. But don’t get so focused on your money that you forget to live. Enjoying your life will help to keep you happy and healthy.

When you look at how much you can afford to spend each month, try to budget in a certain amount just for fun. Maybe you can get a massage every couple of months or go to a show. Keep on the lookout for cheap and free events too. Go for a hike or invite friends over for a game night. Another great way to have fun is celebrating your financial successes. Did you just pay off one of your credit cards? Try one of these five frugal ways to celebrate your debt successes.

Step #10: Stick with your long-term financial plan.

In an ideal world, you would stay within your budget every month. Your car would never need repairs and you would never lose your job. Unfortunately, we don’t live in an ideal world. Unexpected things come up and sometimes you just spend more money than you anticipate. Try not to get discouraged when things don’t go as planned.

Even when things aren’t going well, follow through. Stick with it even if you fall off for weeks, months or years. Don’t worry about doing things perfectly. Do your best and try to get just a little better every day.

If you find yourself struggling to follow the plan you’ve laid out for your finances, a financial advisor can help. SmartAsset’s free matching tool can pair you with up to three financial advisors who serve your area.

Bottom Line

Financial stability is the freedom to live life on your terms without worrying about how you’ll pay your next bill. This seems like an unreachable dream for many people but it is very much within your reach. Follow the 10 steps above and you will put yourself on the path to financial security.

Tips for Reaching Financial Security

Whether you’re saving for retirement through a work plan or an IRA, a financial advisor could help you create a financial plan for your needs and goals. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
An emergency fund will provide security when unexpected things come up. Where you keep your emergency fund is a personal decision. Some people keep their emergency fund in their regular savings account. If you decide that you need an emergency fund of $10,000 then you can just make sure there are $10,000 in your savings account that you never touch. It can be tempting to spend that money though. In that case, you could create a separate savings account or open a money market account.

DEREK SILVA, CEPF®Derek Silva is determined to make personal finance accessible to everyone. He writes on a variety of personal finance topics for SmartAsset, serving as a retirement and credit card expert. Derek is a member of the Society for Advancing Business Editing and Writing and a Certified Educator in Personal Finance® (CEPF®). He has a degree from the University of Massachusetts Amherst and has spent time as an English language teacher in the Portuguese autonomous region of the Azores. The message Derek hopes people take away from his writing is, “Don’t forget that money is just a tool to help you reach your goals and live the lifestyle you want.”