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We can all agree that all we really want in life is to become financially stable (…and maybe some chocolate cake ..). Even though each one of us may have different financial goals, financial stability should be everybody’s aim.
Living paycheck to paycheck sucks. But how do you get out of that rut?
In this post you’re going to learn:
+ 8 steps you need to become financially stable
+ how to stop living paycheck to paycheck
+ how to feel confident with your money
Why even try to become financially stable?
Some of the things on this list may be ones that some people aren’t willing to do. Because unfortunately, becoming financially stable does take a little bit of effort.
So what do you get out of it if you put in the effort?
For us, becoming financially stable has meant that we:
– No longer live paycheck to paycheck or stress about when we get paid and when bills need to come out.
– Pay cash for a new-to-us car.
– Pay cash for all our vacations.
– Have the option to be a stay at home mom.
Your goals may look different than ours, however the path to gaining financial stability is all the same. These are the basic things you need to do to get out of the rut and reach the stability that you’re longing for.
HOW TO BECOME FINANCIALLY STABLE
1 – Know your Numbers
The first step to becoming financially stable is knowing your numbers.
How do you know what you’re supposed to work on without knowing where you’re at?
Budgeting may not always be the funnest thing to do (believe me, I KNOW), but it’s the most effective way to stop living paycheck to paycheck.
Trust me when I say I really hated budgeting too. That’s why I created a system to successfully budget in only 30 minutes a month.
When you’re budgeting the main things that you need to focus on are your income and expenses.
You can easily grab a pen and notebook and write out your budget.
How to find your numbers:
First, write down your total income that goes into your bank account each month.
Next, go back through last months expenses using an expense log and write down all of your purchases.
Add up your total income and then your total expenses.
When subtracting your expenses from your income you’ll see if you’re in the positive or negative each month. (Don’t stress, we didn’t realize we were in the negative until we started budgeting consistently.) This is why it’s SUUUUUPER crucial to know your numbers.
So, what do you do with these numbers?
Now that you know how much you’re making and spending each month you can use this as a baseline as you continue through the rest of these 8 steps.
It may mean that:
A – you have extra money to put towards debt or savings; or,
B – you need to figure out how to decrease expenses or increase income
Want a complete guide to budgeting? Check out the beginner budget guide here.
2 – Keep an Emergency Fund
The next step is creating an emergency fund.
Have you ever noticed a pattern when you finally start to make a little extra money, and then something goes wrong. So that extra money that you just made goes to whatever car emergency is going on that month.
It never fails, and it usually happens at the worst time.
Having an emergency fund can be the difference between staying in debt and having a buffer to keep you OUT of debt.
All an emergency fund is is a money buffer so that you you don’t have to keep living paycheck to paycheck.
How much should you have in your emergency fund?
Start with $1000 in your emergency fund. After debt is paid off you’ll bump that up to 3 to 6 months of your expenses.
Your emergency fund is literally only there for emergencies. The key is to only use it when you actually need it.
You can easily start saving for your emergency fund with these emergency fund savings challenges to help motivate you.
3 – Spend Less than you Make
The third step to becoming financially stable is spending less than you make. And although this sounds like common sense, this is the most commonly overlooked step.
This goes hand-in-hand with keeping your budget, if you don’t know how much you’re making how do you know how much you can spend each month?
I’m not talking about being extremely frugal (which I don’t believe in). I’m just talking about living within your means so you’re not constantly stressed about when your next paycheck is coming and when your next utility bill is due.
In order to spend less than you make you need to do three things:
+ First is keeping your monthly budget whether that’s in a fancy template or in a simple notebook
+ Second, figure out how much you have to spend on expenses each month and learn how to keep track of it
+ Third is finding ways that you can save money on things that you don’t care about, so that you can spend money on things that you do care about
For instance, if you don’t care about having cable then consider switching to Hulu or other alternatives.
Living below your means doesn’t mean you have to make your own laundry detergent. This simply means you may have to use sinking funds to save for things you want instead of buying it with money you don’t have at the moment.
4 – Pay off your Debt
One of the things that Dave Ramsey often talks about is the fastest way to building wealth is paying off your debt and staying out of it.
How are you supposed to achieve any considerable financial goals in life when you still owe people money?
Becoming debt-free can increase your financial stability times 10. Think of what life would be like if you had no payments. You’d probably feel pretty secure right now!
HOW TO PAY OFF DEBT EFFECTIVELY:
When paying off debt you want to focus on paying the smallest first. This is called the snowball method.
The reason you pay off the smallest first is because:
A – it gives you the motivation to continue when you get to the larger debts by looking back and seeing what you’ve accomplished
B – Each debt you pay off gives you a little extra cash from that payment you’re no longer making to put on the next debt (snowballing)
Start by listing your debts from smallest to largest, start throwing extra money you have each month at the smallest debt while still making the minimum payments on the other debts.
Soon you’ll have all this cash at the end of the month from debts you’re no longer paying and can finally take that much needed cruise to the Bahamas!
5 – Invest in Yourself (Retirement)
Picture yourself in your 70’s, what do you see yourself doing?
I picture myself enjoying my family, spoiling the heck out of my grandkids and doing things that I love! Which means if I don’t want to continue working just to pay the bills I don’t have to. Instead, I’m doing hobbies and things I enjoy doing. (I’m also not mooching off my kids because I expected the government to take care of me.)
If you’re expecting government checks for your retirement, think again. Unless you like living at the poverty level I suggest you start thinking about saving your own retirement.
HOW MUCH TO SAVE FOR RETIREMENT
First, it’s important to note how much you need. A good number to shoot for is having a retirement of $1 million or more.
Before you jump to conclusions and think, “There’s no way I’m going to be able to save that much!!” Let me tell you about my not-so-secret, wealth build savings account.
It’s called a Roth IRA, and it’s going to be your holy grail for investing in your retirement.
A Roth IRA is a high-interest retirement savings account. Meaning, by putting money in it each year it builds on itself.
Even if you have a 401K you NEED Roth IRA account. (Did you know the average amount saved in a 401K by the age of 65 is only $96,000?? That’ll last you MAYBE two years.)
HERE’S HOW TO EASILY INVEST IN YOUR RETIREMENT
A – If your employer offers a 401K match contribute the minimum amount you need to match
B – After focusing on paying off debt (following Dave’s Baby Steps) start putting 15% of your income each month into a Roth IRA until it maxes out for the year – then add to 401K and any other investment accounts you’d like
C – NEVER take out any money from your retirement account – it is NOT your emergency fund
D – Start adding to your retirement AS SOON AS POSSIBLE – the sooner you start the more you’ll have
6 – Automate your Bills and Savings
Guys, automation is gold! We all know those people who are constantly forgetting to pay their bills. Don’t be that person.
Listen, I know there can be a lot of payments to try to keep track off. That’s where automation can be your life line. So instead of getting your power shut off to remind you to pay your bill, you can happily turn on all the lights all month long knowing your bill will automatically come out.
Automate your bills = have your bills automatically come out of your checking account each month on a specified day.
Automate your savings = automatically contribute a specified amount of your paycheck to be deposited into a specific savings account each month.
This helps you to stay on track with all your bills and build your savings – without even thinking about it!
HOW TO SET UP AUTOMATION
A – Contact your utility companies or any place that you are currently being billed monthly for. (If you’re not sure what bills come out each month it might be time for you to start a budget.)
B – Ask each company to be put on automatic payments on a specified date each month – this way you will know what day each bill will be come out of your account (and tracking it in your budget calendar each month.)
C – For places that don’t offer automatic payments simply set up auto pay through your online banking.
7 – Increase your Income Smartly
When you’re figuring out how to increase your income, this isn’t just about getting a second or third job (although in some situations that may be necessary for a short period of time while you get your finances back on track.)
This can simply mean finding ways to:
+ Get a raise or,
+ Generate passive income
Ramit Sethi has great advice on how to get a pay raise. It can be a lot easier than you think and in most circ*mstances you’ll get one just for having the guts to ask!
There are a million and one ways to generate passive income. Whether it’s from capitalizing on a hobby you like to do and finding ways to make money with it, or even starting a blog or website to make extra income.
Although starting a blog for income can take some time and looooooots of work – it seriously pays off in the end! My favorite resource on making money blogging is by Jennifer Maker.
8 – Have a Positive Money Mindset
You can’t become financially stable without having a positive money mindset.
You know those people who are constantly complaining about their life, money and circ*mstances? Don’t be that guy.
Understand that YOU make things happen. Things don’t just HAPPEN to you or to other people. By putting in the effort and knowing that you WILL get your money back in track you’ll get there faster than you thought possible.
Changing your money mindset may be one of the biggest obstacles, but is seriously necessary to get out of a financial rut.
CONCLUSION
Those are the top 8 ways on how to become financially stable and start enjoying your life and your money! By following those 8 steps you’ll be well on your way to feeling stable, confident and ready for whatever comes your way.
What are some tips that you’d add to this list to help others become financially stable?
PS – For more money tips follow me on Pinterest below!
