Resource: Financial Ingredients List – PDF

How can you tell if you’re financially stable? What does it mean to be financially stable? Most people have these questions when figuring out their finances. Making financial decisions is tough for a lot of people because there’s uncertainty about what decision is the correct decision to make, and then it’s easy to second guess yourself once you’ve actually made the decision. But with a basic understanding of a few financial principles, and a priority list, you can understand what financial stability is and make the right financial decisions at the right time. Watch the video above or keep reading to get a recipe for financial decision-making that will help you make better financial decisions because you’ll know what ingredients to add and when to add them.

What Is Financial Stability?

The core of financial stability is that you’re confident and comfortable with your financial situation. What that looks like can include a lot of aspects: 

• Cash Flow
• Debt
• Savings
• Liquidity/Availability
• Growth
• Financial Mindset

Financial stability gives you freedom. You don’t have to be rich to be financially stable. You have to understand money and have the discipline and the right mindset about money to be able to achieve the financial stability the balance and security you want. 

How to Achieve Financial Stability

Now that we understand financial stability meaning, let’s take a look at how to achieve it. There are many ways to find financial stability in your life, but people often go about them in the wrong order. 

Picture yourself making pancakes 100% from scratch for the very first time. You start with an empty bowl, pancake mix has not been invented yet. All the ingredients for the pancakes are in one of three places: your refrigerator, your cupboard, or your pantry. How well do you think you would fare in creating beautiful golden-brown, tender melt-in-your-mouth pancakes on your very first try if you had no recipe? Now picture yourself making those pancakes one more time but this time, there’s just one difference…you have the recipe! Do you think that your chances of success are better now?

Similarly, many people have all the financial ingredients they need but no recipe! Here’s our recipe for financial stability that will help you make better financial decisions because you’ll know what ingredients to add and when to add them.

The Recipe For Becoming Financially Stable

1. Protection: The first ingredient in this recipe is Protection. Protection should always come first when it comes to financial stability. Good people protect their families, loved ones, business associates, dependents, and creditors. Life insurance is often the first thing to leap to mind when we hear the word protection, but there’s also protection against illness or disability and probate, as well as asset protection through a limited liability company which is all-important. If you’re thinking to yourself, “but life insurance also provides some asset protection,” you’re right and you probably deserve some honorary credentials of some kind because not even all life insurance agents know that. Life insurance is a good place to start though because of the way it provides protection for your family, loved ones, business associates, dependents, or creditors while at the same time giving you some asset protection and even a return.
2. Savings: The second ingredient to becoming financially stable is Savings. This can seem kind of strange at first especially if you’re a “pay cash” type of person because saving is so important it seems like it should come first. But the reality of the matter is you cannot save money nearly as fast as you can buy it through Life Insurance. Another reason savings should come after protection is because what if you’ve saved up a lot of money but you haven’t done any protection and God forbid through illness or disability, your income disappears. Will your savings last? Now instead, let’s say you followed the recipe exactly, and you protected against illness and disability first. You may have less money saved because you didn’t save as much, but will your savings stay around longer if you have a disability income? That’s the importance of following this recipe.
3. Manage Debt: The third ingredient is Manage Debt. Managing debt is not necessarily getting out of debt or paying everything off because some debt will allow you to save more money now, and some debt will even give you tax benefits. Your goal should be to pay off bad debts but keep good debt working for you.
4. Invest: And finally the fourth and last ingredient is Invest. Investing has a lot of risks which is why it should only come after you’ve seen to proper protection, you’re steadily saving at a good rate, and you’ve managed your debt. The most important thing you should know about investing is that investing is NOT saving. Confused people invest money and think that they’re saving it. If you invest in lieu of saving, it could ruin you financially. Another important thing to know about investing is that you don’t have to venture into an investment you know nothing about to get big returns. Oftentimes the biggest returns you get will be in your area(s) of expertise. Don’t invest in areas of un-ambiguity because hearsay has led you to believe that’s where the money is at. There may be money in it, but that money will go to other people. NOT you.

So to list every ingredient in its proper order, it looks like this:

1. Protect
2. Save
3. Manage Debt
4. Invest

Why Order Matters

The world gets the recipe exactly backward because many people believe that by investing they can make enough money to pay off their debt. Then, once their debt is paid off, they’ll be able to save something…and finally, they’ll get around to protection when they can “afford it.”Sadly sometimes, it will get too late to ever have good protection.

Trying to do things backward like that is dangerous because if your investment gets wiped out, you still have the debt…and no savings. If you don’t do well enough to pay off your debts, the interest on your debt is compounding against you, and if you don’t make enough in your investments to make debt payments, you definitely don’t have anything coming from your investments that can be saved.

Instead, use all the same ingredients, but put them together in the right order, and boom, you have a recipe that works really well. You can download a free “recipe” to these financial ingredients right here: https://s3-us-west-2.amazonaws.com/annamcfie/YouTube/Graphic+For+Financial+decision+making+video.pdf

Having each of the financial ingredients listed in order of priority will help you achieve financial stability and make good financial decisions.

There are other videos on the channel that focus on each area of importance: life insurance, asset protection, how to save money, managing and paying off debt, etc. Check out those videos too. And if you need guidance or help, we’re just a phone call away at 702-660-7000.