How to Be Financially Stable: 14 Steps (with Pictures) (2024)

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Co-authored byBrian Stormont, CFP®

Last Updated: June 2, 2023References

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   Catalog your income. The first step to setting a budget is taking stock of how much money you actually have to work with.^[1] Track your income over the course of a month to get a good idea of how much money you have coming in. If you have one steady job, then you may already have a decent idea of your income. If you work irregular hours, a couple part-time jobs, as an independent contractor, or for commission, however, your income may vary from week to week.

   • Make a list of every source of income you have. Then figure out how much money each source of income brings in.^[2]
   • Acknowledge that the numbers might change from one month to the next, and factor that variable into your monthly budget so you'll be prepared for a short week or two.
   • If you live with your partner and are trying to combine your assets, don't forget to add in your partner's income.
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   List your non-discretionary expenses. Non-discretionary expenses are the things you'll always have to pay every month.^[3] These can be easier to track because of their regular frequency, though you may not be explicitly aware of how much you pay each month for these necessities.^[4]

   • Non-discretionary expenses include things like groceries, insurance, rent/mortgage, utilities/bills, gas for your vehicle (if you have one), and/or a metro card for public transportation (if you use it).
   • Though you probably have a decent idea of what your non-discretionary expenses are, you may not realize how much you pay for these expenses each month.
   • Make a list of each of these expenses, and use the last few months' worth of receipts or credit card statements to estimate your average monthly bill for each expense.
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   Determine your discretionary expenses. Everyone has variable expenses that arise from month to month. These might include shopping for clothes, recreational expenses, and entertainment expenses like movies, books, and music.^[5]

   • These expenses are harder to predict than your fixed expenses due to their variability.
   • It may be useful once again to review your receipts or credit card statements from the last few months to get a sense of how much you spend on clothing, recreation, and entertainment.^[6]
   • Your non-discretionary expenses should be paid first when spending money. The discretionary expenses may be unavoidable from time to time, but you'll need to prioritize paying for non-discretionary expenses before thinking about paying for anything else.
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   Look for ways to increase your income. Setting a budget certainly requires cut backs and sacrifices. But a good budget might also include some extra income. Having more money coming in can help you increase your savings while still paying for your day-to-day expenses.^[7]

   • Look for a part-time job you can do on the side. Just make sure that the hours and the type of work you do wouldn't cut into your regular/primary job.
   • Sell old things that you don't use and don't see yourself realistically needing in the near future. Have a garage sale, or consider selling these items online (like through eBay) to maximize your potential income.
   • If your partner or your children (assuming they're old enough and still live at home) are able to work, ask them to help contribute to your household budget. Even a little money from a part-time job could make a big difference when added to your regular savings and income.
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   Set an appropriate time period. If you're trying to set a long-term ten-year budget for yourself, you might get frustrated with a lack of visible results. The same might be true if you expect to see an increase in savings after only a day or two. Instead of setting unreasonable time frames for your budget, try using a measurable span of time, like a monthly or yearly budget.^[8]

   • You'll need a month-to-month budget to plan for regular living expenses, bills, and groceries.^[9]
   • An annual budget can help you plan for bigger expenses that come less frequently, like paying your income taxes, buying gifts for your family during the holidays, or even an upcoming vacation.
   • You may want to consider having two separate budgets to account for each spending variable.
   • You can use a budget worksheet to help keep track of your expenses. This can help you balance your budget by tracking regular monthly expenses and deducting them from your average monthly income.^[10]
   • Be willing to make adjustments to your monthly and/or yearly budgets as situations arise. That doesn't mean dipping into your savings every other weekend for a shopping spree, but it does mean factoring in possible expenses like auto repairs, medical bills, and so forth.
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   Establish an emergency fund. In addition to your budget for everyday fixed expenses, you should also work to set aside some money for emergencies and other infrequent expenses. Having a financial safety net in case an emergency arises can help give you greater peace of mind and make you feel more financially stable.

   • Make your initial savings goal relatively low and easily attainable. Try to set aside enough from each paycheck ($25 to $50 each week) to have around $250 to $500 in your emergency fund.
   • Find ways to cut back on expenses each week so you can contribute more to your emergency fund.
   • Save the money you would normally use for an expensive splurge (say, a big shopping trip once a month) and put that towards your savings. You can also try shopping around to save money on your insurance and deposit the difference.
   • Once you've adjusted to taking $25 to $50 out of your paycheck each week, set up an automatic deposit with your bank or credit union. They'll automatically deduct and deposit your weekly savings sum from your paycheck, so you won't have to.
   • After you hit your initial goal ($250 to $500 in savings), set the bar a little higher. Push yourself to double that amount by continuing to make the same sacrifices each week to meet a new goal (say, $1,000 this time).
   • A good goal is to save one month's worth of non-discretionary expenses.
   • Ideally, your emergency savings fund should be able to support you and pay for all of your living expenses for six to eight months, if needed. It will take a while to save up that much money, but with some planning and a few light sacrifices along the way it's attainable and well worth it.

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   Cut back on unnecessary spending.^[11] Once you've got a clear picture of your current expenses (both non-discretionary and discretionary), you'll need to start prioritizing your expenditures. Think about the things that you don't really need, but like to treat yourself on. It's okay to spend occasionally on these personal expenses (in fact, occasionally treating yourself may make you feel more satisfied with your life's situation), but you need to prioritize them and recognize that you may not be able to realistically indulge every week.

   • If you've gotten used to a certain way of living, it's best to make financial sacrifices gradually so that the transition is easier. For example, if you're used to buying yourself a fancy coffee everyday, cut back over time: drop it to every other day for a week, then twice a week, then once a week.^[12]
   • Bring your own coffee and lunch/snack to work every day instead of ordering out. Just bringing a thermos of coffee and a bagel every day can save you approximately $25 each week, or about $100 every month!
   • Get a water filter and carry a water bottle with you instead of buying bottled water. This can save you quite a bit of money, depending on how often you buy bottled water.
   • Remember that cutting back doesn't necessarily mean depriving yourself of things you love for the rest of your life. Instead of a daily indulgence, try making it a weekly indulgence; if you had a big weekly splurge, try making it a once a month (or every other month) splurge.
   • Don't fall into the trap of thinking that you can spend more on your indulgences because you enjoy them less often. It's important to stick to your monthly budget and only spend the amount you've set aside for those occasional splurges.
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   Learn to be a self-controlled shopper. If you go into a store without any plan, there's a good chance you'll overspend, no matter what you're shopping for. Seeing in the store that something is on sale, or simply prominently displayed, shouldn't justify throwing your budget out the window.^[13]

   • Always make a shopping list before you leave home, no matter what you're shopping for (groceries, clothing, etc.).
   • You may want to allow yourself to indulge in occasional impulse purchases, but set a limit: allow yourself no more than, say, $10 for things that you didn't put on the list.
   • Make yourself wait a few hours or even a few days before deciding on an expensive impulse purchase. For example, if you go to the store for a new work shirt, think it over for a few days before grabbing a pair of designer jeans that are on sale.
   • Try using cash for your shopping trips instead of a debit/credit card. Carrying cash can help you limit how much you spend, especially if you restrict how much cash you have in your wallet.
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   Get the best deals. It's easy to fall into a routine of just running to the store when you need something. But this can cause you to inadvertently overpay for many items, and that excess can add up over the days and weeks of each month.^[14]

   • Compare prices before you commit to buying an item. If you check online, through newspaper advertisem*nts, or in another store, you'll probably find that item considerably cheaper somewhere else.
   • Check for coupons, mail-in rebates, and other discounts at both your usual stores and at their competitors. Also check online, as some retailers offer online-only discounts that won't be applied in stores.
   • If there's an item you want but you can't find an affordable price anywhere, try looking for a closely related item. It may not be the brand or model you wanted, but it will serve the same purpose and probably look just as good.
   • Research items before you buy them. Check customer reviews and look for any problems so you'll know whether an item will be durable enough to last.
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   Look for used items when possible. If you need a new item, like a piece of furniture or an article of clothing, you should certainly compare prices between competing retailers. However, you may not have thought to check at local resale stores. Buying an item used from a thrift store, pawn shop, or some other second-hand store can net you impressive savings while still getting a functional, high-quality piece of merchandise.^[15]

   • Getting things used extends beyond thrift stores and yard sales. You can also borrow many things for free: rent books, movies, and CDs from your local library for free!
   • Remember that an item is still useful and stylish, whether you get it second hand or pay full price for it brand new. The only difference, ultimately, is how much you pay for it.

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   Set aside part of every paycheck. Depending on your income and your current expenses, you may not be able to set aside a huge portion of your paycheck every week. However, it's important to save up whatever you can, as it adds up pretty quickly and can be a big factor in your financial stability.

   • Once you know how much of your paycheck will be left over after expenses, you can set aside the excess money in your savings account.
   • Set aside money for savings as soon as you cash your paycheck. That way you won't be tempted to spend that money on unnecessary indulgences.
   • Think of it as paying back yourself for all your hard work each week. The money's not being wasted; it's an investment in your future.
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   Identify savings goals. Depending on your family and your needs, your idea of a financially stable future may vary from others' needs. Some people consider saving for the future to mean saving for retirement. Others devote their savings to helping their children pay for college. Still others may want to buy a motor home after retiring and travel the country. There's no right or wrong reason to save for the future; the important thing is to identify what's most important to you.

   • Financial stability will vary, depending on your needs and your goals.
   • Decide what you want to save for, and set up a savings account. If you want to save for multiple goals (for example, saving for retirement as well as saving for your child's college fund), you should consider setting up two separate savings accounts and keeping those funds separate.
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   Open a savings account. One of the best ways to save for your future is by opening up a savings account. A savings account lets you set aside money safely, without fear of it being stolen (which is a possibility if you store money at home) or being spent on a whim. A savings account can help you prepare for both the anticipated and the unexpected in the near future.

   • Even a small savings, like $500 to $1,000, can help you be better prepared in case of an emergency.^[16]
   • Compare banks and credit unions in your area to find the highest interest rates. Some experts advise that credit unions often have higher interest rates because they do not have shareholders to support like a big bank would.^[17]
   • Many financial institutions can help you set up a savings account that automatically transfers a set amount of money every month or pay period from your checking to savings. This can make it easier to start saving and make it consistent.
   • Some banks also offer options to add small amounts from your checking account. For example, if you use a debit card to pay $7.50, the bank will round it up to $8.00 and put the extra 50 cents into your savings account.
   • Be aware that some banks charge you a penalty if your checking account falls below a certain amount. You're typically free to transfer some of your savings into your checking account, but you may want to find out how much you can transfer by talking to your bank or credit union's representative.
   • Savings accounts and other low-interest accounts are not ideal for retirement savings or longer-term savings goals. If wealth-building if your goal, you'll want to invest in securities like stocks or mutual funds.
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   Save for long-term goals. Depending on your savings goals, you may be saving up for retirement, your child's education, or other future purchases or expenses. You're probably wondering how much money you'll need to remain financially stable. That amount will vary considerably, depending on your standard of living, what region you live in, and your current annual income. If you're planning for retirement, for example, you may want to:

   • Search online for retirement worksheets, like the U.S. Department of Labor's worksheet on retirement savings at http://askebsa.dol.gov/SavingsFitness/Worksheets#worksheet-section4. It factors in your predicted years until retirement, current salary, and current savings to help you determine how much more you'll need.
   • Talk to your employer about any available 401(k) plans. These investment plans help set aside a designated portion of every paycheck, and many employers match the funds that you put into your plan.^[18]

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