Most people want to discover how to become financially stable in their own lives. Financial stability can improve your overall quality of life, and make it easier to accomplish your long-term goals. These 7 signs of financial health will help you determine if you still have work to do.
7 Signs of Financial Stability
1. You have 3 to 6 months of savings for emergencies.
What would happen if you were fired from your job tomorrow? What if your car needed a major repair? Unexpected life events and expenses can turn your entire financial situation upside down. This is why it’s so vital to have funds that can be used during these unexpected situations without causing you to deplete your entire checking account or stop paying bills on time. Experts recommend having about 3 to 6 months of living expenses tucked away in case of emergency.
2. Your credit score is above average.
What’s your credit score? The number could be anywhere from 300 to 850. The average American’s is 695, which is an average or fair score. These scores determine what loans you’ll qualify for, and how low their interest rate will be. A higher credit score means more financial options, and for a better price. Try to aim for a score in the excellent range, which is any score above 720.
3. Saving money has become a habit.
Whether you automatically transfer money from each paycheck into a savings account, or use a different technique, if putting aside money each month is a habit – you’re in a good place. No matter what your savings goals are, as long as you’re continuing to add funds to your savings every month, you’ll reach them eventually.
4. You’ve created a monthly budget.
Budgets help you track your exact income and expenses on a monthly basis. It’s impossible to be financially healthy if you have no idea the details of your financial situation. Budgets can also paint a clear picture of the areas that are sucking up your income. Once you’ve created a budget, you’ll notice that you save more money each month and can feel confident knowing exactly what your financial situation is.
5. You are saving for retirement.
Whether you are using an employer’s 401K plan or contributing to a private IRA, saving for the far-off future is a major indicator of financial health. It shows that you understand the importance of long-term saving goals, can put aside immediate gratification to reach those goals, and can afford to contribute to both those goals and other savings goals. If your employer offers a company match to a 401K – make sure you are using every penny of that match!
6. You pay your credit cards in full every month.
Using credit cards is not a bad thing. They can allow you to make larger purchases and break up the payments into more reasonable amounts. They can give you rewards for every dollar you spend, and they are often more secure than paying in cash. However, if you add to your bill every month without paying it off in full, you’re also piling up interest payments. Every dollar left on your statement each month is subject to the interest rate. Those percentages can cause your bill to rise rapidly. Make sure you’re able to pay off the bill in full each month to avoid paying unnecessary interest.
7. Your debt-to-income ratio is under 36%.
The debt-to-income ratio is the amount of your monthly debt payments divided by your monthly gross income. Experts agree that the maximum debt percentage compared to your income should be 36% or less. The lower the percentage, the better. Having a low debt-to-income ratio shows that you’re living below your means. Living below your means is the only way to start saving more money and get to a financially healthy place.
