If the two buzzwords which sum up the last decade or so were “financial independence”, it’s probable that the future is going to be defined by a related and very vital term known as “financial stability”.
In this era, where the whole economies can be precipitated into stillness and silence in the passing of a moment, one craves stability – be it relationships, jobs or finances, we need to know that there’s a safety net to fall back on.
Financial stability is no different from stability in personal relationships. Indeed, finances are personal. You have to court stability, have to give and take in order to ensure that money doesn’t ‘ghost’ you when it’s needed the most.
What is financial stability?
Taking further the ‘relationship’ metaphor, you’ll have to understand that there are no hard and fast rules, no straitjacket solutions when it comes to finances. It’s subjective; dependent on countless variables, which include, but are certainly not limited to the nature of your income (contract-based/permanent), prevailing economic environment, your lifestyle, your ambitions and plans, and much more.
However, one can delineate financial stability in a few broad desirables:
- Having a cushion of savings for rainy days (or the whole monsoon, even)
- Timely and full payment of all dues, bills, and EMIs
- Minimum or no debt dependency and a brilliant Credit Score (check credit score uk)
- Adequate plans for a comfortable retirement
Why financial stability?
One cannot stress this point enough – stability is imperative to tide your boat over the choppy waters of economic uncertainty. Hope for the best, but prepare for the worst.
Attaining stability is keeping yourself above money matters, making your money behave like you want it to, rather than money holding clout over your impulses, which is likely if you splurge aimlessly.
And it’s not only about the future, but it’s also about the present. You’ll find yourself fretting less often about bills, loan instalments, and grocery shopping if you’ve planned and appropriated money beforehand. It allows you to focus better on your work, increases productivity and lessens worries.
All this may sound drab, and indeed, it can be much more than that, but planning your finances puts things in perspective. It may happen that once you keep the cash and the bills together on the table, your hopes of Prada bag or Gucci shoes may be pulverised by grim reality, but it will at least let you know where you stand much before it’s too late. After all, budget sessions in Parliaments are not theatrics.
But let not this dampen your spirit just yet. If carried out diligently, financial planning can result in no more than deferment of certain pleasures that you would’ve indulged in right now. It doesn’t necessarily mean sacrificing that new cardigan, but perhaps only lets you know that pair of Jimmy Choos which go perfectly with it, just might be out of the budget right now.
The Road to Financial Stability
The path to financial stability is prepared as you move along. As written before, there are no trodden trails in this jungle. Yes, maybe a direction board here and there, but mostly only you, your instincts, and your knowledge of yourself.
1. The Economics of Choice
Emphasis on the last three words. Knowledge of yourself. Why? Because planning is successful only based on some achievable goal. The goal here is the fulfilment of your desires, and hence, you need to know your desires, and better yet, prioritise them.
Finances are all about making choices, sometimes tough ones (and that’s what planning beforehand precludes). But you need to know what’s important to you and your survival, that new Apple iPad, or the rent payment.
2. Budgeting and Discipline
Begin budgeting by weighing on the one hand what you have, and on the other what you want. Assign more weight to necessities like rent, utilities, commute fares and groceries. The envelope method still works, so maybe buy some.
Necessities reduced, now assign savings. Start small. Going cold turkey will be a killjoy, bordering on being counter-productive. Begin by saving a little, and perhaps inculcate habits which are conducive to saving more. A little thrift doesn’t hurt.
But here’s the toughest part: Stick to the plan. Refrain from chucking this away like the new year resolution to get fitter, which only lasts a month. Rigour is an integral ingredient for healthy financial planning. Always remember, money trouble tastes much bitter than a morning kale smoothie.
3. Finance Schooling
If money is terra incognita, you’re susceptible to fall into the lure of phoney schemes. There’s plenty of that kind of phish in this sea. The way to move forward is to educate yourself.
For starters, taking help from relatives and close friends is suggested. Make acquaintance with basic financial jargon, and stop skipping the business section of the newspaper. Know the various savings rates offered by competitors, the dynamics of mutual fund schemes and the stock market. Invest in some books on the topic.
Pro tip: Make it a habit to read the fine print before signing anywhere. You could enrol yourself in whatnot these days. Weigh with utmost care what the plan offers you, and more carefully what it demands of you. Company credentials are to be pored over beforehand. Finance is personal, and so should be your relationship with your financial partner.
If affordable, you can take the assistance of a professional financial planner.
4. Stay wary of Credits
As a rule of thumb, being credit free is preferable. But that’s an ideal scenario. More often than not, people rely on formal credit, if only initially, to start off a business or buy a home.
But banks don’t offer you money on a platter. What they need is assurance. Being creditworthy is what you can do. There are metrics to gauge creditworthiness, called credit scores.
Simplistically, paying all dues timely and efficiently is the key. Needless to say, higher the credit score, more the acceptance for credit cards uk.
5. Grow Your Money
In order to increase your wealth, you need to know what you’re going to do with the extra money you’ve saved. Keeping it at home would yield no benefits. There are banks which happily take your money and provide an annual interest on it.
Learning about prudential investment activities is imperative. Investment is the way idle money is put to use. There are various avenues for investment. The stock market is the most common, and the most perfidious too. It is advised to enter the stock market only when you’re sufficiently acquainted with its working and the various complex financial tools which you’ll be encountering there.
Mutual fund schemes or passive trading allows you to invest in the market via the services of a market expert for a stipulated fee. But if you prefer handling your money yourself, it is better to get your hands dirty in simulated stock markets which can be found online.
To sum up: The quantum of earnings won’t matter if at the end of the month you’re struggling to keep your head above water. Financial stability is like any other plan; it prepares you for contingencies. Lastly, it’s all about balance. As someone rightly said, keep money aside for a rainy day, but don’t take your obsession to the point of expecting a deluge.