Finance Globe

U.S. financial and economic topics from several finance writers.
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Recovering From a Major Financial Setback

At some point in your life, you’re sure to suffer some kind of major unexpected disaster that can disrupt your financial life. It may be a job loss, divorce, natural disaster, or unexpected pregnancy. How you handle the situation, as dire as it may seem, will make the difference between getting out of it successfully or making the situation worse.

Don’t panic. Money problems, big or small, can be pretty scary. The uncertainty that comes along with financial disasters is stressful, but try to stay calm. When you’re in a panic, you’re less likely to make good decisions and right now, you need to be able to think clearly. That’s not to say you should downplay the severity of the situation; however, keep your emotions under control so they don’t cloud your judgment.

Assess where you are. Don’t just try to skate through the situation. It’s real. It’s happening. If you try to diminish it, you may pay for it later.

You need to know whether this is a temporary problem or a permanent life change. Is this something you can pay for one time and be done with it or will you have to make a lifestyle change to accommodate your new situation?

You’ll also have to consider how much money you’ll need to remedy the setback and compare it to how much money you have. If you don’t have enough money, you’ll have to make some important decisions about how you’re going to get it.

Cut back if you need to. You have to keep your head above water, so to speak, and to do that, you need to work hard to keep your monthly spending below your income. That may mean reducing your spending, possibly by a significant amount, until you’ve recovered. Prioritize your expenses, making note of those that absolutely must be paid. Note also any optional expenses that you can decrease or eliminate. Don’t just skip bills; make sure you cancel services or make payment arrangements with the people you owe.

Take on additional extra work. Your current income may not be enough to get you out of the situation, at least not as quickly as you’d like to. You may be able to speed up your recovery if you can bring in additional income through a part-time job or a money-making hobby. (Your money-making hobby could even turn into a small business.)

Don’t go for a quick fix, unless that quick fix happens to be using your emergency fund to cover the expense. Think very carefully about using any form of debt, especially short-term loans like payday loans or a title loan, to fix the problem. Even credit cards and loans are risky, considering that a big balance means a big monthly payment. Will you be able to afford an increase in your monthly bills? Consider all your options before making a decision.

Prevent it from happening again. There are some situations that can’t be avoided – a natural disaster, a house fire caused electrical problems, a car accident. Don’t beat yourself about things that are beyond your control. However, there may be some things you can do to recover quicker – like having insurance, for example. If the situation was caused by something you can control – e.g you were fired at your job for showing up late too many times – then resolve to not let it happen again.

Be flexible in the recovery process. The road may not look like what you planned and you may have to change your course and adjust your goals. It’s ok. Don’t be afraid to make the sacrifices necessary to pull yourself out of trouble. It may not be easy, but the important thing is that you reach a place of financial stability and resume your regular financial goals: saving, investing, and paying off debt.
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Monday, 26 August 2019

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