Everyone wants the comfort of a secure future. But if you don’t plan for one, there’s a good chance an unexpected event can throw your finances into turmoil. For example, no one can forget the pandemic, which put uncertainty on steroids. As a result, supply went down while inflation and interest rates caused prices and debt to shoot up.
Being burdened with overdue bills can turn any emergency into a financial catastrophe. If you have children, this can increase your troubles tenfold. Let’s face it, having debt and a good future is a near impossibility. That is why paying it off can open many opportunities for you and help you avoid the mental and physical issues that debt can bring.
Everyone needs financial stability to live the life they want while preparing to meet future goals and cover unexpected expenses.
…What is financial stability?
Financial stability doesn’t necessarily mean how wealthy you are, but that you have as much money as you need to live comfortably. This is oftentimes confused with financial independence, which does focus on the amount of money you have.
The fact is, they are quite similar except that stability requires action on your part. When you are financially independent, you have the monetary means to buy what you need, when you need it. Being in this independent state means you do not have to borrow money to cover an emergency.
On the other hand, being financially stable means you are prepared to deal with unexpected expenses at any given time. You have money saved so that you will not be ruined by any challenge that comes your way.
We typically find ourselves in debt due to making wrong decisions. However, external factors can happen that are completely out of our control. These include:
- An economic collapse
- Rising costs of living inflation
- A health condition
- Job loss
When you are financially stable, you have the income and apart from that, you have the savings to fund any unexpected events. You might think this sounds easier said than done. But with the right strategy, you can save more than you might have imagined.
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How to be financially prepared for your future
Being financially stable involves two simple concepts: paying off your debts and saving. Below are a few ways to achieve these goals.
Paying off your debts
Obviously, a solid future does not have room for debt. It may seem like a daunting task but if you take it one step at a time, you can eliminate this obstacle.
You have a lot of debt relief options to pay off your creditors. Below are some of the most common:
- Snowball method – This requires you to rank your debts from smallest to largest and is meant to increase momentum as each creditor goes by the wayside. You pay the minimum for all the debts while putting all your extra money into the debt with the lowest balance. When that is settled, you begin paying off the second-lowest balance. This continues until all your debts are resolved.
- Avalanche method – Focuses on paying the loan with the highest interest rate first. When that is settled, put the money toward the next highest interest rate and so forth. By focusing on loans that are the most expensive to carry, you can pay less over time in interest.
- Debt consolidation – This type of debt relief option comes in two forms: a debt consolidation loan and debt management. They both provide you with a low single monthly payment strategy that is stretched over a longer payment period. The lower contribution is possible due to an extended term and a reduced interest rate.
- Debt settlement – This debt relief program focuses on paying off your debt for less than you owe. An expert negotiates on your behalf and creditors often agree to a deal because receiving some money is better than nothing.
- Bankruptcy – This is usually advised as a last resort due to its credit score implications. With Chapter 7, your assets will be liquidated and used to pay your creditors. Anything not paid will be discharged. If you choose Chapter 13, you will be subjected to a repayment plan by the bankruptcy court.
Track your expenses with a budget
A budget enables you to see how much money is coming in on a monthly basis versus the amount going out. If you are spending more than your earnings, it is important to adjust your budget accordingly.
By knowing the total of your monthly expenses, you can cut costs to avoid accruing debt. If you have extra funds at the end of the month, they should be deposited into an emergency account. That way, you would have the means to better deal with whatever life throws your way.
Using a budgeting app makes it easy to keep track of your spending and identify areas where you can cut back. Some options include Mint.com, Monarchmoney.com, Rocketmoney.com, and Tillermoney.com.
Create an emergency fund
An emergency fund is a savings account that is specifically set aside for large unplanned expenses or financial emergencies like medical bills, a dead car battery, or a job loss.
Setting up this type of fund is one essential way to protect yourself by providing money for you to fall back on. No matter how big or small the amount, you can recover quicker and avoid maxing out your credit cards or going into debt.
Grow your regular savings
There are many benefits to having more than one savings account. When you have money specifically to cover your long-term goals, you will be closer to milestones like owning a home or living the lifestyle you envision in retirement.
A lack of savings can cause instability in the best of times. If you are struggling to stay afloat, the Benefits.gov website offers different grants and financial assistance you might be eligible for.
When you get your finances on track, it is vital to save as much as possible for now and down the road. After all, nobody ever regretted planning for the future.