How to Overcome Financial Paralysis 

How to Overcome Financial Paralysis 

When you go online and search for ways to manage your finances, overcome debt, or other finance-related queries, you’ll find yourself flooded with tons of information. There are so many options that it becomes hard to settle on what to do first. 

What is Financial paralysis 

Financial paralysis occurs when we are faced with too many choices, in regards to finances. For some people when they are faced with too many options, they choose inaction. They do nothing to solve their financial situation because they are unable to decide on where to start, or how to begin. Such people are also afraid that they may not choose the best option. 

What causes financial paralysis 

Financial paralysis is caused by an inability to make decisions due to an overthinking problem. It occurs when one is flooded with information. As a result, the person ends up with money anxiety as they keep thinking about the upsides and downsides of each option. This individual is unable to pick one solution. 

Many people sit on the sidelines because they can’t pick the right way to:

  • Get out of debt. 
  • Invest their money 
  • Cover expenses 
  • Realize their financial goals
  • Achieve financial freedom e.t.c 

Overthinking your money, for instance, overthinking about the best ways to invest can easily lead to paralysis. Most people think they need a wealth of knowledge before investing in stocks, or real estate. Psychologists say the root cause of paralysis is anxiety. We simply fear choosing the wrong option. 

Overthinking your money can lead to missed opportunities. You easily get trapped in the overthinking pattern that you fail to make a move that would have helped you with your finances. Even if the decision results in failure, you can treat the failure as a learning curve and stay positive. 

How to overcome financial paralysis 

Financial paralysis is also known as analysis paralysis. You can overcome this problem by first clarifying your financial goals. As a rule of thumb, the best goals are SMART goals [S-Specific, M-Measurable, A-Attainable, R-Realistic, T-Time bound]. For instance, don’t just say, “I want to invest in stocks.” You should be SMART about it and say, “I want to invest in high-dividend stocks that will bring a good annual dividend. I plan to use 20% of my salary for the next two months to invest in these stocks.” 

When it comes to financial paralysis, making the first choice is what matters. You can use the step-approach to begin your journey. For instance, if your biggest challenge is unemployment, you can begin by getting a job. If you have an income problem, you can search for side-hassles or passive income ideas that can earn you that extra cash. Once you have your job and your side-hassle, step 2 can be coming up with a monthly budget. This budget will help you control your expenditure so that you can have some funds left over to deposit towards your emergency savings fund. 

Financial experts recommend having an emergency savings fund that can cover you for up to 6 months in case something sudden happens, e.g. losing your job, death of a spouse, a loved one in hospital, e.t.c. You can begin saving towards your emergency funds by:

  1. Estimating the costs of your critical expenses e.g. food, housing, healthcare, transportation, personal expenses, or debt. 
  2. Avoiding any expenses that you will have to cut off in the event of a job loss e.g travel, going out for a movie, dining and others. 

The goal with an emergency fund is to save enough money that will cushion you in case of an emergency. If the emergency occurs before you reach your target, you can use the funds you have in your emergency savings and replenish your account later. These funds are meant to be tapped and replenished. 

The third step that you can consider in your financial plan is the 50/30/20 rule. This rule is designed to help you manage your money after-tax. This strategy was popularized by U.S senator Elizabeth Warren. It states that you should spend 50% of your funds on needs, 30% on wants, and 20% on savings. This straightforward rule can help you avoid overthinking about money as it offers a reasonable way to stick to your financial goals. Still, it is worth noting that a good budget depends on where you live, how much you earn, and your life stage. If you’ve never had a budget and you don’t know where to start, you can begin by using this rule. 

The fourth advice is learn to become your own financial advisor. There are some excellent financial books that can give you practical tips on how to build wealth. Take some time to read and apply the solutions that fit your lifestyle. You don’t need to incur costs hiring a financial advisor. Rather, get some books online or at your local bookstore, read, and apply the principles you find there. 

The goal is to overcome financial paralysis. Experts suggest that you do so by making and acting on a series of small decisions that lead up to the main goal. Bear in mind that you can revise and improve your tactics along the way. 

To Conclude 

Financial paralysis is a problem that’s often overlooked. Whereas one can decide to make a choice to better their financial situation, taking the steps to do so can be challenging. But, making a step, however small it is, is better than not making any steps at all. Learn to appreciate small steps and celebrate what you manage to accomplish however tiny it seems. Start with one aspect of your life and keep working at it until you reach your goals. 

Living in financial paralysis means choosing to be stuck. What’s important is to get started and figure out what works best for you. Even if you don’t get it on the first try, just keep at it until it becomes easy. 

This Post Has 3 Comments

  1. Nancy Wambui

    The 50%, 30%,20% rule sounds applicable

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