8 Steps to Achieve Sustainable Financial Stability | Banking and Finance (2024)

Nowadays it appears that we’re all consumed and striving towards financial stability. Blame it on inflation, blame it on the imminent recession; whatever it may be, saving for the future is something we all now view as a necessity.

Truth be told, we never know what’s waiting for us around the corner and what other obstacles life may throw our way, so being prepared is always a good idea. But, what is true financial stability and how can we achieve it?

In this blog, we touch on how you can become financially stable in the long-term, to ensure you have guaranteed financial health, while living a stress-free life today.

1) Set Clear Financial Goals

Financial stability looks different for each person and what might be someone’s absolute goal, may be completely different to someone else’s, it all depends on what you want to achieve. So, before you get yourself into specific habits in an effort to save, invest and monitor your spending, the first thing you must do is consider your overall financial standing and set goals to work towards.

According to a study by the University of Stirling, households and individuals that set financial goals and are utilising professional financial advice are more likely to make successful saving, as well as “invest their savings in riskier assets with higher long-term return”.

First, try answering the following questions:

• What’s my financial life like now?
• Where do I want to be in a week, a month or five years from now in terms of my financial health?
• What realistic steps can I take to meet my goals?

After that, start thinking about specific achievable goals that will get you where you want to be. For some, that may be buying a house, so saving up for a down payment could be the goal. For others it could be to save enough for early retirement or at one point to escape the ‘living pay check to pay check’ cycle.

Financial goals will look different for each person, so try not to get distracted by your friends’ or family’s goals, because they may appear right, but might not be right for you.

2) Create a Realistic Budget

An essential aspect of creating sustainable financial stability is to be in-control of your cash flow and be mindful of your expenses. Creating a budget will enable you to start planning for the future while also helping you keep track of where your money is going.

A budget is essentially a plan that allows you to direct funds towards different areas of your financial life such as necessary expenses, discretionary expenses, debt payments, personal saving goals and retirement investing. Without a budget you run the risk of overspending and reaching into your savings, so it’s imperative that you start budgeting today.

However, in doing so remember to set a realistic budget and one you can stick to. The most common budgeting rule is the 50/30/20, where 50% of your income is dedicated towards your necessary needs, 30% is reserved for your discretionary spending such as eating out, non-essential shopping, holidays etc, and the remaining 20% is either saved or invested.

You can use this handy calculator to help you calculate what your budgeting should look like according to the 50/30/20 rule, based on your income after tax.

3) Pay Yourself First

A good tip to keep in mind is to not wait until all your bills have been paid and all your shopping has been done to then put some money on the side as savings. If you do that there’s a high probability that you’ll have very little left to put away.

Instead, set up a savings account that can automatically transfer a set amount, predetermined by yourself and your budgeting plan, every time you receive your income, basically paying yourself first.

For example, if you decide to follow the 50/30/20 rule of budgeting, once you’ve calculated what your 20% is, you can transfer that directly to your savings account and forget about it. So if you make £1,800 a month after tax, then £360 should be going towards your savings. That way you can better reach your financial goals and be aware of how to plan your spending for the month ahead with the remaining money, to stay in-budget.

4) Grow Your Emergency Funds

A common mistake many people make is that they heavily focus on building a retirement collection or saving for their children’s higher education, omitting to consider the importance of saving up for emergencies or unexpected situations such as a medical emergency or loss of a steady income.

Therefore, you should direct a portion of your income, maybe the portion that relates to your savings or discretionary spending, into a separate emergency fund. Knowing that you have the safety net of your emergency expenses being covered to fall back on, will make you feel more confident and stable in your overall financial health.

Interestingly enough, a 2021 study by the British financial service company Hargreaves Lansdown, found that 51% of Brits don't have sufficient emergency funds and are “vulnerable to nasty surprises”. What’s even more concerning is that many people are in fact unaware of the risk they’re taking by not having enough emergency savings.

This emergency amount could be the reason you remain afloat during times of distress, such as covering your primary expenses when you’re between jobs. However, make sure that once you’re more financially comfortable you replenish the amount taken as soon as possible. You never know what could come up next.

5) Invest Early On & Often

The key to building financial stability, ensuring it's long-lasting and supports you through your retirement, is to start as early on as you can and keep contributing to it regularly. Even if you work part-time, if you can afford to put a small amount of your pay check into your retirement fund, then undoubtedly do it.

Compound interest, also known as interest on interest, is also a big part of this, where in a savings account you can earn interest on the principal, which is the initial amount you deposit, plus on the interest that accumulates over time.

Consider a workplace pension scheme, where a portion of your pay check is automatically added into your pension one every payday. In most cases, your employer will also match your contribution into your pension scheme, which can help grow your funds faster.

6) Pay Off Your Debts

In the instance that you're carrying a high interest debt whether that’s a personal loan or credit card balance, you’re better off paying it off as soon as possible.

By making the minimum payment to repay the debt, means that over time you’ll end up paying much more on interest rate, which will then put you behind on your financial goals and ultimately delay you from reaching financial stability.

There are a few different strategies you can consider to get rid of your debt and those include:

• The avalanche method: pay off the debt with the highest interest rate first.
• The snowball method: eliminate your debt faster by focusing first on your lowest balances.
• Balance transfer card: moving your credit card balance to a new card, which could mean lower interest rates and a greater portion of your payments going towards your balance.

7) Track Your Credit Score

The final thing you should keep an eye out for is your credit score, to ensure that your financial habits align with your goals and eventually reach financial stability.

Building up your credit score is vital for when you one day want to achieve one of your main financial goals such as homeownership. It will also enable you to qualify for lower interest rates when you want to borrow instead of tapping into your savings.

Remember to also regularly check your credit score and make sure no credit report errors come up. However, if that’s the case, then immediately come into contact with the CRA (Credit Reference Agency) that’s showing the mistake, as well as the company that provided them with that information to resolve it straight away.

8) Consider a Financial Adviser

If you’re still unsure how to approach that, financial advisers can provide guidance and help you develop a plan to reach your financial goals. Financial advisers can help individuals and businesses take control of their financial wellbeing, offering them advice they can implement across the breadth of their life.

From budgeting for today, to your retirement savings for the future, your Financial Adviser can help you refine your short and long-term financial goals, while keeping you on-track to achieve your goals, providing you with the support you need to achieve financial stability.

Bottom line, financial stability has no real definition, however there are steps you can take to eventually reach it. It all has to do with living below your means, saving whatever and as much as you can, effectively managing and minimising your debt, and starting as early as you can contributing for your retirement.

The most important thing is to allow yourself the time and space to figure out what your financial goals are and take small, consistent steps towards achieving them.

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