Do you sometimes wonder how it would feel to finally be financially sound? Maybe you have been trying to become financially stable for a while now, but just can’t seem to quite get there.
Becoming financially sound can do wonders for your mental health and overall well-being.
Because feeling overwhelmed by your financial situation can lead to a significant amount of stress. And stress can lead to a myriad of other problems.
So today I am going to tell you about the meaning of financially sound, how to tell if you are financially sound, and tips to help you work toward becoming financially sound.
Let’s get started!
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Meaning of Financially Sound
What does it mean to be financially sound?
Simply stated, being financially sound means having good financial health, or being financially stable.
When you are financially sound, you are in control of your financial situation. You have achieved a state of financial wellness and are not stressed about money.
If you are financially sound, you have very little, if any, debt. You are not struggling to pay your bills and are not living paycheck to paycheck.
You also have an emergency fund and are actively saving for your future and other large expenses. A sudden unexpected expense will affect you very minimally because you have the means to pay for it.
You also have all your financial ducks in a row with regard to having the appropriate insurance coverage for you and your family and all of your estate planning is completed.
You essentially have nothing money-related to worry about when you are financially sound.
What is a synonym for financially sound?
There are many synonyms of being financially sound. Here are some that come to mind:
- Financially stable
- Financially well-off
- Good financial health
- Financially fit
- Financially healthy
- Financially solid
What does it mean to make financially sound decisions?
The phrase “financially sound” can also be used to describe decision-making regarding money.
If you are making financially sound decisions, you are making good choices with how you are managing your money.
The decisions you are making are helping you to achieve your financial goals. Your decisions are not causing you any financial setbacks.
What does it mean when you are not financially sound?
The meaning of not financially sound is simply the opposite of financially sound. So not financially sound means to be financially unstable or to not have good financial health.
When you are not financially sound, typically you will feel overwhelmed by your financial situation. You may feel stressed about your situation and worry that you will not be able to pay your bills.
You also may be living paycheck to paycheck, have quite a bit of debt, and have minimal money saved in an emergency fund or for retirement.
How to tell if you are financially sound
The definitions above should give you a good idea if you are financially sound or not.
However, to help you understand your situation even further, here is a list of questions to ask yourself to determine where your financial situation stands.
If you answer yes to most of these questions, you are more than likely financially sound or close to being financially sound!
If you answer many of these questions with a no, keep reading below to learn some tips to help you get on your way to becoming financially sound!
- Can I pay my bills on time?
- Do I sleep well at night because I don’t worry about my financial situation?
- Am I debt-free besides my mortgage?
- Do I have 3 to 6 months of expenses saved in an emergency fund?
- Am I contributing to my retirement account?
- Do I have a will and trust set up and all my other estate planning completed?
- Am I properly insured with all the different types of insurances I need?
- Is my net worth positive?
- Do I have money left over after paying all my bills each month?
- Do I know the basics of how to manage my money?
How did you do? If your answers were mostly yes, awesome! If you answered no to many of these questions, keep reading!
I have some tips to help you get started working on being financially sound.
Tips to help you be financially sound
#1 Assess your current financial situation
In order to figure out where you want to get to, you have to first know where you stand. So assessing your current financial status will help you figure out what you need to do to become financially sound.
You will want to make a list of all your debts and assets to determine your net worth. You can create a simple spreadsheet or write everything down on paper.
When determining your net worth, you first list all of your assets.
Your assets are things like:
- Savings account balances
- Retirement account balances
- Home Equity
- Taxable investment account balances
- Certificates of deposit
Then list all your debts. So things like:
- Credit card balances
- Home mortgage balance
- Any second mortgages or HELOCs
- Car loans
- Student loans
- Medical debt
After listing everything, subtract your debts from your assets to determine your net worth.
After you figure out your net worth, whether it is a positive number or a negative number, you will be able to set appropriate goals for yourself to work towards being financially sound.
#2 Create goals
When setting financial goals for yourself, try to make them realistic and attainable. Because by making goals that are realistic, you will set yourself up for success.
The last thing you want to do is set yourself up for failure by setting goals that are out of reach. This could lead to becoming overwhelmed and frustrated with your financial situation.
Remember, becoming financially sound does not happen overnight. So setting smaller, reasonable goals that you are able to reach will help you stay motivated.
Since you already have your list of assets and debts, you can start there with your goals.
Some examples of goals you could make that are based on your assets and debts are:
- Pay off the remaining $8,000 car loan in 1 year
- Pay off $1000 of medical debt in 6 months
- Pay off $5000 of credit card debt in 8 months
- Increase my 401K contribution to 10% of my pay by the end of the year
- Increase my emergency fund by $1000 in 3 months
You get the idea! But just choose one goal to work on at a time. You don’t want to feel overwhelmed just from thinking about all the goals you have.
That could lead to becoming frustrated and could cause you to throw in the towel.
Looking at the big picture (your net worth) is a great starting point for making some financial goals for yourself.
If you would like some help setting goals, check out this post on goal setting here.
Once you choose a goal, it’s time to come up with a plan for reaching your goal.
#3 Make a plan
After you choose your financial goal to start working toward being financially sound, you will want to develop a plan of action.
If your goal is to pay off debt, you will want to determine how you will do that. Will you use the debt snowball method or the debt avalanche method (see below)?
Do you need to rework your budget (or create one) to free up extra money to pay down your debt?
If your goal is to spend less money every month so you can save money in an emergency fund, maybe you want to cut back on your monthly expenses, live more frugally, or start a no-spend challenge.
Or if your goal is to max out your 401K at work. How will you do that?
Will you increase your contribution by a certain amount each month until you reach the goal?
Or will you do it more gradually by increasing your contributions a little this year and a little more next year?
So your current financial situation (looking at your assets, debts, and your net worth) will help you determine what your goals should be.
And your goals will help you create your plan of action for working toward being financially sound.
- 20 Ways to Save More Money Every Month
- Frugal Living: The Ultimate Beginner’s Guide
- Budgeting for Beginners in 7 Easy Steps
- No-Spend Challenge Guide: Rules and Tips for Success
- How to Live Below Your Means
#4 Build your financial knowledge
Learning all you can about how to manage your money effectively will help you become financially sound. There are tons of great personal finance books out there!
Some of my favorites are:
- The Total Money Makeover by Dave Ramsey
- The Simple Path to Wealth by JL Collins
- Rich Dad Poor Dad by Ramit Sethi
- The Millionaire Next Door by Thomas Stanley
- Smart Couples Finish Rich by David Bach
Or you could find some personal finance blogs to read. There are so many great blogs out there that are full of information that can help you become financially sound.
Knowledge will give you the confidence to make financially sound decisions.
And all the good decisions you make with your money will help you to become financially stable.
#5 Insure yourself appropriately
Making sure you are financially protected in the event something major happens will not only help you be financially sound because you are lowering your (and your family’s) risk for financial devastation, it will also help you sleep better at night!
According to Forbes, the 7 insurance policies everyone should have are:
- Health Insurance
- Life Insurance
- Disability Insurance
- Auto Insurance
- Home Owners or Renter’s Insurance
- Liability Insurance
- Long Term Care Insurance
#6 Get your will and estate planning done
Getting your will and a trust set up if you have kids is so important! However, I definitely know how easy it is to keep pushing it off!
We didn’t have a will and trust set up until well after our second son was born. I was quite guilty of procrastination with that.
I mean, who wants to think about who would take care of your kids in the event both you and your partner would die? It’s just not a pleasant thing to think about or talk about.
But it is so necessary! And I was so relieved once it was done.
Getting your will and estate planning done will help you become financially sound.
By making sure all of your assets get allocated the way you want them to be in the event of your death.
Here are 6 estate planning documents you should have, according to Investopedia:
- Will and Trust
- Durable Power of Attorney
- Beneficiary Designation
- Letter of Intent
- Healthcare Power of Attorney
- Guardianship Designations
#7 Boost (or start) an emergency fund
Having an emergency fund is so important for being financially stable. An emergency fund is money you set aside that is only to be used if there is a sudden unexpected expense that you aren’t able to cover with your paycheck or your checking account.
So having a nice size cushion of money set aside will help prevent you from taking on extra debt.
Typically financial experts recommend you have 3-6 months of living expenses saved in your emergency fund.
My thoughts on that are to put enough money aside in your emergency fund that will help you sleep better at night. If you are comfortable with 3-6 months of living expenses, great!
Some people may feel they need more than that saved up and that’s fine too. It really depends on your situation.
For example, if you are a single-income household, you may want more than 3-6 months saved.
Or if the number of hours you can work at your job varies throughout the year, like for example with seasonal work, you may want more money saved in your emergency fund.
Don’t forget to put that money in a safe place that is easily accessible, like a high yield savings account.
You never want to invest your emergency fund money in the stock market!
#8 Invest for your future
But you do want to start saving and investing for your future. There is no time like the present to start saving for your retirement.
Even if you have debt you are paying down, you should try to contribute something to a retirement account. Something is better than nothing.
Set up your contributions to have them automatically deducted from your paycheck.
Or if you don’t have an employer-sponsored retirement account, check into setting up your own Traditional IRA or Roth IRA.
Try to pay yourself first. Allocate money to your retirement accounts before you pay your bills.
Sometimes it helps to think of contributing to a retirement account as another monthly expense to make sure the money gets put aside.
Saving and investing for your future will help you become financially sound over time. And because of compounding interest, you want to start investing as soon as possible.
#9 Pay off debt
In order to be financially sound, paying off debt is so important. Paying off your debt will free up extra money in your budget to use for reaching your financial goals.
There are different ways to go about paying off debt. One popular way to pay off debt is the debt snowball method. Dave Ramsey is a well-known advocate for this method of debt repayment.
To pay off debt using a debt snowball, you pay extra money on the debt you owe the least amount on while paying the minimums on all the other debts.
When the smallest debt gets paid off, you start putting all the money you were paying on that debt toward the next smallest debt. Keep paying the minimums on all the others.
You keep going in this pattern until finally, you are paying down your largest debt with all the money you were paying on all of your other balances.
Another well-known method is the debt avalanche method. This is the method I used to pay off my student loans back in the early 2000s without ever knowing there was a name for it.
In the debt avalanche method, you list your debts in order starting from the highest interest rate down to the lowest interest rate.
Then you throw all your extra money at the debt with the highest interest rate, while paying the minimums on the others.
Once you knock out the debt with the highest interest rate put all that extra money toward the debt with the next highest interest rate.
Continue in that pattern until all your debt is paid!
Here is a little example. Say you have these 3 student loans you need to repay:
Student loan #1 $19,050 at 4.5%
Student loan #2 $9,000 at 8%
Student loan #3 $7,000 at 6.5%
So using the debt snowball method, they would be paid off in this order:
First: $7,000 at 6.5%
Second: $9,000 at 8%
Third: $19,050 at 4.5%
But for the debt avalanche repayment method, this is the order in which they would be paid off:
First: $9,000 at 8% interest
Second: $7,000 at 6.5% interest
Third: $19,050 at 4.5% interest
The debt snowball method is popular because paying off the smallest balances first would result in quick(er) wins. These smaller wins can give you the motivation to keep paying down your debt.
However, using the debt avalanche method would result in less interest paid on your debt in the long run.
But it’s up to you to decide how you will do it. Think about which method makes more sense for your own situation to help you choose.
So in order to be financially sound, develop your plan of action for paying off debt and don’t give up!
#10 Live below your means
In order to be financially sound, living below your means is key. Living below your means simply means spending less than you make.
If you are living below you means, you will have money left over each month to use toward reaching your financial goals.
And if your goal is to be financially sound, then you will succeed so much faster by living below your means!
But becoming financially sound is only one benefit of living within your means.
Other benefits of living within your means are:
- Feel less stressed
- Argue less with loved ones about money
- Have more flexibility and choices during major life decisions
- Reach your other financial goals more quickly
Living a frugal lifestyle will help you to live below your means. Living frugally is all about being intentional with your spending habits.
Many think living frugally is synonymous with being cheap. Or people think that you have to deprive yourself of the things you want when living frugally.
This is not so!
Without going into too much detail in this post, frugal living is about determining what is important to you and spending your money on those things.
Then you find ways to save money and reduce your spending on the things that you don’t value and you don’t care about.
If you want to read more about how to live below your means or if you would like to read up on how to live more frugally, here are some other posts to check out:
- How to Live Below Your Means: Benefits & Tips for Success
- 5 Tips to Help You Stop Living Paycheck to Paycheck
- Frugal Living: The Ultimate Beginner’s Guide
- 70+ Frugal Living Tips to Help You Spend Less Money
- How to Develop a Robust Frugal Mindset
- Awesome Benefits of Frugal Living
#11 Increase your income
Increasing your income can definitely help you be financially sound. Having extra money to put toward your financial goals will help you achieve them more quickly.
There are tons of ways to increase your income!
Picking up overtime at work, asking for a well-deserved raise, getting a part-time job, or starting a side hustle are all ways to increase your income.
Many people start a side hustle outside of their day job for extra money. And starting a side hustle is a great way to diversify your income!
Here are some side hustle ideas:
- Give private lessons (music, sports, art, or any other talent or skills you have)
- Become a dog sitter or walker
- Resell items on eBay, Poshmark, Facebook Marketplace, etc
- Deliver food
- Drive for Uber or Lyft
- Start a blog
- Babysit and/or provide before and after school care
- Sell baked goods
You could even earn a few extra bucks by taking surveys from the comfort of your couch! Survey Junkie is a popular website for taking surveys.
For more ways to earn extra money, check out these posts:
- Realistic Ways to Make an Extra $500 a Month
- 50+ Ways to Make Extra Money
- How Much is 6 Figures a Year? Plus 5 Ways to Boost Your Income
Final Thoughts on being Financially Sound
Many people dream of one day being financially stable. But it doesn’t have to just be a dream.
Being financially sound is a reality for many people. And it could be your reality.
But it doesn’t just magically happen on its own, nor does it happen overnight.
If you want to be financially sound, start taking action with your money. Start making the changes that you know you need to make.
I know I gave you a large list of tips for becoming financially sound. Just start chipping away at them one by one. Make a checklist and check each one off as you accomplish it.
And before you know it, your dream will be your reality. You will have a financially sound family and be living your best life!
What is one of the financial goals you want to accomplish to work toward becoming financially sound? Please share it in the comments!