This article originally appeared on Money254. Money254 helps consumers and business owners to search, compare and apply for financial products in Kenya.
Is it possible to save yourself from financial instability and get back on your feet? Can you stop living paycheque to paycheque, learn to save, and change your money attitude for the best? Absolutely.
And you can do it all without going insane and stressing yourself.
Take Rachel, for example. One year ago, she was widowed, and she lost control of her household finances. Rachel had quit her job a few years earlier to take care of her family and learned to live off one income from her partner. But with that off the table, she needed to find ways to provide for her family.
Rachel created a plan, adopted new smart strategies, got back in the job market, and today, she’s in a better place financially. She didn’t let one incident define her future forever.
Your situation might differ from Rachel’s, but you can still rescue yourself from financial instability. This article will discuss nine things you can start doing today that will help you through instability and help you get in control of your finances.
1. Identify the cause of your financial instability
Before you can start the process of getting out of your current situation, it's vital that you establish the cause. Only then can you create a path out of it. Financial instability results from one or many financial blunders that accumulate over time. It can happen when you ignore simple warnings or fall victim to bad financial advice.
Financial instability can be caused by various factors, including:
- having too much debt
- living beyond your means
- failing to protect yourself and your possessions using insurance
- ignoring your risk tolerance when investing
- losing your only source of income.
Once you identify the root cause of your instability, you can set a roadmap to bounce back without subjecting yourself to further trouble. You must keep in mind that different causes will require different solutions. For instance, how you deal with instability caused by borrowing more than you can afford will vary from the approach you'd take if you had lost your source of income.
2. Control what you can still control
As you are already aware, financial instability happens when you lose control of your finances. Therefore, it is a no-brainer that to rescue your situation and avoid more trouble, you should try to get some control back.
Personal finance is broad, and it's possible that even though you are experiencing instability, not all aspects of your finances have been affected.
Maybe you've lost your income and wallowing in debt, but your retirement fund is secured. By taking control of the unaffected side, in this case, your retirement nest egg, you can ensure that your future is protected. Create a distance between you and that money and try to find other ways out of your situation without destabilising your future.
Taking control of your finances will involve going back to the drawing board and the basics of personal finance. You will need to take the following steps:
- create a budget to control your spending
- cut out unnecessary expenses and focus on needs over wants
- rethink your perceptions and beliefs about money
- read up more on personal finance
- rebalance your investment portfolio if you have one.
3. Make a priority list
The truth is you cannot possibly deal with all the causes of your financial instability at once. This is why it's crucial that you approach the situation in a way that guarantees your survival. The best way to do this is to prioritise and deal with the problems depending on their magnitude.
Some causes, like overspending, can continue to hurt you if you don't get it under control and curb your impulsive spending habit. If you have this problem, your priority should be learning how to create a budget and sticking to it. And if you have problems protecting yourself from financial emergencies, prioritise building a rainy day fund and investing in insurance.
A priority list will help you stay accountable to your goals of getting out of instability, help you make better financial decisions, and ultimately help you solve all the financial difficulties you might have. But remember, a priority list without any actionable plans is just a piece of paper that will serve you no good. Follow up your plan with well-thought-out steps.
4. Develop ways to generate extra income
No matter what the cause of your financial instability is, the extra income will help you reduce its effects. Extra income means more money to pay bills, save and invest. Meeting financial obligations, let alone saving for the future, can be nearly impossible when you are not making enough money.
There are generally two ways to ensure that your expenses and income stay uniform and, at the end of the day, be able to set aside some money. One way is to cut costs, and the other is to develop new income streams. But to ensure you survive instability and escape it quickly, why not adopt both strategies?
The best way to generate extra income in your current position is to consider taking a side job, getting into the gig economy like freelancing or driving for Uber, or using one of your skills to earn money. Are you good at math? Consider offering tutoring services to students in your estate and charge their parents.
5. Review all your money habits
If you are experiencing financial instability, there's a chance it is because of bad money habits you have been accustomed to for a long period. And unless you can change those habits, getting out of your situation will be tricky.
Breaking bad habits takes time, effort, and commitment. It's not something that you can achieve overnight. The best way to do it is to replace them with good financial habits. For example, if you have a problem paying bills on time, consider automating your finances and setting reminders to do that immediately after you are paid.
Example two, if you have a problem saving for your kid's education, consider talking to your employer to increase your deductions. Money will be deducted from your salary and pay your kids' education insurance premiums.
By reviewing your financial habits, you will be able to identify the bad ones, drop them or replace them with good ones. This will ensure you pay off your debts, save more, build wealth and become financially stable.
6. Count your allies and networks
Surviving through financial instability is no easy task. Remember, even in your current situation, you still have to pay bills, provide for your family, pay rent, and whatnot. You will need a way of meeting all these obligations when you are hard on cash. This is the time to reach out to those close to you (family and friends) and your network.
Your friends and family can help you through instability in different ways. They can give you a personal soft loan or co-sign a loan for you to get money to start a business. They can help pay immediate bills like rent, your kid's school fees, and much more. But this should be temporary, don’t take their kindness for granted and make them your ATM.
It is also possible that some of your allies were once in your situation and got out. By reaching out to them, they can offer you tips and advice on how you can do it too. They can help you create a budget and provide long-term solutions, like how you can generate extra money and save more.
Additionally, you might want to reach out to your professional network. They can help you find work and opportunities within your field if you are unemployed or a better-paying job if your instability results from underearning. They can also share knowledge of how you can leverage your skills to make money.
7. Restructure any debt you have
Debt restructuring refers to the process of renegotiating with your lenders to change your loan terms to make it easier for you to service them. It's a process that can come in handy when you are experiencing instability resulting from acquiring too much debt.
Take Mwangi's situation as an example. He's currently experiencing financial instability due to a high debt-to-income ratio. He has a mortgage and car loan and is still servicing his student loan. Despite having three sources of income, he's spending 65% of his income on paying debts. Since the birth of his son four months ago, he has run through his emergency funds.
But instead of selling his business or other assets, he chose to restructure his debts. This is because restructuring can provide him with a variety of benefits, including:
- help him consolidate his debts and make it easier to pay off
- prevent him from defaulting, which can affect his creditworthiness, lead to bankruptcy or repossession of his assets
- it offers him room to create effective strategies to find new ways to service his loans without much struggle.
8. Get professional help
Fighting the waves and swimming to shore by yourself is admirable and commendable. But it's risky. Your chances of drowning could be reduced if you let a lifeguard help you to the shore. The same can be said when you find yourself deep in financial instability.
You can do your own independent research, gain financial knowledge and successfully rescue yourself. But there's a chance you might consume misleading content or apply the wrong strategies that could hurt you more. But when you choose to seek help from registered and licensed financial experts, you can get professional advice and strategies that can save you from financial instability.
When you hire a financial advisor, it's important that you give them the whole picture of your finances and be as honest as you can. When you withhold information or provide false testimonies, they won't be able to offer you practical help.
9. Forgive yourself
Money mistakes are common. You can try your best to avoid them, but there's no guarantee you will succeed. Some of these mistakes you can make subconsciously or even have list-long reasons to justify and rationalise them. It's only when they lead to a financial crisis that you realise how wrong you were. So you resort to blame games, denial and regrets.
But none of that will help you. At the end of the day, you have to accept that you played a role in driving yourself to instability, and only then can you move forward. And how do you make that happen? By owning your mistakes and forgiving yourself.
Instead of tormenting yourself after financially sinning, forgive yourself. It can help you move past the problem faster, get control of your finances, make better decisions moving forward, and, most importantly, help you learn from your mistakes. Sometimes it is by making mistakes that you learn the greatest lessons.
Getting out of financial instability is challenging but possible. It is not something you will be able to do overnight. Undoing years of financial blunders will take time. After creating your plan, you will need to persevere through it.
You will need to adapt new money mentality, learn to be frugal, and push yourself through the challenge. Years down the line, you will look back and be proud of your accomplishment.
Finally, you will need to commit yourself to prevent a similar scenario from repeating itself in the future. You will need to stay alert moving forward, catch any signs of impending instability, and address it before it gets out of hand.
You will need to pay more attention to your finances, advance your financial knowledge and stick to all the good money habits that helped you out of instability.