Five Signs of Financial Instability

Posted by Shaun Morgan in EmotionsJuly 27, 2022(Last Updated November 24, 2022)5 min read
Key Takeaways
  • Financial stability is apparent in many forms. But unfortunately, the same goes for financial instability.
  • You don’t have to worry about financial security when you are financially stable.
  • Your credit score can be a sign of financial stability or instability.
Are you ready to make some real money moves?

Most people want financial security, which can mean covering all expenses and having enough to save and invest. However, before you become financially secure, you must become financially stable.


Unfortunately, many people aren’t aware if they are financially unstable. However, your financial knowledge can pay the most significant dividends. Keep reading to find out the five tell-tale signs that you are facing financial instability.


No Emergency Fund


To be stable means being firmly fixed in one place. For example, a lighthouse is very stable. This is because it refuses to move no matter how much the ocean waves beat against it. On the other hand, a boat is unstable because it moves according to the waves of the unpredictable ocean.


You need an anchor to become stable, and the anchor in your personal finance journey should be an emergency fund. An emergency savings fund is at least three to six months' worth of expenses for when an emergency happens. Instead of being financially incapable of handling a surprise expense, an emergency fund relieves your stress. For example, when the car breaks down or the air conditioner in your house quits in the middle of summer, you can use your emergency fund to pay for those without getting into debt.

Studies show that 64% (roughly 166 million adults) of the United States population lives paycheck to paycheck. Unfortunately, when an individual or a family lives paycheck to paycheck, all of their monthly income is used for expenses with nothing left over to save, let alone invest.


However, you shouldn’t be ashamed of living paycheck to paycheck. Instead, try finding helpful solutions that can help you bring in more income.


How to Build Your Emergency Fund


Two of the best ways to build an emergency fund are to earn more income and automate your money.


Options to Earn More Income 


Do you have a reliable car? Try delivering food for a delivery food service like Uber Eats or simply driving for a car ride-share service like Lyft.


Do you want to learn how to make passive income? You can have fun or simply share your knowledge with others to make extra income.


Automate Your Money


A portion of each paycheck should go toward your emergency fund, generally a designated savings account. Even if you transfer $5 from your paycheck to your emergency fund each month, you will be in a better position than you were before. Automatic payments can grow your emergency fund without you having to manually move the money every month.


Credit Card Payments


Credit cards are a useful tool if you are financially responsible. However, if you are irresponsible with your credit cards, this can lead you into debt.

Without an emergency fund, it is easy to start putting every emergency on a credit card and even some not-so-emergencies. The higher your balance on a credit card, the higher the minimum payment. Eventually, you can't keep up with the bill and may start missing payments.


If you feel you can’t keep up with paying off your credit card or your balance grows every month, that is a sign that you’re financially unstable.


How to Catch Up on Your Credit Card Payments


Credit cards have notoriously high-interest rates and can keep you rooted in debt. As a result, you could have poor credit and high debt, making you less attractive to lenders. On the other hand, your budget could be the reason why you depend on credit cards. If you have credit card debt, revise your budget and plan to pay off your debt soon.


Recommended Read: Four Types of Budgets to Help You Become Financially Stable


Excessive Fees


Banks and credit card companies usually charge fees for late payments, and debit cards charge fees for overdrafts. So if you can’t keep up with credit card payments or you routinely hit overdraft and are getting charged fees, that is a sign that you are suffering from financial instability.

Pro Tip: CapWay doesn't charge cardholders unnecessary fees, such as overdraft fees, minimum balance fees, and no monthly fees.


How to Avoid Excessive Fees


Fee charges are often due to accidental neglect more than financial problems themselves. Setting up an automatic payment for the monthly minimum payment on a credit card or setting up overdraft alerts and protection with your bank can help you avoid fees.


Recommended Read: How to Make Money Moves with a CapWay Debit Card


More Debts than Assets


As someone becomes more financially unstable, they fall deeper into debt. Debt is money owed or anything that takes money out of your pocket. Assets, on the other hand, are the money you have or things that put money in your pocket. 


Recommended Read: How to Increase Your Assets


How to Gain Assets


Decreasing the gap between debts and assets requires decreasing expenses and increasing your income. You can also look into options to get debt forgiven or reduced. A balance between debts and assets or having more assets than debts is a good sign of financial stability.


Continually Borrowing Money 


It’s not a good feeling to ask other people to borrow money. We’ve all been there at one time or another. The issue arises when it continues to happen for a prolonged period.


You're not financially stable if you always rely on someone else to help you cover your bills or expenses. Although family and friends want to help, you could ruin a relationship or cause them to go into debt to financially support your needs. 


Recommended Read: The Importance of Setting Financial Boundaries with Family and Friends


How to Break The Cycle


The first step is to whoever you may ask for money that you want to try and become financially stable. This may be hard, but it’s important for them to know that you are making strides to become financially independent. 


Several ways can help you break the cycle of asking for money, including earning extra income, creating a budget, and cutting unnecessary expenses. First, create a plan to cover your expenses on your own and set a date to become free from needing support. From there, you can start to build your financial security.


The Money Wrap-Up


Financial security can help you to build your confidence and self-esteem. When you have the financial knowledge to make smart money decisions, you will feel great about handling your finances. Once you learn how to manage your money, you can start taking the necessary steps to build wealth for yourself.

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