The path to financial stability

You’ve probably wondered how your life would look if you had peace of mind by reducing stress related to money... In fact, for many, this is a major dream. Yet, it's important to note: not only is this possible, but there are specific strategies to help you get there.

In this article, we’ll dive into one of the most essential areas of this journey: stability. You’ll gain insight into what financial stability is and how to achieve it through 5 clear goals.

What is financial stability?

This is the first step within the stages of financial growth – which also include security, independence, and freedom, as we discussed in the previous article – with each stage contributing to the building of a prosperous financial life.

In simple terms, financial stability is the balance between income and expenses. It’s about lifting that weight off your shoulders, knowing you have control over your finances and the freedom to focus on what truly matters for you.

Furthermore, having stability means you’re not stuck in a cycle of debt or financial insecurity, as you have enough to live and can start thinking about savings and future investments. After all, think about it: how can you invest your money if you’re struggling to cover the bills each month?

For this reason, it's essential to adopt some practices that can help change your relationship with money and create a solid financial foundation. Let’s explore how to start this process in the sequence.

5 strategies for achieving financial stability

Achieving financial stability requires focus and some changes in financial habits. It is about creating a balanced flow of income and expenses to reduce financial stress and build a secure future. Think of it like controlling the flow of water from a tap: to keep just the "right amount" of resources, you need to manage what flows in and what flows out.

• Open the tap: increase your sources of income.
• Plug the leaks: cut unnecessary expenses and avoid all types of waste.

With this approach, let’s look at some practices that will reduce financial stress, help you take control of your finances and build a solid foundation for the future.

1. Set a Monthly Budget

To build a balanced financial life, it’s essential to make conscious decisions about how you spend your money. This allows you to understand your finances better and live within your current means. Here are the key steps to get started:

• List fixed income and expenses: note down all sources of income and fixed expenses like rent and monthly bills.
• Track variable expenses: record expenses that vary monthly, such as leisure and dining out, and set a limit to avoid overspending.
• Use the 50/30/20 Rule:

To better control your spending, try adjusting your expenses using this strategy. Initially, having a strict budget may feel restrictive, but remember, it will lead to a better financial position in the future.

• 50% for necessities (housing, food),
• 30% for wants (leisure, hobbies),
• 20% for savings and investments.

2. Reduce and Get Rid of Your Debt

If you have active debts, gaining a clear view of what you owe and adopting strategies to reduce these balances is the first and most essential step. According to the Money Charity report , in the UK, the average credit card debt per adult is £1,318, which could take up to 27 years and 1 month to pay off with minimum payments only, demonstrating the high presence of debt in people's lives and the difficulty of freeing oneself from it without a robust strategy.

Moreover, opting for a long-term payment plan doesn’t mean you're stuck with debt for years. By accelerating your payments, you can cut down on interest costs and clear your debt faster, freeing up funds to reach other financial goals sooner.

Since no one wants to be tied down by debt forever (at least, we’d hope not!), start by listing all your active debts. Organise them with the total amount, interest rate, and minimum payment for each. Now, let’s choose a strategy to pay them off as quickly as possible. Two of the most recognised methods are:

2.1 Debt Snowball

The snowball method prioritises paying off debts from the smallest amount to the largest, regardless of interest rates. The idea is to build motivation and momentum by quickly clearing smaller debts, creating a sense of progress and accomplishment that encourages you to keep going.

To use this method, start by listing all your debts in ascending order by amount, from smallest to largest. Allocate extra funds towards the smallest debt while paying only the minimum required on the others. Once the smallest debt is fully paid, redirect those funds to the next debt on your list, continuing this process until all debts are cleared.

This approach offers the psychological advantage of seeing results quickly, which can be highly motivating. While it may not minimise interest costs as efficiently as other methods, the sense of achievement and progress can help you stay committed to becoming debt-free. It’s all about your mind!

2.2 Debt Avalanche

In contrast, the avalanche method focuses on prioritising debts with the highest interest rates first. This approach aims to tackle the debts that generate the greatest financial costs, thus reducing long-term impacts on your finances.

To implement the avalanche method, begin by listing all your debts in descending order based on interest rate, starting with the highest. Then, concentrate your resources on the debt with the highest rate, making only the minimum payments on the others.

A key advantage of this method is its ability to lower the total amount paid over time by minimising interest costs. However, it requires patience and discipline, as initially paying off the most expensive debts can be a slower process.

3. Invest in Yourself

Improving your skills and taking care of your well-being opens doors to new sources of income and enhances your quality of life. Here are some practical ways to do this:

1. Expand Your Education and Personal Development
   No matter your professional field, learning something new, such as through online courses or certifications, expands your skills and enhances your CV. Even if it’s outside your area, any type of knowledge can add value to your work. For instance, a project manager who learns basic design principles can improve their presentations and communicate ideas more effectively with creative teams.
2. Develop Financial Skills
   A better understanding of the financial world enables smarter decision-making. Learning to manage your budget and exploring investments are crucial steps in building wealth.
   As in this article, we can help you at this stage. Be sure to check out our other articles on financial education here.
3. Build a Network of Contacts
   Connecting with others is crucial for professional growth. Studies indicate that over 70% of job vacancies are filled through networking. This demonstrates the importance of cultivating solid relationships, increasing your chances of being recommended by influential people in the job market.

4. Create an Emergency Fund

Acting as a buffer for unexpected expenses, an emergency fund is an essential component of financial stability. Whether it’s an unplanned medical bill, car repairs, or a temporary loss of income, having this reserve allows you to avoid taking on debt during challenging times.

To start, aim to save enough to cover at least one or two months of essential expenses. As your financial situation improves, work towards expanding this to cover three to six months, building a stronger safety net for greater peace of mind.

For added effectiveness, keep your emergency fund in a separate account with instant access, allowing you to withdraw funds whenever needed. This setup ensures you’re prepared for immediate needs, reducing stress and reliance on credit when life throws you a curveball.

5. Save and Invest Your Money

After establishing a controlled budget and paying off debts, investing a portion of your income becomes essential. A good starting strategy is to set aside a fixed amount each month, directed towards long-term investments like traditional assets and digital currencies. Adding crypto, especially Bitcoin ($BTC), can diversify your portfolio and may boost returns. Over the past 10 years, Bitcoin has had an average annual return of 69.5%, while the S&P 500, a solid benchmark for stocks, has averaged 15.5% in the same period.

Source: Curvo

For total returns, Bitcoin reached 19,451.7% over the last decade, while the S&P 500 grew by 324.0%. These numbers highlight the different growth potential between traditional assets and digital currencies, though it’s important to remember that crypto investments tend to be more volatile.

If you’re interested in investing in cryptocurrencies, start with a small amount that won’t affect your budget or emergency fund. Setting up an automatic transfer can also facilitate consistency.

Learn more about SwissBorg’s Auto-Invest , an automated solution for regular crypto investments, helping you build wealth steadily.

Conclusion

Achieving financial stability is a journey that requires discipline and planning. Through the steps above, you will be laying a solid foundation for a stable financial life, ready to take further steps towards other areas of financial growth.

The journey may be long, but with focus and persistence, each step brings you closer to financial freedom. Remember, every choice you make today is an investment in the life you want tomorrow.