Written by Lucy Wyndham
Overcoming Financial Disaster: How You Can Begin To Move Past A Financial Setback Today
Most people will experience a financial setback at least once in their lives. In fact, 8 in 10 Americans have experienced a significant setback affecting their finances, according to an Ameriprise survey from 2018. Whether it is through lack of savings, loss of career income or a tendency to spend your money lavishly, dealing with money matters is a skill we must all master regardless of our age or stage in life. While financial setbacks may be inevitable, it is how we handle the recovery that determines the impact we allow these events to have on our lives. So, once the initial shock has worn off it is time to get to work on moving past these financial barriers and focus on building a more resilient, wiser financial life.
Take The Emotion Out Of It – Accept, Forgive & Learn
The initial reaction in the event of financial failure is often panic and fear. While it is natural to be fearful of what is to come with a financial setback, moving into a place of acceptance sets you up for the most important part of your response: taking action. So while it is completely understandable for your mind to be filled with questions such as the impact on your personal finances (how will I pay the mortgage?), you must come to terms with the event that has happened and accept your failure. Look at this as a learning experience which is giving you the chance to improve your financial skills and maybe, hone your financial plan a bit more. Chances are you are going to be stressed when the financial breakdown occurs. It makes sense; money is the top stressor amongst Americans today. You don’t need more guilt, worry or self doubt to the situation. Focus on the facts, not the emotions. Deal with the figures and by taking the emotion out of it, you will be able to think of your options much more clearly.
Assess Your New Financial Reality
Speaking of your options after a financial setback, you are going to have to assess your new position and redefine your financial plans. Make a roadmap charting the path from your current position to an improved financial position. With changed circumstances comes changing financial goals. Identify those new financial goals, and then scope out the options on how you can achieve them. Maybe you have lost your employment income which means you need to reduce your outgoings while securing new employment. Where and what cuts can you make to reduce spending immediately? Those with limited income and credit and loan defaults can declare insolvency but they risk losing most of their possessions to cover the outstanding debt. Those with reduced income may also find their affordability limited including that of overheads such as rent/mortgage. This means you may need to downsize to save money or consider sharing arrangements. It is all about taking stock of where you are, mapping out your options to recovery and following the consequences of said options.
Plan For The Future
Many people think ample cash or savings is the key to financial independence and happiness. Well, the debate about money equaling happiness is a discussion for another day, but when it comes to financial security, the answer is in fact, a good financial plan. Having a plan means you are somewhat prepared for the future and also have fall back plans in place should the future not turn out as predicted. With this in place, the impact of financial setbacks can be minimized and the recovery accelerated. Use this particular financial setback as the kickstart to up your financial planning game. Plan for what you can predict, such as moving back into your apartment after recovering from a debt spiral or limiting your reliance on credit cards (set spending limits and alerts). Equally important is planning for the unforeseen which means establishing a rainy day or emergency fund, securing life, income, and medical coverage and establish diversified income sources.
Finally, be sure to focus on your money management skills, particularly your budgeting skills. Being adept at budgeting sets you up for financial success in many ways. It teaches you to have better control of your money and therefore reduce the chance of racking up debt. It also teaches self-discipline and how to make better financial choices, which could make all the difference between success and another financial breakdown in the future. Overall, do not be afraid or ashamed to seek help in getting your finances back on track. Financial hurdles are faced by everyone. Remember it is how you handle the setbacks that define how far you will go.