9 Signs You Are Doing Well Financially
Financial stability is everyone's dream. We all want to be in a position where we have total control of our finances, have confidence about the future, and don't struggle to make ends meet.
However, the average person spends most of his life chasing financial stability, which is difficult to attain.
Most of us fall into this category of working, getting paid, and spending the money on bills and repeating the cycle. We hardly have any time for leisure activities.
While it can be hard to look at yourself objectively, taking a look at some basic financial metrics to measure your well being can help you get a clearer perspective and get a better grasp on your progress.
Today we will be going over 9 signs that you are doing well financially, even if you don’t think so.
You Are Able To Handle Emergency Situations
A large emergency fund is one of the first signs of being financially comfortable. Emergencies can happen anytime and unfortunately, most people don't have any savings.
If you are the type that has saved an emergency fund, then you are financially stable. That’s because you never know when life will throw a curveball your way, whether it's a failing transmission in your car or news that your company is sending out pink slips to the folks in your department.
Knowing you have a readily available source of funds that you can utilize can prevent you from radically rearranging your life or accruing a huge debt on your credit card.
Most experts suggest that one must have up to a year of emergency fund saved up. If your monthly expenses are $3,000 a month, you would need to save up $36,000 to be on the safe side.
Now it may be overwhelming to save that huge amount, but don't get discouraged. You can start by saving a small amount and then start building up from there.
Your Net Worth Keeps Growing
The ideal goal of becoming financially independent is growing your net worth year after year.
This can result from growth driven by a combination of your savings, your retirement accounts, and good returns from your investment portfolios.
Are you the type that hasn't attained financial stability?
Don't worry, you can improve yourself with some smart financial planning and budgeting such as keeping track of your monthly expenses and income on an Excel sheet and watching how your net worth grows over the years.
Although some aspects of growing your net worth are out of your control, for instance, when you invest in the stock market, the returns of the market are out of your control.
However, If you avoid bad debt, increase your savings rate, and build multiple streams of income, you will see yourself in an upward trajectory for your financial future.
You Know How To Pay Yourself First
What do you do after you receive your salary or count your profit at the end of the month?
Do you first pay your bills?
Go out to party?
Or pay yourself first?
What we mean by paying yourself is to take a portion of your income and invest or save it for future use before you do anything else. It can be as simple as taking 10 - 15% of your income and putting it away in your retirement account.
Paying yourself first improves your money-saving culture. It keeps you committed to your financial goals and safeguards your future. All these will keep you financially stable.
However, if you do the opposite, spending before saving, you will likely struggle to save.
One of the best ways to develop the habit of paying yourself before anything else is to automate your finances, pay your bills in advance and invest in an instrument that forces you to make a monthly contribution.
A prime example is a pension scheme.
You Have Your Debt Under Control
Checking your debt-to-income ratio is one of the ways to know how financially stable you are.
If you spend more than 30% of your income on loan debt, then you may be digging a hole for yourself. This situation will make you struggle to meet other financial obligations like paying your bills or investing in the stock market.
For example, if you are spending 15% of your income to repay your car loan and 35% on rent, you will have 50% left to cover your other expenses, such as food, clothes, education, and utilities.
This will prove difficult to manage as you won’t have anything left for savings. Not to mention, you might add more debt to your account before the month ends.
Having your debt under control allows you to have peace of mind, save more and be financially stable.
Even having a low debt-to-income ratio can help you while applying for jobs. Some employers will want to make sure you can handle money before they give you a lot of responsibility.
Additionally, you'll be attractive to lenders and qualify for debts which provide an attractive rate.
You Know How To Balance Your Income With Your Spending
To be in total control of your finances, you must know how to balance your income with your spending.
It starts by knowing how much you earn and deducting what you spend.
If this returns a negative value, you are digging a hole for yourself; if both sides are equal, you aren't safe either. The ideal scenario would be having a positive cash flow, where your income is more than your expenses.
The easiest way to have a sustainable and healthy budget that you can stick with long-term is to align your expenses with your income.
Your budget shouldn't only be for food, shelter, or education. It should account for your savings too.
Because of how straightforward it is, you can adapt the 50-30-20 budgeting rule as a start.
It goes like this:
50% goes to your needs, like food, rent, and health.
30% goes toward your fun money like entertainment, and eating out.
While the remaining 20% will go into savings and investing.
You Know How To Remove Your Emotions From Your Finances
Emotion can make one weak and play a huge role in decision-making.
While this can affect most aspects of your life, the effect can be massive if you let emotions run your financial decision-making in your stead.
If you are afraid, your mind might be clouded by uncertainties that will prevent you from taking action.
When you are happy, you might make hasty decisions without considering the result.
A financially stable person makes decisions based on facts, and not emotion. They will do extensive research to understand the benefits and disadvantages, instead of letting fear, greed, or excitement dictate their financial steps.
Most of the time, they prefer seeking opinions of an expert whenever they are overwhelmed instead of making half-baked decisions.
If you have made the decision through emotion, you will rely on luck, which can easily backfire.
Let's say, you bought Amazon shares during the peak of the bull run without doing any research beforehand, you might have to sell it at a huge loss later on due to the fearful sentiment in the market.
If you had done your homework and not bought in due to greed, you could have avoided this. The more you take action because of emotions, the more you lose control of your finances.
You Pay Your Bills On Time
Paying bills isn't something anyone enjoys, but still, you have to do it.
Let's create a scale from one to ten on how early you settle your bills to show how financially stable you are.
One is very early, while ten is very late.
If you usually pay your rent before the fifth day of a new month, you fall under one, which means you are financially stable.
However, if you usually pay after the landlord places a big padlock on your door and you have to find somewhere else to sleep, you aren't financially stable.
This goes for all your bills.
If you are the type that struggles to pay them on time, you might be experiencing instability, and you need to find a way to rescue yourself from it.
You Live Below Your Means
If you are spending less money than what you earn, be it from salary or other sources of income, then you are living below your means.
This doesn't mean you should live a frugal lifestyle where you won't spend money to make yourself happy.
When you are financially stable, you will know it involves spending wisely, so you won't go into debt. You will also save a portion of your income to guarantee future stability.
You must make intelligent financial decisions, stick to a budget, and reduce unnecessary spending to save more. It would help to avoid peer pressure to influence your spending.
Although you can sometimes indulge in life, like dining out in a fancy restaurant, getting the latest gadget, or taking a trip with your friend, if you do these things too often or when you can't afford to, you will later see yourself in trouble.
The key here is not to avoid spending money, instead you should get the most bang for your buck.
Look for items that will last instead of the one with the lowest price tag.
One last thing is that the quickest way to go broke is by spending money to show off your social status, because you will find out that it’s a bottomless pit.
If you do so and it backfires, you will only have yourself to blame.
You Strive To Keep Yourself Financially Educated
They say that ignorance is bliss, but when it comes to your finances, it's a misery, so you can't afford it.
Without financial knowledge, you will likely make serious financial blunders that will cost you a lot down the road. It may even lead to a point where it causes permanent damage to your financial health.
However, if you are financially educated, you can control and smartly manage your finances. It will help you differentiate bad investments from good ones and help you make sound financial choices.
A good way to keep yourself financially educated would be buying a course on personal finance, or picking up a good book on investing.
Alternatively, if you don’t want to spend any money, you can read articles online or watch YouTube videos that explain financial concepts, just like what you are doing right now!
Ultimately, being financially stable is a long game. It doesn't end just because you are comfortable and controlling your finances.
It is a continuous process where you strive to achieve and maintain your financial stability.
- Ivan