Money can cause a great deal of anxiety. When debts are mounting, it’s easy to feel financially trapped and as though your big life plans are out of reach.
But don’t worry, Loqbox has your back with five good habits that will help you become a more financially stable person.
Wait, what does financially stable mean?
Financial stability is a way of thinking about, and managing, your money. It’s not having to worry about your money because you have a solid financial foundation and the freedom to plan and achieve your goals. It’s about being debt free with money squirrelled away for the future, or for any curve balls that life throws at you.
It’s going to take a plan and a lot of patience, but with persistence and time financial stability is possible. The key is to set yourself long-term financial goals that are achievable. Do you want to buy a house, prepare for a child or maybe retire? Decide how you want your money to work for you and follow these super simple steps.
5 good money habits to be financially stable
1. Decide on a budgeting plan
Having a plan is important when it comes to reaching financial stability. You want to find a way of budgeting that you can stick to, and that works with your lifestyle.
Being realistic here will give you a much better chance of achieving your goals. If your monthly commitments are out of reach, then you will constantly struggle and end up losing confidence and motivation.
A great idea is to choose a budgeting plan that can flexibly scale with your income because nobody knows what’s coming round the next corner. The 50/20/30 rule does exactly this. You split your post-tax income into three sections: 50% for your financial obligations (like bills and rent), 20% for your savings and 30% for lifestyle and fun.
Because these are percentages they stay flexibly realistic regardless of changes to your income. You can learn more budgeting rules here to find the right one for you.
Once you have set your budgeting plan, automate your savings payments and keep them in a separate dedicated account. Setting these automated payments to come out as close after your payday as possible would mean you have less chance to be tempted by the money in your account! This will help you to keep making payments every month. Before you know it, you’ll be growing those savings!
2. Pay off your debts
If you want to establish your financial stability it might be time to focus on paying off any debts that have become a burden. If you’re only paying off the minimum on your credit cards and loans, you’ll be paying a lot more in interest over time and wasting money you could be saving or investing instead.
There are several different types of debt management. You can find the best one for you and your circumstances:
The avalanche system tackles your biggest debt first, like pulling off a plaster! The idea behind this is that your smaller debts will fall a lot easier afterwards.
The snowball system works the other way. You chip away at your total debt by attacking smaller amounts first and building momentum.
Alternatively, you might want to consolidate your debts to make them more manageable or move money onto a 0% interest credit card to focus your repayments on the debt rather than the interest it accrues.
We don’t include mortgages in paying off your debts for financial stability. You should always look at getting the best deal for your mortgage but the debt itself doesn’t need to be cleared in the same way that other credit does.
3. Grow an emergency fund
A great money habit is to build and hold an emergency fund. This is a pot of savings that can cover any of the surprises that life might spring on you.
Ideally, you’ll never have to use this and it can just feed into your retirement fund later in life. Even just knowing that you have a safety net behind you will improve your financial wellbeing.
As a good rule, financially stable people keep between three to six months’ worth of their expenses in a separate account. It is advised that you focus on your emergency fund before you build your retirement fund. This is because if you dip into your retirement fund in an emergency you could be charged a penalty. So concentrate on your emergency fund first!
4. Build a retirement fund
Once your emergency fund is in place, start investing in your retirement fund. Even if you can only afford to put away a small amount each month to begin with, getting started as early as you can will put you in a much better place.
You might have a workplace pension available through your job. This allows you to invest a portion of your pay straight into your pension. As a benefit, some employers will even match some or all of your payments to boost your retirement payments. Additionally, you can set up a personal pension to give yourself extra savings.
5. Grow your credit score
Your credit score gives you an indication of how creditworthy you appear to potential lenders. You can find out more about credit scores here.
The higher it is the more likely you are to be given the best deals and interest rates. This will help you reach and maintain financial stability when you use credit or get a mortgage.
You can check your credit score for free and without impacting on it by using one of these recommended services:
*In case you’re wondering, we receive a small commission if you sign up for ClearScore using this link.
If your credit score is lower than you want, why not get started with Loqbox? We have proven ways of building your credit score. Find out how you can help to boost your credit score by 125 points on average within the first six months of using Loqbox Grow.
It is also possible to enhance your credit score while you save towards financial stability with Loqbox Save. Set your savings goal and make your monthly payments. We report those installments to the three main credit reference agencies (CRAs) in the UK: Experian, Equifax and TransUnion.
Fundamentals of being financially successful
The key to becoming a financially stable person is living below your means, but not forgetting to have fun. After all, life still has to be worth living!
Think of your financial goals as investing in yourself. You may have to make compromises or sacrifices here and there but building good financial habits will be worth it in the end.
You also shouldn’t punish yourself if you don’t hit your monthly budgeting goal every once in a while. Life is full of surprises and you can’t prepare for all of them. Just try and get back on your feet as quickly as possible and above all – stick with it!