Even with the best planning, nearly everyone faces at least one financial setback at some point in their lives. Although sometimes it can be the result of poor money management, there are instances when it is out of your control. Sudden job loss, divorce, illness, family emergencies, natural disasters, or even a global pandemic like COVID-19 can create major strains on your finances. To help limit its impact on your financial future, here are three ways to recover from an unexpected financial setback.
Seek assistance
Going through a financial crisis can be an extremely stressful and vulnerable experience. Even with a new budget, you may still find it difficult to pay essential expenses like rent, mortgage, groceries, and car insurance. Therefore, it’s important that you exhaust all available options to seek assistance. Applying for a personal loan or line of credit from an accredited bank is a great place to start. It could offer you a cushion to help protect you from late billing fees, high-interest rates, and in some extreme cases, bankruptcy, especially if your income has been dramatically reduced. Although it won’t help eliminate your debt (the loan will need to be eventually paid off) it will give you a window to cover unexpected costs almost immediately.
Also, it’s important to note that many institutions are offering payment relief options for customers due to the impact COVID-19 has had on the economy. Many mortgage lenders and credit card companies are offering deferrals, some municipalities are waiving late payment penalties for property tax and utilities, auto insurers are offering fee reductions, etc. Taking advantage of these offers is a great way to consolidate debt and limit the impact your financial setback might have on your credit score.
Create a spending plan
When dealing with a financial crisis, it’s important to properly assess the situation so you can know the severity of your issue and pinpoint whether the financial setback is temporary or ongoing. Once you do this, you’ll be able to create a spending plan that helps bring you back on track and ensure some form of financial security. A revised budget should clearly outline how much money you have coming in and out. By adding up your total monthly expenses, you’ll be able to identify what you’re spending your money on, triage your essential expenses, and determine where you can start cutting costs.
Here’s is a quick way to start your plan:
- Add up your monthly expenses
- Track spending
- List all financial priorities
- Organized debts from low to high interest
- Consolidate debt
- Eliminate unnecessary spending
Plan for the future
It might be hard to think about the future when you’re going through a financial crisis, but ensuring you have a safety net once you recover your finances is extremely important. By creating an emergency fund that can cover 3-6 months of living expenses, you will have a guaranteed cash reserve to keep your finances intact. It’s also important to learn from your experience. Keeping up with a realistic budget will better prepare you to handle any future setbacks and allow for a speedy recovery should you find yourself in this type of situation again.
