How do you recover from a financial setback?
5 Steps to help you get back on your feet
It has happened to all of us. We are in the groove. Our budget is finally perfect. We are working towards our clearly defined goals and making great headway and then…… it happens. A financial setback hits us squarely between the eyes. It’s not a question of when it’s going to happen but how bad it’s going to hurt your bank account.
Sometimes it is a car breaking down out of the blue. Other times it is knowing you will have a bill but having that bill end up being double or even triple what you expected. You didn’t plan for this!
Expect the Unexpected
The only thing you can plan for in finances is that your plan will have to evolve as you go along. Remember, this is your plan. Nothing is set is stone. Financial planning and budgeting is always changing based on what is happening in your life. If it wasn’t, we wouldn’t need to make a new budget each month. We could just make one budget that would last us forever.
So how do we handle it when the mechanic hands us an invoice for $1800.00? How do we deal with going for a routine dental cleaning and being told we need a root canal and a crown?
These 5 steps will lead you through the financial setback and get you back on the right track.
I know it is hard but the first step is to take a bit of time before making ANY decision. Financial decisions must be based on fact rather than emotion. While it can be tempting to hide in the closet and cry when in the midst of a financial setback it is only a setback, not an ending. You can’t let one unplanned event throw your entire plan off track.
Financial planning is a long term commitment and as long as you don’t give up you will end up on the winning end of things. Small tweaks to the budget to pay for unplanned events are inevitable. Many people have an Emergency Fund for these events and while that is great you still have to make adjustments in the budget to account for replacing the money removed from that fund.
Whatever you do, do not pull out your credit card. You are not going to let your fear override your common sense. Take some time and figure out a plan.
Get all the facts
Once you have had time to get yourself back together, it is time to gather the facts. First, is there anything you can do to get this bill lower. Can you buy the parts yourself and have the mechanic install them? Ask if the dentist will offer a discount if the bill is paid in full before the first procedure? It doesn’t hurt to ask. All they can do is say “No”.
This tactic has worked for my family on many occasions. My daughter needed some dental work and the dentist gave a 15% discount on the total when I paid in full. We also saved a percentage off her braces when we paid upfront.
Make adjustments to budget
Now that you have all the facts and you know the amount of money you need, you can start to make a plan. Sit down with your budget and find places that you can cut. If you have been adding extra to you Emergency Fund or stashing money away, divert those funds to the new debt. Even if you are only able to save a small amount in each category, it will add up at the end of the month.
If this were me in the situation, I would divert all of my extra retirement savings (not 401k) into the debt. I am totally averse to debt of any kind so I would stop all savings until the debt was paid and then restart as normal once it was paid in full.
Find a Side Hustle
If your budget is already tight, it is time to start thinking about some side hustles. Start looking around your house for stuff you can sell on eBay or Craigslist. Have a yard sale to generate some quick cash. Do some babysitting on the weekend. Throw all that extra cash at the debt. There are many side hustles that people can get into that don’t take tons of time and can generate a decent little side income.
Budgets are Sexy has a great resource page with many ideas for interesting side hustles. If you cant’s find something on this page that fits your particular needs just sit down and think about what you do well. Offer those services to your local area or on the web. The only limit to your side hustle game is your own imagination.
Follow the plan
Even if your side hustle isn’t bringing in a ton of cash right away it will up your confidence level. Watching the number decrease will keep you from quitting. Seeing the number continue to go down each month will help you to see the potential if you just keep at it. The key is to throw every extra penny you can get your hands on at the debt until it is gone.
DO NOT create any more debt until this one is gone. I know that not everyone is like me and tries to prevent any type of debt. Many people who are very good at managing money carry small amounts of debt. However, now is not the time for creating any type of debt.
You are in pay-off mode so no new purchases until you get out of this hole. That new television, or a newer model, will still be for sale when this debt is a distant memory.
Don’t give up
This is probably the hardest step of this plan. It is difficult to stay motivated when you are only seeing small changes. It is so easy to just give up and begin to believe (like most of America) that you are destined to live a life chained down by debt.
Nothing could be further from the truth. We are living proof of that. Of course, we have had our fair share of setbacks and unexpected costs. But we did it. We are 41 and 53 years old and we are completely debt free, including our home. Like many of you, we don’t make a ton of money. It’s not about how much money you make but how much of that money you keep. We are just regular people living regular lives but we are living on our own terms because we are not tied down by debt.
If we can do it, so can you. Just don’t give up!
Have you climbed out of a hole of debt? How did you do it? Share your story or give others some tips. Show them that it is possible