Individual financial stability is the ability to live comfortably, pay monthly expenses, and save for the future.
Working towards financial stability need not be an exercise in self-deprivation, though many people assume it to be.
Attaining this goal even has some immediate benefits given that financial insecurity can be a serious source of stress.
Invest in yourself. Look at yourself as a financial asset. Investing in yourself will pay off in the future.
Your skills, knowledge, and experience are the biggest assets you have.
Increase your value by continually upgrading your skills and knowledge and by making smart career choices.
Though this investment often starts with going to college or a trade school, keeping your skills up to date and learning new ones that are in high demand can help make you a more attractive and higher-paid part of the workforce. Investing in yourself should continue over your lifetime.
Set saving and expense budgets. Recording your expenses regularly is necessary. This is to monitor your spending pattern and use it for further financial planning.
For the basic cost of living such as housing, utilities, food, and transportation, this should be controlled to not over 50% of monthly income. Saving and emergency budgets should be set at least around 10-20% a month.
Lastly, other expenses should be less than 30% of income.
Don’t Borrow to Finance a Lifestyle. Borrowed money should be used when your gain will outrun your borrowing costs.
This might mean investing in yourself, such as for your education, to start a business, or to buy a house. In these cases, borrowing can provide the leverage you need to reach your financial goals faster.
On the other hand, borrowing to finance a lifestyle you can’t afford is a losing proposition when it comes to building wealth. The added interest expense on borrowing further increases the cost of the lifestyle.
Track Your Spending. Getting to where you want to go is easier if you have a map or a guide. Knowing how much you spend and what you spend it on can help keep your spending in check.
Even though you earn more, it does not mean that you have to spend more, especially on unnecessary and too luxurious stuff. The surplus you have should be saved and invested so that you can be financially free even faster.
Set Short-Term Goals. Life holds many uncertainties, such as an economic crisis or the loss of a job, and much can change as you move from say your 20s to say, 40 years later when you may retire.
As such, the prospect of planning far into the future can seem daunting. Rather than setting long-term goals, set a series of small short-term goals that are both measurable and precise.
For example, paying off your salary loan within a year or contributing to a retirement plan with a set contribution each month.
If you set goals, you’ll have a better chance of achieving them than you would if you merely said you wanted to pay off debt but failed to set a timetable.
As you achieve short-term goals, set new ones. The constant setting and achieving short-term goals will help you reach longer-term goals.
Take Calculated Risks. Taking calculated risks when you are young can be a prudent decision in the long run. You might make mistakes along the way, but when you are young, you have more time to recover from them.
Examples of calculated risks include moving to a new city with more job opportunities, going back to school for additional training, taking a lower-paying job at a different company with more upside potential and investing in stocks that have a high risk/high return profile.
As people get older, some may assume more responsibilities such as paying down a mortgage or saving for a child’s education. It’s easier to take risks when you have fewer responsibilities.
Pay off debts. Loans with high interest rate such as personal and credit card loans should be paid off as quickly as you can. After paying off your debts, try to be more financially disciplined.
You need to limit spending budget for each month, and then set aside required monthly expenses and saving amount.
Set emergency fund. Economic uncertainty, illnesses, and accidental incidents can happen at any time. It is therefore very necessary to set aside emergency fund for yourself.
The amount for this fund should be around 6-12 months equivalent of your monthly income. Furthermore, health and accident insurance are recommended too, as it will secure your bank account when you are faced with unexpected events.
Become Financially Literate. Making money is one thing, but saving it and making it grow is another. Financial management and investing are lifelong endeavours.
Be sure to take the time and effort to become knowledgeable in the areas of personal finance and investing.
You’ll realise that this will pay off now and throughout your life. Making sound financial and investment decisions is important for achieving your financial goals.
Plan for retirement. Some may think it is too far to plan. However, the earlier you can save for retirement, the faster you can be financially free.
This is because the savings and returns can be accumulated and continuously reinvested for longer period of time.
For office employees, it is recommended to save as much as allowed by the company in provident fund. In case of moving to new companies, it is better to transfer this fund with you, not withdrawing it before the retirement for your own utmost benefit.
Additionally, pension insurance is another interesting saving tool for retirement, since it will guarantee your regular fixed income when you retire.
By Wananchi Reporter