However, having financial stability can be more accurately described as a process that most people struggle with.
Knowing where you stand on the ‘financial stability scale’ can help you make the right decisions and maintain your current lifestyle, as well as take a leap forward and improve your financial situation. Nevertheless, you might be in the dark about the best ways to do that.
These are a few easy-to-follow steps to gauge your financial stability.
They include but are not limited to evaluating your debt, checking if you can cover your monthly expenses with your income, assessing if you have a sufficient emergency fund, and estimating your net worth.
What is a secured loan? It is likely that you are familiar with secured loans, as well as personal loans, mortgages, and car loans – all of these come with interest rates, and interest is one of those things that can eat your income alive. So the first step to gauge your financial stability is to evaluate your debt load and find out if you can afford your monthly expenses and still have a little bit left for savings.
If you know the current level of your debt, you should be able to find a way to lower it or pay it off. The first step you should take is to calculate your total debt. It should include all types of debt that you have, including credit card debt, student loans, car loans, mortgages, and more.
Having figured it out, you should evaluate your payment plan and figure out how long it will take you to pay off your debts.
Next you should think about your income. Are you getting paid enough to cover your monthly expenses? If not, what can you do about it? You might be able to find a way to increase your income and reduce your expenses, such as working overtime and cancelling subscriptions that you no longer need. To make it easier, you can start keeping track of where your money goes each month.
In addition to evaluating your debt and income, it is important that you have an emergency fund that can cover at least three to six months of living expenses.
This fund is supposed to help you with any unexpected expenses that might occur, such as paying for unexpected medical treatments.
Besides, it will help you handle a sudden job loss and prevent you from having to borrow money from credit cards and your retirement account. This is a great way to protect yourself during sudden periods of unemployment and in the event of other unexpected life changes.
Net worth is the sum of all of your assets minus all of your liabilities. Assets include cash, investments, real estate, and personal property. Liabilities include student loans, mortgages, auto loans, credit card balances, and personal loans.
By calculating your net worth every month, you should be able to see whether you are improving your financial situation or not.
When you are renting an apartment or other living space, it is easy to overlook the ever-increasing cost of housing. The average rent increase per year in Australia for example can range from three to five per cent.
The trend shows no signs of slowing down, so if you are spending more than thirty per cent of your income on housing costs, you might need to consider moving to a cheaper place or moving back in with your parents.
Groceries are an area where spending can add up quickly without you noticing it. If you are spending more than twenty per cent of your income on food each month, it might be time to start cutting down on unnecessary expenses.
Start cooking at home more often instead of eating out all the time, look for cheaper groceries stores, and shop around for lower prices. `BB Founder Renae uses Thrive to get the bills as well as her weight down.
Entertainment costs can add up quickly without you realising it. All those trips to bars and restaurants can really add up. So when planning entertainment expenses, think about how much money you really want to spend instead of blindly buying things because you want them.
Financial stability is not something that people can achieve in one day; it is a process. However, this process requires you to put in lots of effort.
While you can use the above-mentioned tips for figuring out where you stand financially, it is important to remember that they are only effective if you have a clear idea of where you are headed. That means spending some time on setting your financial goals and plans.
Take the time to formulate your financial plan as soon as possible. If you already have one, check it against the advice provided here and make any necessary changes.
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