61/2 Steps to Financial Stability

You want to control your money, but where do you start? Here are the six simple steps I recommend for acheiving financial stability so you can stop worrying about money.

How do you go from being flat broke to achieving — if not wealth — a state of financial comfort, freedom, and security?

One step at a time.

But: Do you know what your next step should be?

I estimate that about 80 percent of questions I get fall into one category: “What next?” And it makes sense. After you accomplish a financial goal or make a big life change, you often don’t know where to focus your efforts. For example:

  • You’re eligible for a 401(k) plan but still have credit card debt. Should you contribute?
  • You graduate with a ton of student loans. Do you pay them off early?
  • You’ve saved up six months’ living expenses. What now?

As I’ve been thinking a lot about my goals for this site in the upcoming year, I identified the need to start packaging my financial philosophies and advice in ways that are direct and consistent. So creating a few simple steps to navigate the road from being flat broke to becoming financially secure seemed like a good starting point.

Here are the steps:

1. Build a buffer. $500-$800 cash saved. Just enough so you’re not living paycheck to paycheck.

2. Invest a token amount for retirement. Retirement is a vital but often-overlooked part of financial health. Even if you have more pressing money priorities, you want to get in the habit of saving for retirement early. Set up automatic investing by putting  between 2 and 5 percent of your salary into a 401(k) or IRA (or, if your employer matches contributions, the maximum they’ll match).

3. Get rid of “bad” debt. Credit cards. Personal loans. Anything with an interest rate of more than seven percent. Pay it off, fast.

4. Save for emergencies and retirement. In my opinion, it’s equally important to put cash in an emergency fund and jump start retirement saving in a Roth IRA. Learn to pay yourself first. Then, once your emergency fund is where you want it, contribute the maximum to your Roth IRA.

5. Save for something you want. Vacations, travel, weddings, a home, etc. Put money aside so you can afford whatever it is you want, debt-free. Balance saving for shorter-term goals with your retirement savings about evenly.

6. Invest and donate as you see fit. Max out retirement accounts, then invest in taxable ones. When you can afford it, give a percentage of your income back to charities and community.

6.5. Create an additional stream of income. I made this a half step because it doesn’t have come in order (actually, the sooner you start, the better). But don’t discount it: Earning more money will always be a quicker way to your financial goals than trying to spend less.

Here’s a printable version you can save and slap on your fridge:


You may be familiar with Dave Ramsey’s Baby Steps, which, in part, inspired this list. His steps have helped a lot of people, but like all canned advice (including my own), they’re not going to fit everybody. In creating my own steps, I thought carefully about today’s 20- and 30-somethings who:

  • Are starting from scratch, often with modest incomes.
  • Have ever-increasing student loan debt loads.
  • Cannot rely upon social security and pensions to provide retirement income.
  • May not own a home or have kids for many years.

The steps focus are designed to create financial stability by building cash savings for emergencies, making saving for retirement a habit as soon as possible, eliminating consumer debt, and learning to save and invest for specific life goals.

They don’t specifically focus on things like paying down a mortgage or saving for children’s education because those steps don’t apply to all of us (at least not yet).

Finally, you might be surprised to see the emphasis I place on retirement savings. After all, I recommend you start putting something away in a retirement account even if you have credit card debt and then contribute to a Roth IRA at the same time you save for emergencies!

What gives?

Basically, I know so many people working through retirement because they didn’t save earlier in life. And I also know that only about 10 percent of my friends are actively saving for retirement. All of this DESPITE the fact that every dollar you save in your twenties will grow exponentially thanks to compounding interest. So I think you should start saving for retirement. Start small, but start now.

Basically, we should ALWAYS be saving for retirement IN CONJUNCTION with all our other financial goals.


To me, financial stability means:

  • Not carrying consumer debt.
  • Having a back-up plan if you lose your primary source of income (at least an emergency fund and maybe a second income stream).
  • Regularly saving and investing money for the future.

I wrestled with what to call this post. In other words, what the ultimate outcome of these seven steps should be.

At first I was going to call them steps to financial independence, but that’s not right; financial independence means different things to different people. For many, it simply means not relying on mom and dad to pay some of your bills, so in that sense you could technically be financially independent but still have no savings and tons of debt. In the personal finance world, financial independence has another meaning: it’s when you can live off interest on your investments or other passive income. In other words, you no longer have to rely on working for your income. That’s a much bigger goal.

I settled on financial stability because I think it is a) something we all want, b) a milestone that will make you significantly happier, and c) it’s achievable for most people, regardless of income. To be clear, we’re not talking about getting filthy rich here. Somebody making $10 an hour can become financially secure just as much as somebody making $100 an hour. But once you achieve financial stability, you will:

  • Worry about money less, if at all.
  • Earn interest rather than pay it.
  • Grow wealthier by the day, almost automatically.

Finally, you’ll be richer than most people. According to a survey, less than 40% of Americans have enough savings to cover three months’ living expenses. Combine a rainy-day fund, no debt, and regular retirement savings, and you’re joining a rather exclusive club!

OK, let’s hear it. What do you think of these steps? Do you disagree with them? Have you followed a similar path? How have you deviated? Have you used Dave Ramsey’s steps or another plan to reach financial stability? What worked for you?

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


  1. Love the title! That half step many ignore, yet can be a good source of extra income.

    Great post!

  2. Nice post! Not to sound too sanctimonious, but I think step 6 and step 5 should be switched, at least the donation part.

    I think if you have reached that level of financial stability, where you are thinking about vacations and other luxuries, you can also remember those who go without food, shelter, etc. (or whatever other causes you believe in).

    I think charity can become like retirement, where people say, “Oh, I don’t have enough money now. I will take care of that *someday*.” Even a small donation each month, say, $25, won’t make a huge difference for you, but can make a huge difference for whatever cause you believe in.

    • Good point, Marie. I think there is something to be said for “putting your own oxygen mask on before assisting others” (in that you might not want to donate money if you’re really just scraping by), but once you have a little cushion I would agree you don’t have to wait for someday to donate here and there.

    • I personally think that donating should be done at step one. Perhaps some may have a different definition, but I consider tithing to be a donation. Biblically, we should be giving 10% of our income to the church. I think this serves two purposes for us financially (there are other non-financial purposes as well). First, when it comes out of your first 10%, it’s like taking 401k money out of your paycheck…you won’t miss it. Secondly, it’s an act of trust that God will provide for you and acknowledging the fact that money can only provide so much for you.

      My wife and I have found that we are much happier with our finances when we tithe rather than when we don’t.

      Otherwise, I do like your post and your blog (as a whole). I think it’s extremely important for us to get our financial ducks in a row early on in life and I wish more of my friends were doing it.

      • I agree with you, Chase. I think it depends on the individual and their financial situation, though.

        I think it’s very admirable that you and your wife tithe, and I think it’s a laudable goal, but for some people it might be more attainable to start off slowly, as opposed to giving 10% from step 1.

        If someone does not even have a $500-800 buffer, then they might (prayerfully) decide that giving money is not the best option until they have reached one of the subsequent steps of financial stability (I like what David said about the oxygen mask).

        Or, they might decide to donate a small amount from step 1, and increase their giving as they become more financially stable.

      • Chase, I understand what you are saying, because I have friends that tithe and wouldn’t change that even if they were broke. However, I would probably not continue to read Money Under 30 if the first step was to Tithe or Donate. I don’t intend to appear selfish here, as I have causes I support and would like to support, but it just isn’t logical and it doesn’t reach out to the masses the way this list does. Of course, to each his or her own.

        By the way, David, I love this list! Thanks so much and I have printed it out (in color -big deal) to put on my wall. I have something similar from my financial advisor in pyramid form, but it’s not as fun because he isn’t under 30!!

  3. Great post! The half step at the end I where you have to get creative. I hope that an additional property can provide extra income down the road. What are other ways that you recommend?

    • I agree, when finding additional income sources, creativity and determination are required. The big three that always come up are rental properties (as you mention), websites and online stores (my route), and freelancing/consulting. That said, there are myriad other routes, too. If you’re an artist you can sell things on etsy. If you can fix bikes you can repair them or fix up old ones and flip them. I know this is perennially a popular topic, so I’ll try to drum up some content on it in the coming weeks!

      • Websites and online Stores are easiest way because you can do everything from home. Do you buy and then resell items or are you selling your expertise?

  4. David,

    Great post! I really think the last step 6.5 is the key to getting into an offensive position in personal finance. Saving and living below one’s means is simply NOT good enough anymore. Inflation is coming and the job market is going to continue to remain dicey, so we have to create ways to better insulate us from the ups and downs of day to day life. I’d love to hear more about what you do and what others are doing to bring additional revenue per month.


  5. Step 4; starting an emergency savings fund and also investing in a Roth IRA.

    They can be one in the same can’t they? Not positive, but my understanding is:

    If you invest in a Roth IRA, at any time, and without penalty, you can withdraw any monies that you invested. Not the interest earned, just the contributions that you made. Pulling out any interest earned would result in penalties, etc, on that “interest earned” portion of your withdrawal.

    So a person could have their emergency account inside of a ROTH IRA. If you suffer an emergency, you can tap into those funds. If you don’t, the investment continues to grow tax free inside the Roth IRA.

    • I think once you take a contribution out of a Roth IRA, you can’t put it back in (at least that’s what I read somewhere). So in general it’s not a good idea to withdraw money from an IRA unless that’s your last resort!

    • David Weliver says:

      Mongo and David, you’re both correct.

      I meant to include this point in the post and forgot, but the reason I recommend saving for emergencies and investing in a Roth IRA at the same time is because in a TRUE EMERGENCY, you can withdraw your PRINCIPAL from a Roth IRA penalty- and tax-free.

      As David mentions, however, you can’t put that money back in.

      So if you’re reluctant to put money in an IRA because you’re short on cash savings and are worried about early withdrawal penalties if you really need that money, this should make you feel better about putting money into a Roth IRA.

  6. Great list, definitely helps focus the mind on what needs to be done. Sometimes the hardest part is formulating a plan, particularly when you have a ton of debt like I do (all student loan). I have seen it happen too many times where someone is doing a great job paying down debt (but does not have a buffer), and next thing you know the hot water heater goes and they are back in debt all over again at the same level they were before.

  7. Jennifer Holland says:

    Hello David! I simply love this post. I have been following you and your advice for a while now. I will admit the advice is very helpful and realistic. Thank you for this site. It really helps people like me to know that I can reach my financial goals!