- Establish an emergency fund of 3-6 months’ worth of expenses.
- Separate money into multiple bank accounts.
- Monitor and maintain a good credit score.
- Research benefits of different bank accounts & online banking options.
- Make long-term plans to build financial stability.
Building financial stability is essential for the average person. Studies have shown that having some type of savings or emergency fund can help protect against unexpected costs and economic downturns and provide a cushion when making large purchases or investments. According to the Federal Reserve’s 2020 Survey of Consumer Finances, the median family net worth in 2019 was $121,700—but 27% of families had zero or negative net worth. This statistic clarifies that building financial stability should be an essential priority for individuals and families alike.
A plan for long-term financial security starts with understanding your needs and goals. Consider all sources of income and examine how much is needed to cover necessities such as housing, food, transportation, and healthcare. Once these expenses are accounted for, you can follow these steps to establish stability:
Building an Emergency Fund
An emergency fund is a source of money to cover unexpected costs, such as sudden illness or job loss. An emergency fund can help protect you from significant financial losses in times of crisis. Experts suggest saving at least three to six months of expenses in your emergency fund. This will ensure you have enough cash if something unexpected occurs.
Of course, it might take years of saving to build such a fund. But even setting aside small monthly amounts can add up over time and provide some financial protection in the future. You can start with the $500 challenge, a widespread system of saving $500 in small increments. Another effortless way to save is to set up automatic transfers from your checking account into a savings account.
Touching the emergency fund will feel like a last resort, so it should be used only when necessary. Some situations include a significant reduction in income, the need to pay for essential medical bills or services, or unexpected home repairs.
Create Multiple Bank Accounts
Multiple bank accounts can help you organize your finances and prepare for the future. Consider separating your money into different accounts, such as an emergency fund, a retirement fund, a vacation account, and a general savings account. This will allow you to easily track how much money goes into each category and prevent any confusion or mismanagement of funds.
You must research the benefits of owning a bank account for a specific brand to ensure your money is not just sitting idle in an account with little or no interest. Also, consider online banking options to save on transaction fees and make transferring funds from one account to another easier. CSBNet is one example of an online banking system that offers multiple accounts with no minimum balance requirements. You can also find an account with a high-interest rate to maximize your savings.
Establishing a Good Credit Score
Having a good credit score is necessary for applying for loans, mortgages, and other financial products that may help you reach your long-term goals. Paying all bills on time and in full will help you establish a positive credit history. You can also check your credit score every once in a while to ensure everything looks accurate.
Your credit score can help you get more flexible terms for your specific expenses that require loans, including:
A mortgage loan is a long-term loan used to finance real estate. A good credit score will give you more favorable terms, including lower interest rates.
The auto loan is short-term financing for purchasing a vehicle. With a higher credit score, you’ll be able to secure better car loans with lower monthly payments and longer repayment schedules.
A student loan is a type of financial aid that can help pay for tuition and other college fees. A strong credit score can get you approved for more considerable sums at lower interest rates, allowing you to save money in the long run.
A personal loan can help finance a large purchase, such as a home improvement project. A good credit score will give you access to more lenders and the ability to secure better rates.
Building financial stability is an integral part of a secure future, and there are many steps that you can take to get started. Establishing an emergency fund, creating multiple bank accounts, and having a good credit score are all critical components of financial security. With some planning and research, you can start building your foundation for long-term financial stability today.