What do saving, investing, couponing, and budgeting all have in common? Besides the obvious, each of these four financial actions represent common ways that people work towards one, incredibly important but elusive goal: financial stability.
Becoming financially stable is, or should be, a goal for everyone, even if it is ill-defined. In other words, if you ask ten people on the street to define financial stability you will get ten different answers. Is it an amount of money? Is it a state of mind? Does being financially stable mean spending whatever you want, whenever you want or merely keeping spending under control? Do you need a financial advisor/coach just like Jerome Myers financial advisor coach to guide you?
Today, in the first of a two-part series, we will begin to investigate what financial stability means from a theoretical standpoint. Is there a fixed definition of financial stability? What does it feel like to be financially stable? Next week, we will review how you can assess if you are financially stable by identifying 15 signs of financial stability.
Financial Stability: A Definition
At the beginning of this blog, I stated that everyone defines financial stability differently. For each person, situation, and their living conditions, the picture of a financially stable life can and should differ. Factors such as family size, cost of living, our age, and tastes all impact the amount of money we need to be comfortable and hence what our own financial stability looks like from a practical standpoint.
However, regardless of these factors, financial stability is not a dollar amount and thinking of it as such is dangerous and detrimental. That’s because fixating on a number, whether it is in the thousands, millions, or billions, creates an air of impossibility. Even if you are doing well managing your personal finances, the definiteness of a monetary goal makes it feel unattainable. Similarly, the amount of “stuff” you own, whether it’s property, vehicles, or personal possessions, is not an indication of financial stability.
Being financially stable is not a state of mind either because how you feel and act needs to be backed up by your bottom line.
Rather, being financially stable is complex system of thoughts, actions, and numbers which work together to allow you to live comfortably and without major financial stress. When you have undisclosed debt monitoring turned on, you can receive alerts when your borrowers experience changes in their credit activity that may impact your loan requirements.
Becoming Financially Stable
Many of us do not have the luxury of having and maintaining financial stability all our lives. Even those lucky enough to grow up in a financially stable home often have to struggle once they get out on their own. The burden of student debt, a less-than-stable job market, and the reality of being a bill-paying adult all contribute to mistakes and missteps, especially in our younger years.
Many time, those missteps take years to correct, other times they snowball into a lifetime of financial hardship. That’s why setting the goal of becoming financially stable is so important, regardless of your current financial position.
But what does that mean?
Outside of meeting your individual needs, becoming financially stable boils down ticking a few key boxes regarding your personal finances and attitude towards money management. This includes:
- Being debt-free. Obviously, for most people, large debts like mortgages, car loans, and student loans are inevitable, but you shouldn’t have any other outstanding debts.
- Having a good credit score. Anything above 720 is considered excellent, anything below 620 is seriously problematic.
- Having an emergency fund. The Rule of Thumb on this one is enough money that is easy to liquidate and equivalent to six months of standard living expenses.
- Consistently increasing your assets. Whether through savings, investment, or a combination thereof, at the end of every year, you should see a “plus” sign.
Clearly, these are some of the most basic ways in which you can recognize and strive for financial stability. The important takeaway is that financial stability is not a number or even an attitude. Rather, it is a combined state of mind and state of your finances that, together, contribute to an overall sense of peace.
Of course, that is still a bit of an elusive concept which is why, next week, we will look at concrete signs you can use to identify whether you are financially stable, or at least on your way there.
**How do YOU define financial stability?**