Updated February 26, 2020.
Becoming financially stable is almost everyone’s dream. We spend our entire lives working towards that one goal, but how many of us achieve that dream? I can tell you not many people when you take into consideration how many people are trying. Today we are going to go over seven of my favorite personal finance tips you can implement while learning how to be financially stable. There are simple steps to help achieve that goal, but at the end of the day it is up to you to put the plans in place and focus. I know you can do it, and I will be here every step of the way to support you on your path to success.
There are many steps when it comes to how to be financially stable, but one of the most simple of my favorite personal finance tips is setting up automatic payments. Most of the common bills you have can be set up to be automatically deducted from your debit card or checking account. The reason you would want to set up automatic payments is that it helps to make sure you are not late on your payments. Consequently, you’ll see a rise in your credit score as well as removing any late fees from your future.
Have you heard the saying “pay your self first”? You should also set up automatic transfers from your checking account to your savings account for every check. The amount you set up to transfer depends entirely on your situation and finances, but most financial advisors agree that 20% of your income should be for saving. Before you spend any of your checks, you want to transfer money to your savings first. That is the “pay your self first” way of thinking. It’s a great way to make sure you build wealth every check, but you will always have more money next month then you did the last. Sometimes your spending habits don’t go according to plan, but if you saved your cash first, you would still grow in your quest to become financially independent.
Calculate Your Net Worth
Your net worth encompasses everything you own outright, your assets, minus what you owe, your liabilities. Knowing your net worth is a key factor within building wealth and becoming financially stable. You want to track your Net Worth periodically to know whether your financial strategies are working effectively or not. It can be challenging to build wealth and stability without knowing how much you are worth. The formula for calculating this is super simple, Assets – Liabilities = Net Worth. Below are some examples of things to consider when you are calculating your Net Worth:
|Checking and Savings Account Balances||Credit Card Debt|
|The Value of Your Insurance Policies||Student Loans|
|Market Value of Your Home||Mortgage|
|Items You Own like Jewelry, Art||Car Loan|
|Market Value of Your Car|
|Value of Your Businesses|
Invest In Your Future
Investing in your future can be done in different ways. You can buy stock or go back to school to name a couple. Investing in your future is about spending in your self. If your company provides 401k matching take the opportunity and begin adding money. Make sure to contribute up to as much as your company is willing to match, but what do you do after that? It honestly depends on so many factors so be sure to speak with your HR department to be armed with the correct knowledge to make that decision. The reason its hard to give a blanket statement is there are different kinds of 401k’s. Some have super high-cost funds, and admin fees and others have low-cost fund and admin fees.
Building a stock portfolio is another fantastic way to create financial stability. Depending on your age you are going to have different strategies when it comes to choosing stock or managing finances. The older you get, the less risky your investments should be, which makes sense because you have less time to correct a mistake before it severely impacts your financial health. There are many amazing apps for investing in stock. I use Robinhood because you can buy stock without the app taking any money from you. Acorn and Stash are also fantastic for beginners and as you become more experienced with the stock market and trading you will want to move to more advanced options (which we will go over in a different article: stay tuned…)
Other Investments For Your Future
Consider going back to school,,,but not necessarily the way you’re thinking. I don’t mean go back to college for a degree per se. But think about this: No matter what industry you’re in, there is always a chance to learn something more. If you’re in marketing you can learn about SEO tips or learn up and coming trends within the digital marketing world. If you’re in the data world, there is always more code you could learn or new data software to master. How to be financially stable includes continually learning and reinventing yourself.
Research conferences that are relevant to your industry or an industry you want to work in. If you don’t have the money to participate in school or conferences that is completely fine. Read some millennial personal finance or regular finance books. Depending on your age, there are great sources at either the library, or available for purchase from Amazon
The internet also has so much free information available to you at your fingertips. Hop on over to YouTube and watch some videos or read some articles that pertain to what you want to learn more about. Knowledge does not require money any longer. Take full advantage of that fact.
Eliminate Debt and Your Debt To Income Ratio
Having debt negatively impacts your financial wealth. That needs to be one of the first things you work on getting rid of. The tried and true method of eliminating debt fast is the Snow Ball Method. Essentially the snowball effect is taking the smallest amount of your credit card account and focusing on just that one. While this may be true, that does not mean neglect your other credit cards. Let’s be real they have abandonment issues and will begin to call you nonstop. We don’t want that. In other words, you would pay the minimum monthly payment on your other cards and spend the most you can on the account with the lowest remaining balance. To reiterate, we do not neglect the other credit cards; we pay the smallest amount possible!
For the most part, companies who lend you money or give you credit want you to have your debt be no more than 30% of your income. Most banks have a tool built into their website to help you calculate your debt to income ratio. Just in case your bank doesn’t I’ll walk you through it step by step. The first thing you need to do is gather the amounts for the below assets and liabilities. After that, you’re going to divide your total recurring monthly debt by your gross pre-tax monthly income. The formula is Monthly Debt/Monthly Income = Amount. You are then going to Multiply the Amount by 100 to get your percentage.
|All Loan Payments (Student or Car)||Salary|
|All Credit Card Payments (Use the minimum payment)||Bonuses|
|Rent or Mortgage||Social Security|
|Child Support or Alimony||Tips|
|Other Recurring Debt Obligations (Collections)||Pensions|
Monitor Your Credit Score
I reviewed this topic in great detail here, so I’m going to go over monitoring your credit score in this article briefly. Tracking your credit score is another critical step when learning how to be financially stable. Luckily for us, Credit Karma has made this extremely easy. All you have to do is enter some simple information and, boom, your credit score appears in minutes. It will continuously monitor your score to make sure you’re doing everything you can to increase it. It will also show your collections and allow you to dispute them right there in the app. Credit Karma will scour the internet for the best credit cards and loans for people within your specific score parameters making the likelihood of acceptance from the creditors extremely high.
Start A Side Business
The very last of the favorite personal finance tips we are going to go over is starting a side business. How to be financially stable and build wealth is all about diversifying your income. If one aspect of your revenue goes down the drain, you want to have other streams of revenue to kick in. There are thousands of opportunities and ways to make extra money on the side. I’ve listed ten of the most common and relatively easy options below.
|Side Business Ideas|
|Start A Blog|
|Create an Etsy Shop|
|Write an E-Book|
|Become a Proof Reader|
|Driver For Uber and Lyft|
|Charging Lime and Bird Scooters|
Creating a blog is a great way to make extra income, but I’m not going to lie it takes a ton of time and patience. Be prepared for the work required. Creating an Etsy store is another one that takes time and patience. The learning curve is very high, but if you have the time and a product that is in demand, you’ll quickly be running a profitable business.
Writing and selling E-books is not only a fun way to make money but also free. All you need is a computer, idea, Amazon, and the internet.
Walking dogs is a stress-free way to make some extra income as long as you love dogs.
Driving for Uber or Lyft works perfectly for people who want to be able to work when they want.
The End For How To Be Financially Stable
Becoming financially stable is obtainable to anyone who has the drive and the focus.
And once you have a good handle on finances and your path to success, the concept of financial stability will be second nature!
Thanks for being here – be sure to share, comment, and all that good stuff!
The Finance Fairy