What is financial stability and what you can do to achieve it | #LetsTalkMoney | BigPay

Hey BigPay fam, welcome to 2021! We hope that you've picked up a few tips here and there on how to better manage your money.

Speaking of the new year, have you made your New Year's resolution? Well, if not, we've got you covered.

You see, this year is all about giving yourself financial stability on your path to financial wellness - and that's perfect as your 2021 resolution!

But what exactly is financial stability, and how do you go about achieving it?

We've all heard the term "financially stable" often as a major milestone in someone's life.

Contrary to how simple it sounds, financial stability isn't just about having a stable job, saving money or sticking to a budget - it's synonymous with confidence, understanding, and having strong financial skills and knowledge. When you think of someone as being financially stable, you'd think of an individual who is confident with their finances and the everyday decisions they’re making with their money.

Someone who has their income, debt, savings, insurance and all other aspects of their financial life figured out. We've touched on this at length about the key money skills you should master early in life!

If you’re reading this, there’s a good chance that you’re looking for proven and effective ways to become financially stable. You're in luck - here are four critical things you can start doing today to achieve a form of financial stability in 2021!

Step 1: Research and create a financial plan - then stick to it!

Failing to plan is planning to fail. When it comes to your finances and particularly your financial future, this could not be more accurate. Without a proper plan in place, you’re essentially making some of the most important financial decisions in your life without fully understanding what you’re getting yourself into and the impact it has on other areas.

Your financial plan is a blueprint or a roadmap that helps you navigate your entire financial picture. Your plan is there to assess where you are today and map out the exact steps you need to be taking to reach your financial goals and start improving. Your plan takes a look at your income, savings, spending, debt, insurance and risk and more.

By getting the full view of your financial picture, you’ll be able to determine and better understand the impact each one has on the other. That’s when the real “magic” happens. It’s the most important and necessary financial tool you can have if you’re serious about reaching financial stability, and using BigPay's analytics tool to see where your money is going monthly is a great way to start!

Step 2: Take a long hard look at your incomes & expenses to create a solid budget

After you’ve created your plan or financial roadmap, it’s time to start unravelling the layers of your plan and the major components. Your next step should be focused on creating a comprehensive budget for many reasons.

First, how you spend your money impacts every other financial decision you make.

Second, taking control of your spending habits is one of the easiest things that you can start doing immediately to have a long-lasting impact over time. So what exactly does a comprehensive budget look like? While there is no golden format or guideline, there are necessary things you’ll need to include in your budget.

To keep it simple, you’ll want to organize your budget into two primary categories: inflow (your income), and outflow (your expenses).

When you’re tallying up your income, you will want to make sure you include things such as part-time work or side hustles that you have committed to and are expecting to receive compensation for.

Next, it’s time to calculate your expenses. There are a few different routes you can go with this one, but the most common would be to categorize your needs and wants.

When you have those figured out, you’ll want to calculate your budget to see what you have leftover either in a personal surplus or deficit after running the numbers. Your budget can help you identify areas where you might be spending too much and how you can make significant changes immediately!

Step 3: Be ready to be frugal for the long term and save up an emergency fund

Living frugally doesn’t mean that you’re cheap or that you don’t enjoy what life has to offer. It simply means that you’re disciplined with your money and that you’ve identified areas in your spending habits where you didn’t necessarily have to be spending. Remember, every dollar saved (not spent) is a dollar earned that you can then reallocate and put to work for you, not against you.

As you work on trimming down your expenses and even completely eliminating spending in some areas, use those ‘extra’ funds you save to pad your emergency fund or create one if you don’t have one yet. Your emergency fund isn’t just a rainy day fund, it’s more than that. It’s a separate account that can and should only be used in the case of financial emergencies such as unemployment, appliance breakdowns, or other unexpected costs. Financial experts recommend anywhere from 3 to 6 months of after-tax income as being a sufficient emergency fund to help you weather any storms should you find yourself in this position.

Having an adequate emergency fund is one of the telling signs of reaching financial stability!

Step 4: Take good debt and avoid bad debt for life

Some debts are necessary and unavoidable. Other forms of debt, however, is a pathway to bad financial decisions. For example, maxing out your credit card and paying just the minimum balance monthly is a surefire way of financial disaster!

Leave the plastic at home. Avoid using credit when you can pay in cash. And limit your credit use if you are struggling to pay the full balance at the end of the month. While credit cards and car loans are a good way of building a credit history and your credit score if you use them correctly, most households don’t use them correctly.

When you start adopting poor habits with the use of credit cards or other forms of debt, it can become extremely detrimental to your financial life. A good general rule of thumb to achieve the financial stability you're looking for is to only buy something if you can afford to pay cash for it within thirty days!

Of course, it’s important to keep in mind that achieving financial stability won’t happen overnight.

There are no shortcuts when it comes to your personal finances, so don’t expect this to be the magic formula.

Rather, you should take the information above and use it as a springboard to making better financial decisions starting from now!