Finance

Five Subtle Indicators That Your Financial Situation May Be In Distress

Cancerous cells can quietly increase over the years and metastasize across various organs in the human body. Often, they go undetected, and by the time the disease is identified, it may already be too late.

Similarly, many individuals experience financial challenges without realizing the severity until a crisis occurs. Regrettably, when these financial issues surface, there may be more time to rectify the situation.

Take Emeka, for instance, in his late forties and employed by an engineering construction firm. Everything seemed prosperous until the company encountered regulatory problems, lost most of its clients, and had to downsize. Emeka, unexpectedly retrenched without a substantial severance package, was caught off guard.

Despite dedicating almost a decade to the company, Emeka had little saved. His sudden job loss initiated several years of financial hardship, forcing him to liquidate most of his assets to support his family of four. The economic downturn exacerbated by the COVID-19 pandemic in 2020 led to widespread downsizing in various industries and companies, echoing Emeka’s experience.

Like Emeka, numerous individuals face financial problems masked by their current income. It’s akin to a temporary solution for an open wound – once removed, the financial struggles become apparent. For some, unforeseen expenses like medical bills or property loss are catalysts for financial ruin.

The looming risk of financial ruin is a critical concern, as it can become a matter of life or death. A 2019 statistic from the Nigerian Deposit Insurance Corporation (NDIC) revealed that 99.4% of Nigerians have less than N500,000 in their bank accounts. The pressing question is what these individuals would do in a life-threatening situation requiring more than N500,000, perhaps a million naira. Suddenly, financial stability becomes a necessity, not a choice.

Here are five indicators that your finances may be ailing:

  1. Limited funds after recurring expenses: Financial experts advise that recurring expenses should be at most 50% of your annual income. If, for example, you earn N100,000 in Lagos, your expenses, like food, utilities, and transportation, should not consume more than 50% of your income. Overspending warrants a reality check – scrutinize the numbers and eliminate unnecessary expenses.
  2. Inadequate emergency savings: Life’s unexpected challenges require preparation. Forbes experts recommend allocating at least 20% of your annual income to savings for rainy days. Though no one wishes for adversity, life can be unpredictable.
  3. Regular reliance on family and friends for financial help: Consistently seeking financial assistance from family and friends signals financial instability. Even if repaid promptly, the frequency implies ongoing financial struggles.
  4. Living beyond your means: Renting an expensive property when it exceeds 30% of your annual salary, as suggested by Chase experts, indicates living beyond your means. While societal expectations may influence spending, assessing the true cost is crucial.
  5. Sole dependence on one income source: Diversify your income streams to mitigate risks. Relying solely on one source can be precarious. Explore investments, keeping in mind the associated risks. If time permits, consider side hustles such as freelancing, blogging, or content creation to supplement your income.

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