Odds are that most of your desires and goals for the future hinge on being in a good financial situation. One of the best gifts you can give your future self is a strong financial foundation; when you’re able to build on a firm foundation, you’re more likely to be able to reach these goals.
How to Gain Financial Stability
Having a strong financial foundation is all about your habits. You can have great intentions and occasionally take action to prepare for your future, but the best way to move forward is having consistent financial habits that can move you from where you are to where you want to be. Here’s seven personal finance tips to build your foundation:
1. Set Financial Goals
Step one in your journey to becoming financially stable is figuring out where you want to go. Are you saving for short-term goals like a new car or a vacation? Do you want to purchase a house in the intermediate future? Are you planning on paying for a child’s education and retiring? Ask yourself:
- What are my short-term goals?
- What are my intermediate goals? What are my long-term goals?
- How much do I need to save for each goal and by when?
- How would I prioritize each of these goals?
Once you know where you’re going, you can create a plan to help get you there.
2. Track Your Spending
Take stock of where your money is currently going by keeping track of everything you spend over the course of a few months. Don’t forget to annualize irregular expenses like your car registration and maintenance, Christmas or birthday gifts, and medical costs. During this review and organization period you may even be able to make headway on your budget by cancelling unwanted subscriptions or unearthing ways to save!
3. Build a Budget
Take what you learned about your living expenses and create a budget. Start with all sources of income (do you have a side hustle? A generous family member who helps support you?) and all your expenses. Where do you land? Hopefully you’re bringing in more than you’re spending; if not, look for ways to cut your discretionary spending. You may also be able to explore opportunities to add to the income side of your budget.
A budget is not only a way to track your money, but also a declaration of what matters to you. You’re putting your money where your heart is; make sure your spending aligns with what is important to you, then be persistent as you learn to stick to that budget. Some adjustments are always necessary, but pretty soon you should have a good handle on where you spend (and want to spend) your money.
4. Start an Emergency Fund
One of the things that should matter most to you is your future self. Be sure to add a line in your budget for your emergency fund. It’s hard to build financial stability when you’re not prepared for unexpected (and unwanted) expenses; an emergency fund ensures you have some cash on hand to deal with things like a ruined tire or a broken bone. This can help ensure that you’re not using savings earmarked for another goal — like a down payment — or going into debt to deal with a costly surprise.
One of the fastest ways to accumulate savings is to put a percentage of your paycheck away each time you get paid. Start with a savings goal of $1,000. Once you have that, start working toward having 3–6 months of your living expenses saved. Make adjustments as needed when life changes but keep working toward building your safety net.
5. Be Careful with Credit Cards
“I’ll just charge it!” is a dangerous phrase when you’re building a financial foundation. While using a credit card can help you build credit, it’s easy to fall into the trap of putting more on your card than you can pay off each month. That not only impacts your credit, it also means you may have to pay exorbitant interest fees. Be careful to only charge what you planned for and can pay off each month — stick to your budget and use the card for things like groceries and gas.
6. Pay Down Debt
Things like student loans or credit card debt can feel like a heavy chain around your neck, dragging you down when you want to jump into opportunities. Start paying down debt as quickly as you can, prioritizing those loans with the highest interest rates (like credit cards) and letting your debt payments snowball. You can even accelerate the speed at which you’re laying down your financial foundation by putting windfalls (like birthday money or a tax return) toward your debt. It’s not the most fun use for your money, but your future self will thank you!
7. Invest in Your Future
The best thing you can do for your future self is to start thinking about tomorrow, today. Although it may seem far away, it’s never too early to start saving for retirement. You can also do yourself a favor by ensuring that you have the protection you need.