15 Signs of Financial Stability
Last week, we began the discussion about what it means to be financially stable by defining both what financial stability is and what it isn’t. Financial stability is a complex system which involves more than a bottom line and more than a state of mind. It is a common goal and, to some, seems impossible. That is why it is important to recognize financial stability not only as a theoretical “concept” – something you need to “get,” but as a real, tactile state that you, too, can achieve.
Because it’s complex, being financially stable is many of things which, combined, offer you a sense of peace when it comes to thinking about money. This isn’t to say you don’t think about money, just that doing so doesn’t make you stress or worry.
So, what does being financially stable look like? Here are 15 signs that you are financially stable, or at least on your way there:
1. You Never Overdraw Your Checking Account
Having enough money to pay the bills is, clearly, an important sign of financial stability. So too is your ability to manage your payment of those bills which means having enough money in your accounts so that you don’t need to worry about outstanding checks, looming due dates, or creative bill pay practices to manage yourself from month-to-month.
2. You Pay Your Bills Before They Are Due – or Have the Ability To
Being financially stable means being “ahead of your finances” such that you don’t need to wait for payday to write a check to cover an expense like rent or your mortgage. This is a combination of having money in the bank and managing your due dates.
Note: You don’t need to literally pay your bills before they are due. Instead this sign may simply be scheduling payments through online bill pay two weeks in advance because the funds are already in your account.
3. You Use Credit Cards for Rewards, Not Credit (i.e. You Always Pay Them in Full)
Credit cards are great for those who know how to use them right. And, if this is the only way you use your credit cards, then you are on your way to being financially stable.
4. You Don’t Lose Sleep Over Your Finances
We’ve all been there. If thinking about your bills keeps you up at night, literally or figuratively, you are not in a stable position.
5. You Wouldn’t Be Ruined if You Lost Your Job
Sure, a sudden job loss is stressful and upsetting. However, if you have enough money in the bank that stopping work tomorrow wouldn’t put you in a position to not pay your bills, you are in a good state.
6. You Never Take an Auto Loan for More Than 5 Years – If You Take One At All
Auto loans used to come in two flavors, 36 and 60 month terms. However, deteriorating finances and expensive vehicles led to 72 and even 84 month options. Financially stable people don’t need those extreme options and many of them pay for automobiles in cash or have enough cash on hand to make a larger-than-average down payment that decreases the term of their loan.
7. You Make Double-Digit Percentage Contributions to Your Retirement Account
At minimum, most people make contributions enough to receive employer match in their 401(k). The financially stable, however, go beyond that, usually investing in a Roth IRA as well.
8. Going Out Is Not a Guilt-Inducing Act
Whether you go to dinner with friends, coffee with your sister, or to a play with your spouse, recreational spending isn’t a big deal. When you have financial flexibility events like holidays, birthdays, vacations, and more don’t lead to a “too much month” that snowballs into credit card or other debts.
9. You Can Afford the Things You Want
Outside of a yacht and a flat in Paris, most financially stable people can afford to buy what they want, whether it is a new SMART TV or a designer dress for a summer wedding. However, buying these things is not an impulsive, spur-of-the-moment act, but a planned expense worked into the monthly budget.
10. You Find Very Little Appeal in Recreational Spending or “Retail Therapy”
Like alcohol or drug abuse, people with spending problems are addicts who use shopping as a means for escape, temporarily forgetting their (financial) troubles for a while and “having fun.” Part of the appeal of this behavior is in its rebellious spirit. If you can honestly afford what you want, then buying it gives you less release because it’s “allowed.”
11. Your Net Worth Grows Each Year
I touched on this briefly last week. In a more practical sense, two things are occurring here. First, you KNOW YOUR NET WORTH. In other words, this matters and you track it. Second, you are making conscious efforts to increase your net worth through savings and investments in addition to standards like retirement. Basically, you make your money work for you.
12. You Have a Large Share of Equity in Your Home
If you just bought a home, you were able to put down the desired 20% to avoid PMI. If you have owned your home for awhile, you continue to build equity rather than borrow against it in the form of home equity loans and refinancing.
13. College Costs Are Not Scary
With the rising costs of college and ballooning student loan debt, being financially stable means having a handle on and a plan for sending your kids to college. This may mean a 529 account, substantial traditional savings, as well as preparing your children for scholarships and loans by teaching them good financial management habits.
14. You Don’t Care About the Joneses
Often, the people trying hardest to prove something are the ones who have nothing to actually show anyone who looks at them closely. When you are stable and comfortable with your personal finances, your neighbor’s new car or fancy vacation doesn’t concern you because your personal financial stability is all the reward you need.
15. You Continue to Educate Yourself About Personal Finance and People Ask for Your Advice
Being a good financial manager means paying attention to the state of your own affairs as well as taking constant, conscious steps to improve them, no matter how good they get. For some people this means investigating different types of home loans, others learn about investment strategies, some simply take an active role in their financial planning and work with their advisers to understand their long term plans. As a result of your continual education (and success!) you become the go-to person among family and friends for financial advice and ideas.
**What are some additional signs that you can think of that indicate financial stability?**