How to build financial stability

Achieving financial stability doesn’t happen by accident — it requires clear goals. With any journey, setting milestones can help you appreciate how far you’ve come and define where you need to go next.

Your financial path is no different. Building financial stability means understanding where you’re headed and how to measure your progress along the way.

Let’s explore what it means to be financially stable and how to build the foundation for long-term financial health.

What does it mean to be financially stable?

While everyone’s goals are different, financial stability generally means building enough financial health to be prepared for long-term goals as well as unexpected emergencies. When it comes to financial stability, aim for the following:

• Maintaining three to six months’ worth of total expenses in emergency savings
• Staying on track with retirement planning
• Paying down burdensome debt

This may seem daunting, but you can use the following three milestones as reliable benchmarks.

Milestone 1

If you’re at the beginning of your financial journey, start with the basics.

Emergency savings: Save $500 to one month’s worth of total expenses

This can help cover moderate expenses or periods of unemployment without taking on new debt. Consider keeping your emergency savings in cash and cash equivalents that have low risk and are easily accessible.

Retirement: Take advantage of retirement and health savings account (HSA) employer matches

Employer matches are essentially “free money” that can provide a tax benefit and potentially grow over time.

Debt: Pay down high-interest debt

High-interest debts, such as credit cards, are likely to cost you more than what you can earn by investing. Also, higher interest rate debt tends to be revolving, which usually has a larger weight on your credit score.

Bonus tip: To achieve these goals more easily, automate as much as you can. For example, divert part of your paycheck into an emergency savings or retirement account and set up automatic payments for any debt.

Milestone 2

Once you have the building blocks of a financial foundation, it’s time to level up your financial goals.

Emergency savings: Save 1½ to two months’ worth of total expenses

This amount can help cover a larger unexpected expense or a longer period of lost income, or weather multiple smaller events at once.

Retirement: Save 10% to 15% of your gross income (including any employer match) in retirement accounts

You’re already receiving your employer match (if available), but you may benefit from saving more. Start with what you can and pledge a portion of any future raises, bonuses and tax returns toward your retirement savings.

Debt: Check your debt-to-income (DTI) ratio

This is your total monthly debt payments divided by your gross monthly income. If you have a high DTI ratio, you may have trouble securing loans for a home or other big purchases, or you may be forced to accept higher interest rates. If you’re paying a mortgage, try to keep your DTI ratio to 35% or less. Without a mortgage, strive for 20% or less.

Milestone 3

You’re now in the home stretch of building a solid financial foundation.

Emergency savings: Save three to six months’ worth of total expenses

This can help you withstand longer periods of unemployment or multiple larger expenses without having to dip into retirement savings or taking on new debt. It can also help provide flexibility to do the things you want, such as switching careers or taking time off to care for a loved one.

Retirement: Stay on track of your retirement goal

Your vision of retirement is unique, and so is your path to get there. Your Edward Jones financial advisor can advise you on how much you need to save to realize your retirement goal.

Debt: Think about the mental weight

At this point, your debt should be manageable. But if any debt still causes you stress, you could consider paying it down. This will save you in interest charges, but be aware you may be doing so at the expense of investing for other goals.

Taking control of your financial journey

Financial stability isn’t achieved overnight. It’s built step by step through informed decision-making and maintaining focus on your long-term goals.

By working through these milestones, you’re not only learning how to become financially stable but also actively shaping a path toward lasting financial well-being. While the road may have twists and turns, having a clear road map and the trusted guidance of an Edward Jones financial advisor can help make your journey as smooth and enjoyable as possible.