A friend of mine, let’s call her Juliet, reached out to me recently, lamenting profusely that she was tired of working. What’s the essence of working when she doesn’t even know where the money is going to go? According to her, immediately after her salary gets paid, she already has so many bills waiting to gulp the money, leaving her with peanuts after a month of hard work. After which, she slaves away at work, wishing that time flies faster so she can receive the next paycheck. Juliet’s pain and experience are familiar to most individuals, especially those with an average income level. Believe me when I say, you’re not alone.
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You see, the paycheck-to-paycheck cycle is a financial trap that prevents people from saving, investing, and living their dream life without borrowing or living on loans. What happens when you have an emergency? What would you fall back on? Most times, the problem isn’t a lack of finances but a problem of poor financial decisions and unhealthy financial habits.
In this article, we’ll be talking about how to transition from financial stagnation to living a healthy financial life.
Steps to Overcoming Financial Stagnation
These 7 strategies will help you break the paycheck-to-paycheck cycle and live a healthy financial life.
Strategy 1. Know where your money is going
A lot of people spend carelessly without being able to account for what they’re spending on, and at the end of the day, they bear the brunt of their recklessness. Don’t let that be you. Make it a habit and point of duty to track your income and expenses so you know if you have a hole in your pocket. Calculate your net worth, subtract your debts from your assets, and understand your liabilities, and this will give you a clearer picture of your financial health.
Strategy 2: Create a Budget
This is another important area where people fail. Don’t spend without having a roadmap or plan for what you want to spend on. A budget is a financial plan that helps you track your financial expenditure. While creating a budget, it is important to allocate funds for your needs, wants, savings and investments. You can utilise the 50/30/20 rule for effective budgeting.
- 50% allocation for your needs (food, rent, utilities, etc).
- 30% allocation for savings, investment or repayment of debt.
- 20% allocation for wants (shopping, vacation, picnic, etc.)
You can also choose to operate a Zero-based budget where every penny is accounted for.
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Strategy 3: Build an Emergency Fund
Just like I asked initially, “What happens when you run into an emergency? Would you have anything to fall back on?
Nobody prays for an emergency, but we all know that sometimes, emergencies occur, and you may need to incur unexpected expenses. You can start small, depending on how much you earn, and grow from there. A little amount here and there, and you would be surprised at how much you’d have over time. A great rule of thumb is to always save your emergency funds in a different savings account.
Strategy 4: Cut off Unnecessary Expenses
You need to understand that there is a difference between what you need and what you want. Your priority should be to settle your needs and then assess your wants to know if they are truly relevant or if they can be forgone. Track your expenses and find out if there are certain things you can cut out. For instance, you can choose to cook at home instead of always dining in a restaurant. You can choose to cut out unused subscriptions.
Strategy 5: Get an Extra Income
This becomes necessary if you find out that your income cannot cover your expenses, savings and investment budgets. You can get a side hustle, seek a higher-paying job opportunity or invest in a skill you can earn from. This will help you achieve your financial goals with ease.
Strategy 6: Cultivate a Financial Growth Mindset
Mindset is everything, and you cannot upscale your finances with a poverty mindset. You need to get rid of every limiting or fixed mindset you have about money and build a growth mindset. You cannot be a millionaire or even a billionaire with the mindset of a pauper.
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Concluding Thoughts
Breaking the financial stagnation cycle doesn’t happen by chance. It is a result of discipline, planning and actions, but believe me that you can attain the greatest height of financial freedom that you envisage.
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