Top 5 Ways to Be Financially Stable

Is that EMI that needs to be paid at the end of the month the reason behind your anxiety? Is your hairline receding because you can’t stop stressing about how your parents’ medical treatment is depleting the family’s savings? Are you on the verge of taking another personal loan because you have been laid off recently and don’t know when you will get another job? Well, all these are hypothetical situations and yet you will find them very real because they are.

Most of us are always struggling, financially. Something, as minor as a little delay in the salary, can throw us off-balance. At these moments, we curse ourselves for not sticking to the budget, not making investments, not opening a separate savings account etc. Just imagine having enough capital to cover your regular expenses as well as deal with emergencies without drastically changing your lifestyle! Well, that stage of life is called being financially stable. Here’s how to get there and why:

What is financial stability?

Most people equate financial stability with being rich. It is not like that. It simply means reaching an economic stage in life when you feel comfortable and confident with your financial situation irrespective of your income. You don’t constantly worry about how you will pay your bills and are absolutely debt-free. You always have funds to meet all your monthly expenses and a little extra to take care of any unforeseen expenditure. It’s quite an achievable goal. It requires a little planning and commitment to follow it strictly without really needing an overhaul in your lifestyle. 

How to become financially stable?

1. Make a budget:

Evaluate your monthly income, expenditure, and savings after analyzing the pattern of about last three to six months. Now identify the areas where you can cut down your spending. One must pay the rent, school fee of kids, transportation, groceries, salary to the house help, the home and car EMIs, but he/she can always cut down on subscription of multiple movie-streaming outlets, dinner at fancy restaurants, spa treatments, and so on. It is important to create a realistic budget, which is practical and easy to follow.  You can start with what is doable – saving 5 percent of the income and then progress towards achieving 10 and 20 and then 30 percent. Budgeting helps you keep track of your money. Create separate accounts for general savings, an emergency fund, and one for your life post-retirement and contribute a little in each of them regularly. The savings should increase proportionally with the rise in income.

2. Live but within your budget:

Did you really need to buy that treadmill instead of going out for a run? In this age of consumerism, we are wasting money in buying stuff that we don’t need to impress people who don’t really care about what we bought. So, spend less than you earn. Taking the metro train instead of hailing a cab to work is one small example of living below your means.

3. Save and make investments:

Penny saved is a penny earned. While we have been focusing too much on savings, we also need to look at increasing the income. By switching to a job that pays better or by doing a part-time job, always try to earn a little more. Investments are another way of adding to the income but it’s a long haul as significant returns will come after decades. Make little but regular investments like PPF, NSC, FD, etc. to secure your future. Investments also mean using the savings to learn a new skill or get another degree, which can get you a fatter paycheck in the company. 

4. Avoid and clear all debt:

You cannot be considered financially stable till you are in debt. So, pay off the loans and credit card outstanding as soon as possible starting with those with a higher amount and rate of interest.

5. Start an emergency fund:

An Emergency or Rainy Day fund is like a contingency plan. It requires you to save a little from time to time, which can help you wade through the troubled waters like loss of job, an accident, massive loss in business etc. Build a cash reserve that can act as an extra security blanket. It should be different from your savings reserve for retirement.

Benefits of financial stability

• Better health and less stress:

As the breadwinner of the family, you can always be under the stress to meet the rising expenses and just FYI, stress leads to serious physical ailments like heart disease, stroke, depression, and obesity. By having all finances covered, you will feel more relaxed and add some good quality years to your life.

• Greater control on life:

There are many things we can’t control; finance is not one of those things. With financial stability, you can easily deal with bad times without hitting the panic button. When you are in heavy debt, all your life decisions are based on whether or not you can afford it. A financially-secured person can choose to change jobs or take much-needed vacations without spending sleepless nights.

• Better relationships:

With financial stability, comes respect, especially from family members. When you are able to meet most of the demands of your parents, spouse, and kids, they appreciate how hard you work for them. Couples with a logical and mutually-negotiated financial plan hardly engage in blame-game.

• Secure future:

Thanks to your emergency funds and retirement savings, you are sorted for a long time. From funding your child’s education dreams or your idea of taking early retirement, you can meet these goals without taking loans.  

Although you can always take help of a financial advisor to do the math for you but planning for financial stability is not really a rocket science. Following some simple steps without fail will help you find financial freedom to live life on your terms without worrying about how you will pay your next bill.