Financial stability is a goal that most Nigerians strive for. If not for anything, for the peace and security that comes with being financially capable. However, this is an aspect of life that has been difficult for most people to attain. Therefore, this article will run through how to allocate your income in order to attain financial stability.

What is an Income?

Income can be defined as money earned. This can be in form of a salary or through any revenue streams. This is usually gotten on a regular basis through work or through investments.

However, despite the kind of income an individual or a business gets either weekly or monthly, without proper income allocation, there will always be financial crisis.

Why do people strive for financial stability?

Financial stability is a term that will be defined by different individuals according to their own terms.
For some, it is the ability to have enough to take care of themselves and their loved ones. For others, it could be the ability to have enough to even sustain their children’s children.

But in the general sense, financial stability is the ability to be financially sufficient. An extensive research in 2023 showed that most individuals are unable to attain financial stability.

This only shows how important it is to carefully plan and create a strategy that will help you become financially stable.

With the economy of Nigeria, people want to be able to cover expenses, emergencies and even have enough for their retirement days.

However, to achieve this, we need to understand how income allocation is a crucial part of attaining this level in life.

Understanding your income and expenses.

To effectively allocate your income, you need to be able to understand and track your financial situation. This can be done through the following ways:

Monitoring your income

This is your ability to identify all sources of income including your salary or your side hustle. Being able to do this helps you understand how much you get to earn at the end of every week or month depending on your frequent revenue stream.

When you monitor your revenue, you can be able to understand how much you spend and how much you save.

Categorizing your expenses

When you categorize your expenses, you learn to allocate more money to more important things. You can divide your expenses into fixed costs such as your rent and utilities and then variable costs such as groceries and hobbies.

When you do this properly, you can pay off your bills and still have room for spending on your wants and also savings.

Setting a financial goal

Set a clear financial goal. This helps you understand the things to allocate more money to.

For instance, if your goal is to buy a house by 2026, this goal helps you allocate more money to your savings.

Creating a budget—Financial stability

A budget is the blueprint that helps you track your income and expenditure. Creating a budget helps you identify how close you are to attaining your financial goals.

However, it’s important to have a clear plan in mind before creating a budget. You need to be able to create short-term and long-term goals. Doing this helps you know the kind of things to allocate more of your income to.

There is a common budgeting rule that is being used by businesses and individuals to allocate and track their income. This is known as the 50/30/20 rule. You probably must have heard about this but we’re going to break it down properly.

The 50/30/20 Rule For Financial Stability

This is a rule that has helped many individuals and business owners spend money on their needs and still have room to spend on wants. Therefore it goes like this 50% of your income goes to your needs, 30% goes to your wants while 20% goes to your savings and debt repayment.

Let’s look at them one after the other.

Budget 50% for your essential expenses

Just like the name implies, essential expenses are those needs that you necessarily can’t do without. Expenses like this includes:

• Housing (Rent/mortgage).
• Utilities.
• Groceries.
• Transportation fare.
• Minimum debt repayments.
• Insurance.

Budget 30% for your Discretionary spending

Discretionary spendings also known as optional spendings are those expenses that are not necessarily important but you need it to live a good and fulfilling life. This means that they are not as important as needs, however, having them makes life easier and better. Such expenses include:

• Entertainment.
• Hobbies.
• Vacations.
• Upgrades.

Budget 20% for savings and debt repayment—Gain financial stability

As an individual or business trying to attain financial stability, you can’t do so if you don’t save up or if you have lots of debts to pay off.

Therefore, you need to allocate 20% to your savings and debt repayment. This includes:

• Building an emergency fund—this will save you in times of uncertainties.
• Paying off high interest rates—the more the interest, the more money to pay. Therefore it’s important to pay it off.
• Invest in retirement accounts— this saves you from financial crises after retirement.
• Explore long-term investments—these types of investments will help you have a stable source of income.
  

Additionally, to make the whole process easier, you can:

• Automate your transfers to savings and investment accounts.
• Avoid living a lifestyle that’s above you.
• Always monitor and adjust your income allocations regularly.

Customize your income allocations

You can also customize your allocations by considering factors like:

• Income level.
• Family size.
• Location.
• Debt obligation.
• Financial goals.

What exactly does this mean? It means that your income allocation can differ depending on your individual responsibilities.

if you have a lot of people you’re responsible for, you can adjust your income allocation to be 60/20/20. This simply means that you reduce the allocated amount for your wants. At the end of the day, it all comes down to your individual lifestyle.

Conclusion

Financial stability is not a myth, it is more than achievable. However, you need to be able to allocate your funds to the things that will help you attain that level while also living a good life. This can be done using the 50/30/20 rule. Therefore, it’s important you read through the post, read through, analyze and pick what works for you.