Want to lead a fulfilling life that allows you to be your best self? Even if it could come as a shock, having a strong financial foundation is crucial to the journey. 

That doesn't imply that you need to be wealthy or that pleasure and contentment are related to money. But having a solid foundation is essential for achieving success both financially and mentally.

It is rare for good financial health to develop without conscious planning. Your financial life is built on how you tackle debt and savings. Your relationships and work decisions are also impacted by it. Similar to how improving your financial situation can enhance your mental health. 

What exactly is financial freedom?

Your financial foundation is the key set of behaviors and routines that provide the long-term stability and security of your finances that you require to plan, construct, and lead the life you desire.

The power of money. Your ability to stop living paycheck to paycheck, pay off your debt, and begin accumulating money depends on having a solid financial foundation. It's what causes you to have a poor relationship, a bad roommate, and bad work. It gives you the courage to know that you have the means to stand up again if you fall. Instead of causing tension, it makes money a source of power.

Don't worry if that seems like a lot to work toward. The "financial basics" are the fundamental measures that we advise everyone to do, roughly in the same order, and which we sometimes refer to as tiny building blocks that make up the financial foundation.

5 ways to increase your financial stability

1. Protect yourself first.

It's critical to create a plan that will keep you financially secure while traveling now that you are aware of where you stand.

Emergency Reserve

Start here if you don't already have one. (See our list of essentials for an emergency fund.) When faced with an unexpected expense, a temporary loss of employment, or any other financial setback, having an emergency fund is essential for keeping you afloat financially (and preventing you from going into debt).

Insurance

Check your insurance policies for the vehicle, health, life, disability, and home or rental. When the unexpected happens, such as unexpected medical costs, a vehicle accident, incapacity, or the death of a wage worker, insurance plans may reduce your out-of-pocket costs. Review your plans if you currently have coverage to make sure they still match your needs or if they need to be updated since you bought the insurance. Every few years, it's a good idea to shop about and compare coverage from a few different insurers. There may be a cheaper policy out there with the same or better coverage.

Estate Plan

Create or revise your estate plan, a legal document that specifies how your assets will be distributed both during your lifetime and after your death. Creating a living trust, naming your heirs, allocating guardians for minors, and splitting up your assets are all possible components of estate planning. You might wish to speak with an estate planning professional for assistance because state laws differ.

2. Budgeting

Making a budget should be one of your first steps in moving toward financial security. This entails creating a list of your anticipated earnings and outgoings for the upcoming week, month, or other applicable periods. 

Your ability to handle financial circumstances depends on your foundation. You can keep control of your finances by tracking your expenditures and adhering to a budget. Consider a budget as a spending manual. It maintains you inside the range of your earning potential and potential needs' safe bounds.

3. Recognize your current spending patterns.

The first step is to be aware of your current situation. Look through your recent purchases by logging into your bank account and credit card statements. Next, divide them into three categories: essentials, fun, and "Future You" (i.e., saving, investing, and paying off debt above the bare minimum).

Then, add voluntary withholdings to your list after looking at your most recent pay stubs. Insurance premiums are needed, and any 401(k) contributions you make belong in the "Future You" category. Other deductions are up to you; a public transportation benefit may be placed in the needs category while a gym membership may be placed in the fun category, depending on whether you consider it to be a "must have" or a "nice to have."

Add up everything in the end. (To assist, download the worksheet here.) How much do you spend each month on each bucket? There are no incorrect answers because the purpose of this exercise is just to determine where you stand right now.

4. Execute your strategy.

Prioritize the improvements you wish to make once your balance sheet, cash flow, and financial goals have been established. Consider what adjustments to your expenditures you can make to get closer to your savings targets. Or perhaps you wish to transfer your emergency funds from a standard checking account into a high-yield savings account to benefit from greater interest rates. Building a solid financial foundation can first seem like a steep hill to climb, regardless of where you start. Just keep in mind that you don't have to complete everything at once. Here are some other pointers you might find useful to remember:

Establish your budget.

Living paycheck to paycheck and continuing to spend over your means will not assist in establishing a solid financial foundation. Create a realistic budget and plan that matches your actual income and expenses by using your balance sheet, cash flow statement, and financial goals as recommendations.

Automate both your payments and savings.

Automate your finances and bill-paying as much as you can to make life simpler. You may stay disciplined and on track by automating your bill payments so you never forget a due date or setting up periodic transfers from your paycheck into your savings accounts.

Follow through on your financial plan.

Whatever your objectives, keeping to the plan you've made and listing your successes one by one may keep you motivated and on course.

5. Investing 

One of the most passive methods to watch your money appreciate over time is through investments. 

There are numerous investment possibilities. However, you should conduct adequate research to safeguard your interests before making a choice.

This is due to the risks associated with investing. It could be challenging to forecast returns on investment. 

Stocks are frequently chosen as investments. These allow you to own stock in a company. Additionally, you can purchase government or corporate bonds. You can invest in a variety of security possibilities using mutual funds, which is an additional option. 

Your age, financial condition, and personal tastes will all have an impact on the investment you ultimately select. However, there are several options available. 

The markets vary, as we have explained. So make sure to consult a financial counselor or an authority in the field to make the decision that is best for you.