Key steps to reach financial stability

woman balance between time clock and dollar money on seesaw

"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"

(Image credit: Getty Images)

If you've been dreaming of financial stability, why not make this year the year that you actually achieve it? Even if it feels like a big leap from where you currently stand financially, with a little discipline and the right roadmap it is possible to get there.

According to Rocket Money, "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." Not only does financial stability mean "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," freeing up that mental space to "instead focus on personal goals and overall well-being," explained Rocket Money.

The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

https://cdn.mos.cms.futurecdn.net/flexiimages/jacafc5zvs1692883516.jpg

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

1. Create — and actually stick to — a budget

As Experian explained, "controlling your cash flow is a key first step for building financial stability." So to get yourself on the path towards financial stability, take the time to sit down and create a budget, or, as Experian defines it, "a plan for how you'll direct funds toward all areas of your financial life, such as necessary expenses, discretionary purchases, debt payments, personal savings goals and investing for retirement."

There are a slew of different budgeting methods you can try. For instance, the 50/30/20 rule encourages "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)," explains Rocket Money. Meanwhile, the 80/20 budget "encourages limiting your spending to 80% of your income and saving or investing the remaining 20%," per Rocket Money.

What's really important is to figure out something that will realistically work for you — as Experian highlights, "the best budget is one you can stick to."

2. Build up an emergency fund

Another critical ingredient in the recipe for financial stability is a well-stocked emergency fund. As SmartAsset notes, "an emergency fund is a way to protect yourself from the unexpected, whether that's an unanticipated job loss, an urgent major car repair or a surprise medical bill."

Just how much should you save in this fund? According to Experian, "experts suggest keeping between three and six months' worth of necessary expenses in a savings account, but you can start with a goal number that works for you—such as $1,000—and go from there." To get the ball rolling you might aim for "putting aside $75 to $100 each paycheck," though really "designating any amount toward savings will always set you ahead," per Kiplinger.

3. Pay off any debt you have

If you have debt, it's going to be that much harder to reach a place of financial stability. This is particularly applicable to any high-interest debt you may have, such as credit card debt.

To dig out of that hole, "calculate your total debt and plan monthly payments, aiming to significantly reduce, if not entirely clear, the debt by year-end," explains Kiplinger. And while you're at it, as Kiplinger highlights, "be sure to account for limited use of your credit cards through the next 12 months."

There are a number of other debt payoff methods you might try to make the process easier. For instance, with the debt avalanche method, you focus on first paying down the debt with the highest interest rate, while the debt snowball method prioritizes momentum by getting rid of your debt with the lowest balance first. Other methods include a debt consolidation loan and a balance transfer credit card.

However, on the whole debt payoff push, there's one "caveat," according to SmartAsset: "If you have a mortgage, you have some time to pay it off," so "prioritize all other debts before your mortgage."

Explore More

Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.