What exactly does it mean to be financially stable?
That question draws out as many answers are there are hues of colors in the rainbow.
Financial stability means different things to different people.
And especially now that we have entered a new year, there are a lot of us who have set goals on what our version of financial stability is.
Additionally, if we are being completely honest, even when we do know what it means to be financially, getting started and getting there can seem like moving a mountain.
We’ll tackle all of that in this post.
Before we get all technical though, we decided to ask a few folks what being “financially stable” meant to them.
Here are some of those answers.
Jummy from Good Naija Girl had this to say:
“For me, being financially stable means I make enough money to cover all my bills and then have enough to cover any unexpected costs - like a car breakdown - without panicking and wondering where the extra cash will come from.”
Bay Simpson from Entrepreneurs Nook said:
“Becoming financially stable means that my family and I have all that we need to thrive now and in the future. By “thrive” I mean, beyond the basics, I want to have enough to cover things like vacations and educational experiences that will help my family and me live fuller and richer lives.”
Queenette, a mom of three and relationship blogger said:
“Once my assets and investments - not my work income - can cover all our family’s living expenses each month plus the extra , we are financially stable.
Fred, a San Diego local who is married with one child chipped in:
“Becoming financially stable means being completely debt-free, being able to pay your monthly living expenses with extra money left over. It means having the freedom to do whatever, whenever, without worrying so much about getting back home because you are going to get fired for taking more time off than you should have.”
As you can see, the answers are varied but a recurring theme in all of them is the idea of being able to cover the “basics” while having some extra money left over.
But is that all?
Depending on how you look at it there are 5 major components to living financially free - this is not a rigid framework but one you can adapt to fit your own financial situation.
Here Is What Being Financially Stable Looks Like
Since we will all have to retire at some point, if you are participating in a work-related 401K retirement plan this is even better since you will have that in addition to whatever savings, plus interest accrued on your savings, you make and any income you make on your investments.
But I Don't Make Enough Money...
Perhaps you are reading this blog post and thinking to yourself “But I hardly have enough to cover my basic needs let alone have a $500 buffer !”
A simple solution to that particular problem is for you to start a side business.
We have written extensively about side businesses/side hustles on the blog.
Check out these posts on the subject.
It is possible for you to start a side hustle pretty much anywhere in the world these days.
From driving for Uber or Lyft to renting your spare bedroom on AirBnB to starting a freelance business.
No time for a side hustle ?You could also negotiate a higher salary at your current job.
All of these can be used to answer the question of creating a financial buffer each month so you are not scrambling to make ends meet let alone save 2% of your income.
Paying Off Debt
When it comes to paying off debt, it always helps to look for programs and opportunities to pay the debt off faster.
With student loans for instance, a number of forgiveness programs exist if you work in certain professions of if you are a member of the military or Peace Corps.
Look for such and take full advantage of them.
We have also talked about how making 2 payments per month on your student loans can be helpful.
Scholarships are also another area to look if you would like to fund your education or your child’s without taking out so many loans.
Here are some posts on how to become debt-free.
Savings And Investments
When it comes to savings and investments, you have everything from high-yield savings accounts like certificates of deposit to government bonds to very affordable stocks.
The habit of saving and investing although it seems slow and undramatic, has made many millionaires over the decades.
Posts to check out on how to start saving and investing in earnest and regardless of your income level.
The new year is always a great place to start with the goals of becoming financially free.
It does not matter how many financial mistakes you’ve made in the past. Each new day is an opportunity to start over and this tips can help you get there.
Question for you: what does it mean to you to be financially stable? Your thoughts and comments are welcome below.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.