This week, I cover the top three signs of financial stability. Over the course of my career, I’ve seen thousands of different financial situations—good and bad. These three signs have consistently been apparent in the good ones.
- At least three months’ of expenses saved. An emergency fund. Seems simple enough right? From my experience, it can sometimes take people years to keep that amount in a savings account. You really need to go out of your way to make sure this is a lump sum completely separate from the cash account you use for everyday purchases. Start by just saving one month of expenses first. Work your way up to three as soon as you can.
- At least a 20% Power Percentage™. Don’t know your Power Percentage™? Read more about it here or listen to my podcast about it. The quickest and easiest way to bump up your percentage is to increase your retirement contributions.
- A clear understanding of your #1 financial goal. In other words, for the next extra dollar that comes into your household, do you have a plan for exactly where it will go? No matter what is happening in your life, keep at least one goal for your finances. Don’t let yourself become stagnant. If you’ve just hit a rough patch, your first goal is to rebuild your emergency fund. If you just paid off a large debt, have a plan for where the extra money will be going now that it’s not going to a monthly payment. I get it, bad stuff will happen, but you cannot let instability set in.
Ready to create stability in your life? Make the decision to take these steps today.
Podcast: Play in new window | Download | Embed
Subscribe: Apple Podcasts | Stitcher | RSS
This is a good list, Pete. I enjoy reading you and so glad I found you.
I am retired and receive a monthly pension that meets my pre-retirement income 100%. I have two months of savings and not three. Is there any reason I need three since I am retired and not in jeopardy of losing my job.
I really like your insights into personal finance. I especially like your power percentage calculation. I have always found it difficult to build a separate emergency savings account. My power percentage is 35%, but my emergency savings is in a Roth IRA. I guess I have always thought it is better to have it invested in the market instead of just being stagnant in a savings account. I max out my Roth, but I guess some of that money should really be for emergency savings. So my Roth account is kind of blurry. It is mainly for retirement, but I have used it as an emergency savings account as well. Looking at my Roth I guess I do have 3 months of income built up, but I really don’t want to use it as an emergency savings account. Thanks for all your wisdom.
Great post Pete! Love this one…