Sinking, Floating, or Flying: Where Are You on the Financial Scale?

Financial health begins by understanding where you stand, what challenges you face, and what steps you can take to improve your situation.

For many people, identifying their position on the financial scale can provide clarity and a foundation for positive change – but are we able to accurately assess our position?

According to The Perception Gap (Money & You) by the Financial Services Council, 82 per cent of Kiwis say they have financial confidence, but only 62 per cent could provide more than two correct answers on a basic financial literacy  quiz. For those aged 29 and under, this figure drops to 48 per cent.

Whether you’re sinking, floating, or flying, each stage represents different challenges, and accurately assessing where you are financially is the first real step towards building a better future.

This article will break down what it means to be sinking, floating, or flying in financial terms to help you better understand your financial position, along with practical strategies to help you move forward.

Sinking: Signs of Financial Distress and How to Recover

“Sinking” is a state of financial distress often characterised by overwhelming debt, insufficient income, and a lack of savings.

Being in this stage can feel disheartening, and without a plan, it’s easy to remain stuck. The key to moving from sinking to floating is acknowledging the situation, addressing the root causes, and implementing practical steps for recovery.

If you’re sinking financially, it’s likely that you are experiencing one or more of the following:

• High Levels of Debt: If you find yourself using credit cards to cover everyday expenses, carrying balances from month to month, or relying on payday loans, you are likely in a sinking state. High-interest loans and payday advances can trap individuals in cycles of debt that are difficult to escape.
• Living Payday to Payday: If most of your income is immediately consumed by rent, bills, and other necessary expenses, leaving little to no savings at the end of the month, you are in financial distress.
• No Emergency Fund: A lack of savings for emergencies – whether it’s for unexpected car repairs or a medical bill – can put you in a vulnerable position, further exacerbating financial stress.

If you’ve identified yourself as sinking financially, know that recovery is possible with the right strategies. Here’s how to start stabilising and improving your financial health:

• Assess Your Financial Situation: The first step is to get an honest overview of your finances. List all your debts, track your income and expenses, and determine exactly how much you owe and what your monthly costs are. Tools like the me Tracker can help you see where your money is going and highlight areas to cut back on unnecessary spending.
• Create a Debt Repayment Plan: Debt is the weight that drags us down in the sinking stage. Look at ways to either reduce or optimise your existing debts; you might focus on paying down your highest-interest debt first, while making minimum payments on others. Alternatively, you could try paying off smaller debts first to gain momentum and see fast progress. Financial coaching services like enable.me offer tailored advice on debt repayment strategies and financial recovery.
• Build an Emergency Fund: When you’re sinking, make sure every dollar counts. While repaying debt, aim to save a small amount each week to build an emergency fund. Start small – $500 is a good initial goal. Creating a buffer can help you avoid returning to high-interest loans or credit when unexpected expenses arise.

If you have critical levels of debt that are unmanageable, seek help from a financial adviser or debt relief service. You can visit our external resources page to view a list of debt relief and counselling services available in your area.

Floating: The Comfort of Stability with Room for Growth

“Floating” refers to being in a state of financial stability, where you can meet your financial obligations without falling into debt but are not making significant progress towards long-term goals.

Many people find themselves floating – they’re comfortable and not in immediate danger, but they’re not building wealth or achieving financial growth.

Signs that you might be floating include:

• Little or No Direction: You’re able to pay your bills and cover necessary expenses without relying on credit. However, you may have little left over for savings or investment. What is left over often isn’t utilised as much as it could be; without clear, specific goals, potential savings are spent unnecessarily.
• Minimal Debt: You might have some debt, such as a mortgage or student loan, but it’s manageable and you’re making regular payments. However, it’s likely you’re only making minimum repayments, and not working on clearing the debt as fast as you could be.
• No Major Financial Growth: While you’re not sinking, you’re not making significant strides towards bigger financial goals like buying a home, building wealth, or saving for retirement. The real danger of being in the floating stage is inaction; without any reason to change, you’re at the mercy of your circumstances and can quickly fall from floating to sinking.

While being financially stable is a positive place to be, staying in the “floating” stage for too long can limit your potential for financial growth.

You may feel secure but lack the strategies to build wealth or achieve long-term goals, leaving you vulnerable to unexpected changes in circumstances.

To move from floating to flying, you need to take proactive steps towards financial growth:

• Set Clear Financial Goals: Start by setting both short-term and long-term financial goals. For example, short-term goals might include saving for a holiday or an emergency fund, while long-term goals might focus on retirement or buying property.
• Increase Your Savings Rate: If you’re living comfortably but not saving much, aim to increase your savings rate each month. Automating your savings can make this process easier, ensuring that a portion of your income goes into a high-interest savings account or is added to an investment portfolio.
• Invest Wisely: Consider investing in assets that will grow over time, such as shares or property. KiwiSaver is a great starting point for long-term investing, as it offers government contributions and employer matching. Make sure to review your KiwiSaver settings to ensure you’re contributing at a level that aligns with your retirement goals.
• Expand Your Financial Knowledge: To move beyond financial stability, you need to continuously build your financial knowledge. Reading about investment strategies, attending financial workshops, or seeking advice from a financial adviser can provide the insights you might need to start growing your wealth.

Flying: Maximising Potential and Aligning with Your Life Goals

Being in the “flying” stage means you’re not only financially stable but also actively working towards and achieving significant financial goals.

You may have paid off most of your debts, built a solid savings and investment portfolio, and have the flexibility to pursue opportunities without financial stress.

However, even in this stage, it’s important to ensure that your financial success aligns with your long-term life goals. When we’re in the flying stage, the most important thing is to ensure our resources are allocated properly; in other words, we need to make sure we’re not just flying but flying in the right direction.

Signs that you’re flying financially include:

• Consistent Savings and Investments: You regularly contribute to savings and investment accounts, and your wealth is growing over time.
• Low to No Debt: You’ve paid off high-interest debts and only carry “good debt,” such as a mortgage or business loan, that contributes to your long-term financial goals.
• Financial Flexibility: You have enough financial flexibility to pursue personal or professional opportunities without worrying about immediate financial repercussions.

While being financially successful is a great place to be, flying without direction can lead to missed opportunities or unfulfilled life goals. It’s important to make sure that your financial success is aligned with your personal values and future aspirations.

For example, you might have the financial means to retire early, but is that something that truly aligns with your long-term vision for your life?

Alternatively, you might be consumed with growing your wealth but neglecting to spend money on experiences or causes that bring you personal fulfilment.

Here’s how to ensure that your financial success is aligned with your life goals:

• Align Financial Success with Life Goals: Take time to reflect on what financial success means to you. Are you saving to retire early, travel the world, or leave a legacy for your family? By aligning your financial strategies with your life goals, you can make sure that your money is working towards a purpose that’s meaningful to you.
• Diversify Your Investments: If you’ve built up significant wealth, it’s important to diversify your investments to protect yourself against risk. Consult a financial adviser to ensure that your investment portfolio is balanced and aligned with your risk tolerance and future plans.
• Give Back or Pursue Passion Projects: Many people find that after achieving financial success, they want to focus on giving back or pursuing projects they’re passionate about. Whether it’s supporting charitable causes, starting a business, or investing in education, using your financial freedom to make a difference can bring deeper meaning to your financial success.
• Plan for the Future: Even if you’re flying high now, make sure you’re planning for the future. This includes retirement planning, creating a will, and ensuring that your assets are protected for future generations.

Moving Forward on the Financial Spectrum

Whether you’re sinking, floating, or flying, understanding where you are on the financial spectrum is essential for taking control of your financial future.

Each stage presents its own challenges and opportunities, but by being aware of your current financial situation, you can create a plan that helps you achieve your long-term goals.

• If you’re sinking, focus on stabilising your situation and creating a plan to reduce debt and build savings.
• If you’re floating, start thinking about how you can grow your wealth and move towards achieving bigger financial goals.
• And if you’re flying, make sure your financial success is aligned with your personal values and life aspirations.

Taking these steps can not only improve your financial health but also bring you closer to a future that is financially secure and personally fulfilling.

If you’re ready to take control of your financial wellbeing, consider if our moneyfit.me Kickstarter course might be suitable for you. Start your journey towards financial health today and experience the benefits that come with a well-managed, stress-free financial life.