What does “financially stable” mean to you?

[crisi]

Financially stable is different than financially secure. Financially stable is being able to pay all your bills, having no consumer debt, and having an emergency fund while saving for retirement. Your net worth should be increasing, albeit often slowly, over time. You can weather a loss of income for a bit, but you'll need to find a new job fairly quickly. i.e. things are "stable." You can be financially stable living with your parents or you can be financially stable in a $3M home.

Financially secure is where you should be later in life. If you got laid off in your 50s tomorrow, could you make ends meet for the rest of your life (barring nursing home care, which almost no one can really afford) - and you get to downsize considerably if you need to or work part time - but you could do it without your "career job." You aren't financially secure if you are living with your parents (what if they die?)

Financially independent is like financially secure, except you are in the position where you choose whether you are working or not working as opposed to "I could do it if I had to, but it would involve some major sacrifices I don't want to make." Again, that's really going to depend on you - people planning a "retire early" lifestyle are often willing to do without- and yet achieve financial independence even if they don't own a car and live in a cheap one bedroom apartment. While someone living in that $3M house with a $2.75M mortgage and little in the way of savings is a LONG way from financially independent or secure (they might be financially stable, if they have an emergency fund, are saving for retirement, and make all their payments without incurring more debt.)

You move in and out of these categories, but you should be progressing as you age. An illness or divorce can set you back.

 

[BamaGuy44]

I don't disagree. But houses are still selling, so buyers are finding a way to afford them. Certainly not the crazy situation of 3 years ago where houses were selling within hours of being listed.......but within a a month, which is faster than average. My son and DIL listed their house for sale in May 2021 and had to come hang out with us for a few hours because their agent had 4 appointments the day it listed for tours.

Problem is over 25% of them are being sold to investors and not individuals, and that number will keep going up. Strange times.

 

[crisi]

BTW. the thing with college savings is that if you set reasonable expectations for your kids (i.e. two years community college living at home, two years state school, living at home if possible) it is completely reasonable to have saved - if not enough to cover the whole thing, enough to cover a significant amount - for one to two children for anyone who is well off enough to go to Disney on anything approaching a regular basis.

 

[barkley]

My wife and I bought our first house in 1983 and it cost about three years combined pay.

Our daughter bought her first house in 2019 and it cost about five years income.

this means your dd paid LESS of a percentage of her pay than you/your wife b/c she's a single income vs. your dual three years combined. her cost would have to be 6x before it was even equal to what you/your wife with combined income paid (m.o.l.).


dh and i bought our first home in '91, it was just shy of three years of our combined pay (2.8 to be exact). i was curious so i just looked up the comps for that home these days as well as the current salary for our former jobs (gotta love civil service-you can get exact pay rates ). the going rate for that house with the current salary for those pretty basic civil service jobs equates to 3.2 years.

 

[tvguy]

this means your dd paid LESS of a percentage of her pay than you/your wife b/c she's a single income vs. your dual three years combined. her cost would have to be 6x before it was even equal to what you/your wife with combined income paid (m.o.l.).


dh and i bought our first home in '91, it was just shy of three years of our combined pay (2.8 to be exact). i was curious so i just looked up the comps for that home these days as well as the current salary for our former jobs (gotta love civil service-you can get exact pay rates ). the going rate for that house with the current salary for those pretty basic civil service jobs equates to 3.2 years.

Not sure that math works because the house she bought was worth half what ours was worth at the time she bought her house. Her's is a entry level house at the bottom of the market. Ours was a few steps up, and sold for about twice what an entry level house sold for at the time. We paid $101,000 for our house. We look at new construction at the time that sold for $50,000. Times were tough then so builders offered entry level new homes without gutters, dishwashers, carpet, one bathroom, and smaller square footage on smaller lots.

 

[crisi]

Not sure that math works because the house she bought was worth half what ours was worth at the time she bought her house. Her's is a entry level house at the bottom of the market. Ours was a few steps up, and sold for about twice what an entry level house sold for at the time. We paid $101,000 for our house. We look at new construction at the time that sold for $50,000. Times were tough then so builders offered entry level new homes without gutters, dishwashers, carpet, one bathroom, and smaller square footage on smaller lots.

One of the issues that we have with "starter homes" is that a lot of municipalities don't want them built. Minimum lot sizes, must have a two car garage, minimum number of bedrooms and bathrooms, minimum square footage. Even townhouses in a lot of municipalities have to be pretty big to be built.

From a municipality standpoint, this protects their tax base. From a current resident standpoint, it helps protect property values. From a "you've got to get a start somehow" standpoint, it means that there are not a lot of starter homes available - and a lot of what is available is snapped up by investors as rental property.

 

[dpswift]

Don't have a retirement that I know of. Not sure how to start it (I'm almost 49, so probably need to start one in the next couple of years).

No kids. So don't deal with the college fund.

Check to see if the company that you work for has a 401k. If they have one see if there is a match. Seriously you won’t miss 1 to 3 percent of your pay the money would be before tax. Youu still have time to get a good amount for when you are ready to retire.

 

[dvcgirl67]

One of the issues that we have with "starter homes" is that a lot of municipalities don't want them built. Minimum lot sizes, must have a two car garage, minimum number of bedrooms and bathrooms, minimum square footage. Even townhouses in a lot of municipalities have to be pretty big to be built.

From a municipality standpoint, this protects their tax base. From a current resident standpoint, it helps protect property values. From a "you've got to get a start somehow" standpoint, it means that there are not a lot of starter homes available - and a lot of what is available is snapped up by investors as rental property.

This is exactly what has happened in my general area. Any homes in the county to the south of me, where there are still neighborhoods with lots of ranches that haven't been knocked down to be replaced by McMansions....are snapped up by investors for quick flips, or as rentals. They move in quickly with cash and so sellers are happy to take the money. My BIL has been buying homes in one particular town down there for years. Last I heard he was up to 13 properties....the majority of which are ranches. And with rents skyrocketing, he's doing quite well.

My mother still lives in their starter home in this area. It's the house where my parents raised me and my two sisters. They bought it in 1965 for $13,000. A 950 sq ft ranch with three bedrooms (small bedrooms!) and one bath. Incredibly, that home today is valued on Zillow for 334K far, far outpacing inflation. But, whenever my Mom is finished with it for good, we'll sell it....hopefully to a small family. That would be nice.

 

[tvguy]

One of the issues that we have with "starter homes" is that a lot of municipalities don't want them built. Minimum lot sizes, must have a two car garage, minimum number of bedrooms and bathrooms, minimum square footage. Even townhouses in a lot of municipalities have to be pretty big to be built.

From a municipality standpoint, this protects their tax base. From a current resident standpoint, it helps protect property values. From a "you've got to get a start somehow" standpoint, it means that there are not a lot of starter homes available - and a lot of what is available is snapped up by investors as rental property.

Completely different here. They are really pushing starter houses because more houses per acre mean MORE property tax income. They want DENSITY. Which is why a lot of these new houses have a one car garage and tiny bedrooms. Here is an example, 658 to 1471 square feet. And to fit more houses on a lot, some of these are 3 and 4 stories tall. The first floor is just the garage and utility room
https://centrallofts.millatbroadway.com/

 

[barkley]

My mother still lives in their starter home in this area. It's the house where my parents raised me and my two sisters. They bought it in 1965 for $13,000. A 950 sq ft ranch with three bedrooms (small bedrooms!) and one bath. Incredibly, that home today is valued on Zillow for 334K far, far outpacing inflation. But, whenever my Mom is finished with it for good, we'll sell it....hopefully to a small family. That would be nice.

this is the kind of house i grew up in and when i look at listings for them they are entirely marketed NOT to families or as first time homes-they are going for the retiree market. from what i can tell 'the powers that be' (realtors, mortgage companies, simple google search) on the average sized 'starter home' or 'how big of a house do i need?' claims that the bare minimum is 600 sq feet per person so even a small family with just one child is looking at something about 2x what your family of 4 and my family of 6 lived in back in the day. how ever did we survive????

 

[dvcgirl67]

this is the kind of house i grew up in and when i look at listings for them they are entirely marketed NOT to families or as first time homes-they are going for the retiree market. from what i can tell 'the powers that be' (realtors, mortgage companies, simple google search) on the average sized 'starter home' or 'how big of a house do i need?' claims that the bare minimum is 600 sq feet per person so even a small family with just one child is looking at something about 2x what your family of 4 and my family of 6 lived in back in the day. how ever did we survive????

Ha, yes, well I can confirm that having to share a *really* small bedroom with my younger sister until my older sister went off to college at 16 wasn't so great. And it sucked even more having to give up *my* new bedroom when she came back over the summers. And three teenage girls plus my mother in one house....not easy.

But...we did indeed survive. And as a one floor ranch that my parents ended up renovating over the years....it ended up being the perfect home for them to retire in. My in-laws downsized to a 55+ community, but that never would have been a good fit for my parents. So...it worked out....they never left. My father has passed, but my it's just the right size for my Mother. And that mortgage has been paid off for about 40 years.

It's funny, my DH and I started out in a 4,000 sq ft McMansion that we had built about 25 years ago. Then down to roughly 2,500 sq ft to a house we owned in Florida. Then down to the 1,600 sq ft house we live in now....and there are a few rooms that we never use. And I'm convinced we can easily live in one bedroom apartment.

 

[dvcgirl67]

Financially stable is different than financially secure. Financially stable is being able to pay all your bills, having no consumer debt, and having an emergency fund while saving for retirement. Your net worth should be increasing, albeit often slowly, over time. You can weather a loss of income for a bit, but you'll need to find a new job fairly quickly. i.e. things are "stable." You can be financially stable living with your parents or you can be financially stable in a $3M home.

Financially secure is where you should be later in life. If you got laid off in your 50s tomorrow, could you make ends meet for the rest of your life (barring nursing home care, which almost no one can really afford) - and you get to downsize considerably if you need to or work part time - but you could do it without your "career job." You aren't financially secure if you are living with your parents (what if they die?)

Financially independent is like financially secure, except you are in the position where you choose whether you are working or not working as opposed to "I could do it if I had to, but it would involve some major sacrifices I don't want to make." Again, that's really going to depend on you - people planning a "retire early" lifestyle are often willing to do without- and yet achieve financial independence even if they don't own a car and live in a cheap one bedroom apartment. While someone living in that $3M house with a $2.75M mortgage and little in the way of savings is a LONG way from financially independent or secure (they might be financially stable, if they have an emergency fund, are saving for retirement, and make all their payments without incurring more debt.)

You move in and out of these categories, but you should be progressing as you age. An illness or divorce can set you back.

I like your definitions and I think that's why I found the initial question intriguing....because there is quite a difference between stability and security. And then of course, independence.

Also, I know a lot of people over the years who have fallen back by one to two categories due to divorce. But of late, as someone in my mid-50s, I've watched several couples go from true financial independence back to financially secure....but needing to continue to work, or in the case of a couple of SAHMs I know....try and get back into the workforce after years at home due to divorce. In once case, the husband is still very much financially independent, but she's back to financially secure with many years of work ahead of her....it's not a place I'd like to be.

There's no more, or at least much less worry, with financial independence. My husband is planning on retiring next year, planning on mid-year but has said he'll stick it out to the end if we don't have any big plans just to pile up some more cash. However, his company reported recently and had a pretty terrible quarter. Sales were down and they are kind of a bellwether for the consumer. Not sure we'll ultimately avoid a recession, and if so...when it will come. And we think there's a possibility there will be layoffs. But, having the feeling of....we'll be fine if retirement comes sooner for him is....priceless.

 

[barkley]

I like your definitions and I think that's why I found the initial question intriguing....because there is quite a difference between stability and security. And then of course, independence.

Also, I know a lot of people over the years who have fallen back by one to two categories due to divorce. But of late, as someone in my mid-50s, I've watched several couples go from true financial independence back to financially secure....but needing to continue to work, or in the case of a couple of SAHMs I know....try and get back into the workforce after years at home due to divorce. In once case, the husband is still very much financially independent, but she's back to financially secure with many years of work ahead of her....it's not a place I'd like to be.

There's no more, or at least much less worry, with financial independence. My husband is planning on retiring next year, planning on mid-year but has said he'll stick it out to the end if we don't have any big plans just to pile up some more cash. However, his company reported recently and had a pretty terrible quarter. Sales were down and they are kind of a bellwether for the consumer. Not sure we'll ultimately avoid a recession, and if so...when it will come. And we think there's a possibility there will be layoffs. But, having the feeling of....we'll be fine if retirement comes sooner for him is....priceless.

another circumstance i've witnessed where one's financial status can be vastly impacted later in life occurs post retirement wherein one spouse passes away. far too many couples focus on what their retirement income will be and don't take into account how much the death of one can financialy impact the other-loss of one person's social security, reduction or (depending on an individual's pension plan/what type of payment option chosen at retirement) entire loss of pension monies. couples focus on what their total retiree income will be and estimate how much they need in savings to supplement without considering what their financial situation would look like if either were to become single with over 50% of their income eliminated. it can be devastating-savings that was meant to supplement the remainder of their lives gone through in a handful of years to make up for loss of income b/c it seems with few exceptions (excessive medical costs/expensive personal habits/hobbies as an example) the expenses in retirement of going from a couple to a singleton do not greatly change so it's not like that loss of income is offset (in some cases they increase if the spouse that passes was in the habit of doing things like car maintainance/home upkeep and repairs which then have to be hired out).

i encourage married friends looking towards retirement to do money crunching scenarios based on all 3 situations and to keep the worst financial case scenario in mind when planning.

 

[Dakota731]

How much was the house?

Our interest rate was 18%-21% adjustable when we bought our first house in the 80s! And the house cost 5 times our annual salary. So it’s not that it was totally easy peasy for our generation either. Though we didn’t spend like many nowadays. We took one vacation a year which we drove to beach. We rarely ate out, made our own coffee, and I always did my own hair, nails etc. My husband mowed our lawn and did treatments, washed our cars and did a lot of our home maintenance. We didn’t have tv subscriptions or expensive electronics.
And yet we paid off our house in seven years, paid our own and our kids’ way through college and have a nice 401k (no government pensions). So it took a lot of sacrifice and work but it can be done!

 

[disneydreamer1980]

I have a very simplistic definition of financial security. Being able to pay all your bills on time and having money left over to save, being able to take vacations, and not having to constantly worry about money. At least that’s how it feels for me when you’re financially stable.

 

[dvcgirl67]

another circumstance i've witnessed where one's financial status can be vastly impacted later in life occurs post retirement wherein one spouse passes away. far too many couples focus on what their retirement income will be and don't take into account how much the death of one can financialy impact the other-loss of one person's social security, reduction or (depending on an individual's pension plan/what type of payment option chosen at retirement) entire loss of pension monies. couples focus on what their total retiree income will be and estimate how much they need in savings to supplement without considering what their financial situation would look like if either were to become single with over 50% of their income eliminated. it can be devastating-savings that was meant to supplement the remainder of their lives gone through in a handful of years to make up for loss of income b/c it seems with few exceptions (excessive medical costs/expensive personal habits/hobbies as an example) the expenses in retirement of going from a couple to a singleton do not greatly change so it's not like that loss of income is offset (in some cases they increase if the spouse that passes was in the habit of doing things like car maintainance/home upkeep and repairs which then have to be hired out).

i encourage married friends looking towards retirement to do money crunching scenarios based on all 3 situations and to keep the worst financial case scenario in mind when planning.

Oh yes, we've experienced this in the last couple of years as we each lost one parent and the household income for both dropped in a big way. FIL's income dropped by 33% and my Mother's by about 40%. We've been helping my in-laws for years.....nest egg is low, still has the house. Their expenses dropped, but not by the percentage that they lost in income. Thankfully my mother will make it to the finish line without any issues because she has 1/2 of my father's pension and veterans benefits, plus SS and a nest egg. FIL only has his SS now and dwindling nest egg. We don't have children, so I can't say we're in a true "sandwich" situation. But my husband says we're definitely in an "open-faced sandwich" situation with my FIL....having to lay out funds to get him to the end.

 

[firefly_ris]

Our interest rate was 18%-21% adjustable when we bought our first house in the 80s! And the house cost 5 times our annual salary. So it’s not that it was totally easy peasy for our generation either. Though we didn’t spend like many nowadays. We took one vacation a year which we drove to beach. We rarely ate out, made our own coffee, and I always did my own hair, nails etc. My husband mowed our lawn and did treatments, washed our cars and did a lot of our home maintenance. We didn’t have tv subscriptions or expensive electronics.
And yet we paid off our house in seven years, paid our own and our kids’ way through college and have a nice 401k (no government pensions). So it took a lot of sacrifice and work but it can be done!

I'm not saying it was easy peasy, just that things aren't all 100% the same either. In the housing market I mean. We do all those same things including all our own electrical, plumbing, remodeling work. We live well below our means. Our second home was an unliveable foreclosure that we bought when my first was a baby. My husband spent 6 straight months working all day then going to work on that house until midnight every day until it was habitable, without my usual help since I was with the baby. We watched our peers take trips and buy new cars while we bought rusty beaters and ate every meal based on coupons. We used our skills with each house to slowly work our way up to better homes to raise our kids in until we got to the one we are in right now. All were bought as dated old gut and rebuilds. I'm not trying to toot my own horn, just that we put in the work. We definitely weren't out crying and blowing money on Starbucks at the same time.

This is our third home which we purchased in 2012; however if I bought this exact home today in 2024, it would cost 4.5 times our combined annual income with us both full time. I only went back to full time employment 2 years ago (cost of 3 kids in daycare/after school care would have made me working full time pointless), so if I were still part time or less it would be 6.5 times my husband's income. We could not buy it today and be able to put 3 kids through college and fully fund retirement. We had to pick retirement over college funds. This is in Buffalo, not a HCOL coastal town. That is a pretty big leap in 11 years.

I definitely agree that way too many people misunderstand the difference between "wants" and "needs", think they "deserve" a certain lifestyle, size of house, certain vehicle or whatever -- we see that echoed in the mass consumer credit card debt in the US. People think they "need" cable, manicures, meals out, expensive cell phones, shiny jillion dollar cars. And a lot of people could improve their situations with some base habit changes. People also think retirement is so far away and have no concept of compounding interest and all that.

However I still can't deny that we would be in a different place if we were to buy this same home for $500k at a 7.8% interest rate as opposed to $162k at 3.75%. Frankly it wouldn't even be an option. My parents' rate on their first home was 12.5% but the house was $95k. Our first home in 2007 was an 1870's upper/lower duplex for $80k at 5.75% -- it doesn't seem like all that long ago, but that house is market valued at $360k right now. Just seems harder to get your foot in the door even when cutting all the other extra fat. So I get the frustration in the home market.

[Eta] Came off a little ranty, not my intent. I generally agree with you but just think the housing thing is getting crazy and combined with higher groceries, insurance, healthcare costs... can be crazy out there even while living below means. I still consider us pretty successful overall. And we wouldn't have made it there without sacrifice.

 

[barkley]

We took one vacation a year which we drove to beach.

we did the same! ours was like a longer weekend trip though b/c we were hoarding vacation time in anticipation of having kids. fmla was not a thing when we married so unless you had leave time on the books you were risking your employment. we banked leave for both pregnancies for a couple of years before their conception i do not think people who did not work pre fed fmla laws realize the financial security they provide. even if it's unpaid fml, being guaranteed that you will not lose your job is spectacular!

 

[tvguy]

another circumstance i've witnessed where one's financial status can be vastly impacted later in life occurs post retirement wherein one spouse passes away. far too many couples focus on what their retirement income will be and don't take into account how much the death of one can financialy impact the other-loss of one person's social security, reduction or (depending on an individual's pension plan/what type of payment option chosen at retirement) entire loss of pension monies. couples focus on what their total retiree income will be and estimate how much they need in savings to supplement without considering what their financial situation would look like if either were to become single with over 50% of their income eliminated. it can be devastating-savings that was meant to supplement the remainder of their lives gone through in a handful of years to make up for loss of income b/c it seems with few exceptions (excessive medical costs/expensive personal habits/hobbies as an example) the expenses in retirement of going from a couple to a singleton do not greatly change so it's not like that loss of income is offset (in some cases they increase if the spouse that passes was in the habit of doing things like car maintainance/home upkeep and repairs which then have to be hired out).

i encourage married friends looking towards retirement to do money crunching scenarios based on all 3 situations and to keep the worst financial case scenario in mind when planning.

That is why each spouse should have some sort of life insurance policy. We cut our life insurance from $500,000 each to $250,000 each when our kids were out on their own. That is enough to replace almost 10 years social security benefits.

 

[barkley]

That is why each spouse should have some sort of life insurance policy. We cut our life insurance from $500,000 each to $250,000 each when our kids were out on their own. That is enough to replace almost 10 years social security benefits.

life insurance can be a part of the planning for sure but when i think of my mom and many of her friends who outlived their spouses for at minimum 20 years it can be a looooong haul. the other issue with life insurance is the cost-unless you purchase it when you're on the younger side it's pretty costly if you want something that has a long enough term that suits your intent.