How to Determine if You’re Financially Stable

I’ve been passionate about personal finance for a little over a year now. It all started when I got my first full time job and I decided that I wanted to truly learn how to manage my money responsibly. My wife and I started tracking our spending closely, putting money towards our 401k’s, and aggressively paying down our student loans.

What really got me paying closer attention to money was the desire to remove the “stress factor” from the financial part of our lives. Anyone who’s struggled through a period of job hunting knows just how suffocating that pressure can become. My goal was to get to the point of never experiencing that again, or at least having those experience be few and far between.

A few weeks ago I came across a fantastic post on Frugal Rules, titled “31 Signs You’re Financially Stable.” This post was also featured on one of my favorite sites, Rockstar Finance. It is an incredibly helpful post that details a variety of ways you can give yourself a “financial checkup” of sorts. I would highly recommend reading through the post in full. After thinking through these 31 signs, I wanted to highlight a few that are directly relevant in my life at this point.

You Can Handle an Emergency

Our first step on our financial journey was to build up a solid emergency fund to protect against whatever life throws at us. We focused on this before we started making extra payments towards our student loans. Simply having this money in savings helps take a lot of stress away about how unexpected expenses will be covered.

You Have No Problem Splurging on Yourself

I’m never been much of a spender, so this one is still a bit of a work in progress. However, I don’t feel like we “can’t” spend money, I just prefer to spend money in ways that will directly help us reach our long-term goals. Our biggest splurges are putting money towards our “Vacation Fund” every month so that we can take trips together and create new memories.

You Invest Every Month

We contribute to our 401ks every month, and have been since we first started our jobs. It’s comforting to know that we are making progress and creating a better future for ourselves every month that passes.

You Use Credit Cards Wisely

Credit cards can be a controversial topic in the personal finance community, but I believe they can be used wisely. We put all our bills and expenses on credit cards and then pay them off weekly. We have never missed a payment and have never paid any interest, while getting hundreds of dollars in cash back rewards.

You Don’t Fight With Your Partner

Money can be one of the biggest sources of conflict in a relationship. Thankfully, by taking control of our finances and keeping an open dialogue, our disagreements about money are very few and far between.

You’re Not Scared of the Future

Seeing our net worth improving every month and our debt shrinking has me extremely excited about all of life’s future opportunities. If you’re financially stable, there’s no need to be scared of the future.

Killing Debt is Your Top Goal

As previously mentioned, our first goal was to build up an emergency fund, now we are full steam ahead in our debt repayment phase and are seeing significant progress. Being in debt can be discouraging, but once you start seeing progress it can make a world of difference.

You Live Below Your Means

I think this principle is one of the biggest keys to being successful with your finances. If you live above your means, no amount of income is ever going to be enough for you. We maintain a careful budget that leads to investing, saving, and extra debt payments being made every month. In this way, we’re living below our means to improve our financial future. We’re also being careful to avoid lifestyle inflation, so that we can build wealth more quickly.

You Track Your Spending in Some Fashion

I’ve written a few times about how we use Mint to track our spending, and highlighted some of the main reasons why. There are also plenty of other helpful finance apps out there. This simple step has been the biggest factor in us improving our financial stability and reaching the point we’re at today. It’s extremely hard to improve your financial state if you neglect to pay attention to where your money is going every month.

You Make Extra Money on the Side

While I believe it’s possible to be financially stable without an additional source of income, it certainly helps a lot. During April-September I work a second job in the evenings and on weekends. It’s a job doing something I enjoy and we’ve been putting all the extra income towards our debt repayment. It’s helped us make huge progress these last few months.

Your Net Worth Goes Up Each Year

As previously mentioned, by focusing so much of our cash flow on debt repayment we’re seeing significant progress. Debt going down + 401k contributions going up = positive improvement on our net worth every month. The main number to focus on with your finances is whether your net worth is improving every month, because that shows whether or not you’re heading in the right direction.

You Control Your Finances – Not the Other Way Around

One of the main reasons why I want people to care more about their finances is that it puts yourself in control. There’s no wondering about how much money you have left, over-drafting your checking account, or missing a bill. Being in control of your financial situation is an empowering feeling.

Spending Money Just to Spend Doesn’t Appeal to You

The more you track our expenses, the easier it becomes to avoid mindless spending. We allocate a small amount each month as “fun money” that we can spend however we want. This helps keep clear boundaries on how much we spend. We both much prefer to spend money on experiences rather than possessions.

You Automate Savings

Automation brings so much peace of mind, for bills, savings, and investments. Ensure that you’re “paying yourself first” by setting up automatic payments into an online savings account. This way you don’t have to worry about your own discipline, it all just happens without having to think about it every month. We automate our debt payments, investments, and “vacation” savings.

Final Thoughts

Overall, I found this post both encouraging and challenging. While we’re still not completely debt free and we’re towards the beginning of our financial journey, we also can check off the large majority of the items on this list. We’ve become MUCH more financially stable the past few years, and you can too.

It’s a much more peaceful way of living when you can break out of the paycheck-to-paycheck lifestyle that plagues most of Americans. Track your spending, cut down in areas of high spending, pay off debt aggressively, and continuing trying to learn as much as possible.

Which items on this list do you feel most confident in? Least confident in? Feel free to comment and reach out to me with any questions you may have!

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