There are two ways that you can improve your finances: financial stability or economic mobility. These two are very different from each other but they both result in you having a higher confidence in your finances.
Being confident about your finances is one of the ways that you can deal with financial stress. When you know that you have the capabilities to finance the lifestyle of your choice, that will remove any worries or anxieties in your mind. When your mind is clear from worries, you can think clearly so you can act on the financial plans that will bring you towards wealth and abundance.
But which of the two will bring you financial confidence?
Financial stability is all about being prepared and ready for any event that can affect your personal finances. Regardless of the changes or scenarios that you will encounter, you know that your finances will not falter. Being financially stable means you can face any economic situation without having to sacrifice your current lifestyle – at least, not immediately after.
Economic mobility is your ability to increase (or decrease) your financial position. It is moving your personal finances up or down the income ladder. It is your ability to move your economic position for the welfare of your family.
Both of these goals will get you one step closer to financial happiness. The question is, what should you pursue first?
Study reveals that Americans want to be financially stable
What you have to realize is that economic mobility does not necessarily mean you will be more stable financially. While your ability to improve your economic status can help you achieve financial stability, it is never a guarantee.
Because if it is, then it would be near impossible for some people to stabilize their finances.
According to an article published on CNN.com, it is revealed that the US is no longer the land of great opportunities. The report coming from the Stanford University revealed that the class by which a person is born influences their ability to move up the income ladder. If that is the case, then a lot of Americans will have a small chance of experiencing an upward economic mobility. If it is true that financial stability is reliant on your economic mobility, then it would be difficult to achieve it as well.
Fortunately, that is not the case. Being financially stable is reliant on your financial behavior. It is what you do and your mindset about money that will ultimately give you stable finances.
Fortunately, a lot of Americans are more focused on financial stability more than economic mobility. However, PewTrusts.org also revealed that Americans it is proving to be quite elusive. The findings also reveal that even the well-off members of the society feel a certain level of strain every time an unexpected expense comes their way. We all know that stabilizing your finances will not make you immune to these setbacks but it should not make your life miserable or more stressful. If it does, then that is an indication that your finances are not yet stable.
The study examined the average American households and how they are financially vulnerable. The report revealed that in the past 12 months (since the survey was done), 6 out of 10 families went through a financial setback. The respondents admitted that these financial shocks caused a strain in their finances. The study revealed that the most expensive shock averaged at $2,000. For those who do not have an emergency fund, this can be a huge amount to produce on such a short notice.
If you are not stable financially and you encounter such an expensive financial shock, you only have a couple of options.
- You can cut back on expenses. This will probably be your first move. You will try to lower your expenses or hold back on some of your usual purchases. This will help give you cash immediately.
- You can borrow money. This is the most dangerous of your options. When you need cash for an emergency, you will be desperate enough to consider even the high-interest loans that have the potential to pull your finances under.
- You can earn more. This is the most challenging of all the options but it is the most limitless of your options. You can put in as much effort as you need to earn the money that will cover the unexpected expense.
All three options will require a certain level of sacrifice and this is what most Americans want to avoid. This is probably why they want to prioritize financial stability over improving their economic mobility. As elusive as it may be, the certainty of unexpected expenses makes it a priority for the average American household.
What does it take to stabilize your finances?
Although it is elusive, stabilizing your finances is not impossible. You just have to possess the determination and the perseverance to achieve this financial position. To help you make your finances more stable, here are important tips that you need to implement in your life.
Always have that extra $1,000
This is not your emergency fund nor is it part of the cash that you will use to pay for your monthly expenses. This is cash that you have that you do not have plans to use – unless it is for an emergency. According to a survey done by Bankrate, only 4 out of 10 respondents can afford to pay for an unexpected expense using their savings. If you think that $1,000 is a big amount, then at least put aside $500 and keep it as your cash reserve.
Save for your future.
This is another way for you to work on your financial stability. Saving for the future could mean a lot of things. It could mean for retirement or the college fund of your kids. It can also be for your dream house. Putting aside money for the expenses in the future is a great way to prepare for a comfortable future.
Put a lid on debt.
We are not saying that you should completely eliminate debt from your life. After all, you need credit in order to maintain a good credit score. You are encouraged to use credit, but do not let bad debt stay in your account for long. You can use your credit card without being in debt if you pay your balance in full when the statement comes in. That is how you can responsibly use credit in your life.
Be prepared for emergencies.
As mentioned, this is not part of the $1,000 that you will put aside and have ready for unexpected events. This is the amount that you will place in a separate savings account. Ideally, this is the money that you will use to help you and your family survive for a couple of months – at least when you lose your main source of income. This is the main source of your financial stability.
Save for purchases that can wait.
In case you want to buy something, like a new TV or kitchen equipment or appliance, make sure you save up for it instead of paying for it in credit. The same is true for expenses like annual maintenance check-ups or repairs. If you can foresee the expense, save up for it.
Invest your money.
Another way to stabilize your finances is to invest your money. Choose stocks, bonds and mutual funds that will help make your money grow even if you are not doing anything. At first, make sure to invest money that you can risk losing. As you start to learn how investing works, make bigger risks because they are the ones that provide better returns.
Create multiple streams of income.
Finally, you have to create multiple streams of income. This is another way for you to directly stabilize your finances. When you have various sources of income, you can lose one income and still be able to survive. This will not only make you more confident about your finances, it will also lead you to financial abundance.
Sometimes, you do not have to make big changes in order to improve your finances. Even the small acts or changes can make a big difference – enough to help you achieve financial stability.