If you want to achieve full-fledged adulthood, it’s important that you become financially stable. This may be easy or very difficult depending on where you stand now. If you’re earning so little you’re forced to live with your parents or to have a roommate, then the road to financial stability may not be an easy one. It can be even more difficult if you’re staying in a job because you enjoy it– despite the fact that it doesn’t pay very well. For example, you may totally love whatever it is you’re doing but if it barely pays enough for you to buy groceries, pay your insurance premiums, put gas in your car and make your student loan payments then your road to financial stability or independence may be a rocky one.
Find a new job
Getting back to that job you love so much you need to face facts and start looking for a new one. Your priority shouldn’t be to find an ideal career. It should be one where you’ll earn enough money to start down the path to financial stability. That new job doesn’t necessarily have to be related to your degree, either. For example, you could go to an employment agency and if you have the necessary skills you might be able to get a job as, say, an executive administrative assistant in a major corporation. The cold, hard facts is that your goal should be to find a job that pays at least 50% more than the one you love so much – even if it doesn’t match your passion.
Make a budget
Does the B word as in budget send cold chills running up and down your spine? It shouldn’t. Thanks to all of the apps now available, creating a budget is no more difficult than making a grocery list. In fact, you might not even need an app – you could maybe write it on the back of an envelope. One of the most popular ways to budget is called the 40/20/30 system. Add up your fixed expenses and then allocate 40% of your net income to cover them. The 20% is how much you should save and the 30% is for your discretionary spending such as eating out, travel, entertainment, clothing and so forth. As we’ve suggested, you could probably put this budget together on the back of an envelope. If you’d like a more sophisticated solution to budgeting there are a number of popular apps available such as Mint.com, You Need A Budget, SpendBook, Wally, Digit and Mvelopes.
Another popular form of budgeting is called zero based budgeting. Here’s a video featuring the financial guru Dave Ramsey explaining why he believes budgeting is essential and how to do zero based budgeting.
Consider a debt consolidation loan
If that new budget reveals that you fell into the trap of high-interest credit card debts, you could consider getting a debt consolidation loan. Today’s interest rates are at almost an all-time low. If you were able to get a debt consolidation loan at, say, 8% or even 10% and use the money to pay off those high-interest credit card debts, you’d have a much smaller monthly payment, which should make it easier to eliminate the debt.
Track every cent
Once you have a budget you need to get some free software to track your spending down to the last penny. This is the only way you can know that you’re staying within your budget and that your bills are being paid on time. You can have the world’s best GPS system but if you don’t know where you are and where you want to go it’s about as useful as a brick. The same is true when it comes to achieving financial stability. You simply can’t have a clear picture of where you want to go financially if you don’t know where you are now. Thanks to technology it’s very easy to get a full picture of your finances at any time. You can get apps that communicate securely and directly with your bank so whenever you want to know how you stand all you need to do is check your smart phone. There is even one app that subtracts your debt from your bank balance so that you will immediately know your financial net worth.
The best kind of company to work for is one that offers a 401(k) and that matches your contributions up to a certain percentage. The name for your company’s contribution is free money because that’s exactly what it is. If your new employer doesn’t match your contribution to your 401(k), you should sign up as it still represents a good way to save money and see it compound over time. In a worst-case scenario – where your employer doesn’t offer any kind of retirement savings plan you will need to open your own traditional or Roth IRA. The easiest way to add money to it is through automatic deposits from your checking account. Getting back to the 40/20/30 system for budgeting, you should shoot for saving 20% of your net income. If that doesn’t seem realistic – given your current financial state of affairs – try for at least 10% with the goal of hitting 20% as soon as you can.
How to know you’ve achieved financial stability
How can you know that you’ve achieved financial stability? There are certain signs that will tell you when you achieve this goal. For one thing you must be consistently spending less than you earn so that you have a surplus of money, which gives you more control over your finances. Second, you must not be accumulating any new debt but paying down the ones you have. You should be able to make at least the minimum payments on your debts and something more.
Another sign that you’ve achieved financial stability is if you’re no longer relying on gifts or loans from your family. This means you’re making it on your own with just your income and expenses. If you’re working on building your future through investments and savings, this is an important sign that you’re achieving financial stability.
Another important sign is if you’re moving forward steadily in your career. You also need to have health insurance and be taking care of yourself. Finally, do you pay your credit card balances in full every month? Credit cards can be helpful tools when you’ve achieved financial stability. This is because they allow you to time shift your spending just as your DVR allows you to time shift your favorite programs. Some credit cards allow you to collect cash back while others offer points that can be used for free travel. But credit cards are helpful tools only if you pay your balance in full every month. Otherwise, they can be a slippery slope to piling on more debt.