Financially Stable: What It Means – And How To Get There

Everyone has a different idea of the American dream, but there’s usually one common element: being financially stable. Achieving financial stability doesn’t have to mean vast riches – it can mean having enough money to pay your bills while putting aside some extra funds for the future.

In this article, we’ll look at what it means to achieve financial stability, the signs of solid economic footing and how to become financially stable. 

What Does Being Financially Stable Mean?

Before we get too far into it, let’s define what it means to be financially stable. Being financially stable means you have enough money coming in to cover your expenses, as well as some extra funds to put aside for savings or potential crises. You continuously save money, you have paid your high-interest debts and you don’t fret about emergencies because you’re financially prepared. Essentially, it means having enough income to cover your expenses without relying on credit or loans. If you are financially stable, you also likely have savings that can help offset unexpected expenses or pay for emergencies.

How people become financially stable varies, but it typically includes having a balanced approach to debt management and a thoughtful mindset when it comes to earning, spending and saving money. Ultimately, financial stability means you have a sense of security and an ability to manage your financial present – and future.

Financial stability is important not only because it means that you have enough money to pay for the costs of life, but it also provides peace of mind by reducing stress related to money. With this important issue taken care of, you can instead focus on personal goals and overall well-being. Financial stability also gives you the ability to plan for your future financial situation, whether for retirement, education or achieving long-term aspirations. Moreover, it offers a safety net during economic downturns or unexpected life events, providing a safeguard against sudden financial hardships.

Signs Of Financial Stability

There are several signs that indicate financial stability. They can mean you are in a good place financially or on the right track if you can check these boxes.

Being Financially Responsible Is A Priority

Many people who have achieved financial stability got to that point by simply being sensible and responsible with their money. Some people swear by creating a set budget and defining clear financial goals – then sticking to them. Another key characteristic they often have is refraining from impulse purchases they could afford to buy but simply choose not to.

Saving Is A Way Of Life

People who are financially stable know saving isn’t an option – it’s a necessity. At the same time, they realize this fact: It can be tempting to buy cool stuff. So they often set up automatic contributions to savings or investment accounts, treating them as a regular expense and removing the funds from their accounts before they have access to them.

Moreover, they adopt a frugal mindset and set a clear line between wants and needs, consistently allocating funds toward savings. Lastly, they review and adjust their budgets regularly, making sure that saving is an integral part of their financial plan.

An Emergency Isn’t Cause For Panic

People who are financially stable are better equipped to handle sudden emergencies due to their preparedness. That’s because they typically have an emergency fund specifically set aside for unexpected expenses, such as home repairs or car breakdowns.

These unexpected costs aren’t huge causes for concern because they’ve set up a safety net that accounts for such possibilities. And because they have the money to offset surprise costs, they don't need to resort to high-interest loans or disrupt their long-term financial goals to stay afloat in tighter times.

Bills Are Always Paid On Time

A key point of being financially stable is paying your bills on time. There are many reasons this is important – on a day-to-day level, it removes the stress of worrying about bills and seeing them accumulate, which can make them seem even more daunting. But even more important, paying bills in a timely manner helps improve your credit score, which can help you in myriad ways down the road (access to lower interest rates, higher chance for approval by landlords and more).

People who are financially stable often set up automated payment plans, which pays for bills immediately and removes any possible payment issues. This level of stability helps them meet their financial obligations and gives them a sense of control in their financial lives.

How To Become Financially Stable: Eight Achievable Steps

There are some concrete steps you can take to achieve financial stability. They include:

1. Set A Budget And Stick To It

For some, it can be tempting to live a carefree financial life and just buy and pay for things as they wish. After all, it takes work and determination to create a personal budget, and it can be challenging to adhere to.

But here’s the payoff: People who create budgets not only end up with organized finances and greater economic stability, they also become more disciplined in the process. So there are many benefits to having a budget, and they far outweigh the downside of the work required.

There are several different budgeting methods, so check these out and see which one aligns with your mindset:

·       The 50/30/20 rule: This budgeting method suggests dividing your after-tax income into three categories: 50% for needs (such as housing, groceries and health care), 30% for wants (like dining out, entertainment and hobbies), and 20% for savings and debt repayment (including retirement savings, emergency funds and paying off debt).

·       Cash stuffing: This technique involves allocating cash for specific categories, such as groceries, housing, entertainment and savings. You allocate a certain amount of cash to each category for the month, physically separate it into envelopes or containers, and use only that cash for those expenses. Once the cash for a particular category is used up, you stop spending in that category until the next budgeting period. You can also do this digitally.

·       The 80/20 Budget: This method encourages limiting your spending to 80% of your income and saving or investing the remaining 20%.

2. Save, Save, Save

We can all agree that saving money is important – it provides a safety net for unexpected expenses or emergencies, offers financial peace of mind and enables you to work toward long-term goals like buying a house or retiring comfortably. Additionally, it gives you freedom and flexibility in your choices and reduces your reliance on credit or loans.

Some even subscribe to the "pay yourself first" approach, which prioritizes savings by allocating a portion of income to savings or investments before covering other expenses. This school of thought emphasizes the importance of treating savings as a non-negotiable expense, ensuring consistent contributions toward financial goals.

3. Live Within (Or Below) Your Means

When you spend less than you take in (or live below your means), it creates a financial cushion that allows you to be prepared for unexpected expenses or opportunities. It also reduces financial stress by providing a buffer against economic uncertainties, giving you a sense of comfort in your day-to-day life. Moreover, it can help you grow your savings by enabling you to put some of the difference into a savings account or investments.

4. Establish An Emergency Fund

One of the main reasons it’s important to save is simply this: life can be chaotic and you never know what can happen. For that reason, it’s important to set up an emergency fund that’s separate from a general savings account. This type of fund helps prevent you from depleting your savings or going into debt due to unforeseen circumstances. Other benefits may include:

·       Money for car repairs, home repairs and medical bills

·       No high-interest charges on your credit card

·       No need to take out a personal loan

·       Funds are available in case of job loss

·       No risk to relationships by borrowing from family and friends

·       No struggle with debt

·       Peace of mind

5. Pay Down Your Debt

Paying down debt and clearing credit card balances is a major step toward achieving financial freedom. Think of it this way: The more debt you have, the less your money belongs to you. But lowering your debt liberates you from high-interest obligations and frees up more of your income for savings or investments.

Decreasing your debt can also improve your credit score, which leads to better loan terms and opportunities in the future. On an intangible level, reduced debt means less financial stress, meaning you can focus on long-term financial goals or put more money into a savings account.

6. Invest In Yourself And Your Retirement

A critical part of maintaining financial stability is through saving for retirement. By putting money aside early into a retirement plan, you can take advantage of compounding interest while also creating a solid nest egg for your golden years.

But this isn’t necessarily easy – you’ll need help, such as via a retirement calculator that can help you gain an understanding of how much money you’ll need. It’s also important to consistently reevaluate your calculations and revise them accordingly, because it’s better to make adjustments along the way than wait until the last minute. 

7. Monitor Your Credit Score

Your credit score is a critical number in the world of finance, as it is used as a universal indicator of your financial responsibility. That’s why keeping your score high is of the utmost importance – it can lead to lower interest rates on mortgages, better car insurance rates, easier approval by landlords and much more.

For these reasons, it’s critical to track your credit score and report and make sure they’re accurate. By regularly checking your report, you can spot errors or identity theft early, allowing you to rectify issues promptly and protect your financial reputation.  

8. Don’t Be Afraid To Enjoy Life

All of this said, let’s remember this phrase: Man does not live by bread alone. In other words, financial stability isn't about constant deprivation but rather finding a balance between smart spending and saving. So it's okay to indulge in occasional treats or splurges as long as they align with your overall financial plan.

Allowing yourself these moments of enjoyment can prevent you from feeling burned out or overly cautious while helping you maintain a healthy relationship with money. Just ensure these treats are budgeted for and don't derail your long-term financial goals. Moderation in spending can indeed coexist with financial stability, adding joy without compromising your financial health.

FAQs On Financial Stability

Achieving financial stability can be complicated, and many questions can arise along the way.

At what age should you be financially stable?

Financial stability is more about maintaining control over your finances rather than hitting numbers at a specific age. However, aiming to attain stability by your late 20s to early 30s can be beneficial, allowing time for savings, debt reduction and investments. The earlier you establish good financial habits and start saving, the more time you have to build a strong financial foundation for the future.

How much money do I need to make to be financially stable?

The amount of money you need for financial stability varies based on myriad factors, such as your individual circumstances, your goals and your cost of living. Financial stability is less about a specific dollar figure and more about having enough to cover your essential costs while saving for your future. Ultimately, it's about achieving a balance between income, expenses and savings that provides a sense of security and minimizes financial stress.

Does financial stability mean you’re rich?

While being wealthy can contribute to a healthy financial picture, financial stability refers to having control over your finances and not swimming in money. Being rich typically implies having substantial wealth or assets beyond what’s necessary for financial stability, often leading to a luxurious lifestyle. Meanwhile, financial stability ensures comfort and security, and being able to provide for yourself in the present – and the future.

How do I become financially stable with a low income?

Achieving financial stability on a low income can be difficult, but it can be done. It involves smart budgeting and prioritizing essentials, so create a strict financial plan that covers necessities while allocating a portion for savings – no matter how small. Focus on building an emergency fund gradually to provide a safety net against unexpected costs and slowly work toward long-term financial stability.

The Bottom Line: Being Financially Stable Means Freedom

Achieving financial stability takes work and dedication, but it pays off many times over. When your money truly feels like your money, it can be very liberating. Download the Rocket Money^SM app to help establish budgets and savings goals that can help build you a strong financial future.