A financial setback can happen to anyone, and when it does, it can lead to a challenging and uncertain future. Yet, getting through it is step one when something happens, whether it's a medical expense or an unexpected repair. The second step is to take things back to basics.
Understanding Your Financial Situation
Your initial strategy should be to understand your situation thoroughly. Ensure you have a clear grasp of what you're facing. Ask yourself: Is this a temporary setback or a permanent change? How significant is the financial loss? With a deeper insight into the immediate and mid-term risks, you can devise a plan to move forward.
Creating a Realistic Budget
Establishing a realistic budget is central to this process. It involves actively analyzing your current resources to understand what you have for covering expected costs. Additionally, identify potential savings opportunities, such as eliminating unnecessary expenses and redirecting those funds to other needs. Consider taking the following steps now.
Prioritizing Expenses and Debts
If you cannot meet all financial obligations, prioritize investments crucial for your stability and income. Generally, focus on safeguarding your home and essentials for continuing work and earning money. Critical expenses typically include:
- Mortgage or rent
- Food costs
- Utility costs
- Car payments
- Health insurance costs
Organize these and other priority expenses to ensure they align with protecting your family's basic needs.
Cutting Unnecessary Expenses
To reduce financial strain, you can safely cut unnecessary expenses that don't jeopardize your or your family's well-being. These may include:
- Recreational spending
- Cable or streaming services
- Dining out
Regarding credit cards, prioritize paying your mortgage and utilities and ensuring your family is fed and safe first. After covering these essentials, address other secured debts. Treat credit card and medical debts as lower priorities. Be aware that missing payments can lead to fines, fees, loss of credit card or loan access, and potentially harm your credit score.
Increasing Income
In many situations, you will need to replace lost income. The amount you need to earn depends on your specific circumstances. Consider finding a new job that pays more than your current one. If that's not feasible, taking on a part-time job to supplement your income might be necessary, allowing you to catch up on debts and start saving again.
Explore various methods to boost your income, such as requesting a raise, taking on part-time work, selling something you've created, or other initiatives. The objective is to diversify your income sources as much as possible.
Financial Planning and Goal Setting
Recovering from financial difficulty means establishing a new plan. To do that, you need to consider your goals carefully. After all, you cannot steer your decisions if you do not know what you want to achieve.
A financial plan may include strategies to save money, build income, create long-term growth, add assets, and incorporate retirement goals. Your financial plan should address risks, too, such as emergency savings, planning for time off, financial loss periods due to economic change, and early retirement. You also want to consider factors like losing your job or being unable to work for some time.
Goal setting is all about putting a number on it. What will you achieve, how will you do it, and when will you do it? Create goals and then work towards them with the support of a professional.
Seeking Professional Help
Getting back to basics is not simple and often takes help from trusted, experienced professionals. Your goal should always be to make decisions based on your lifestyle and what is most important to you. Yet, a professional can help you plan to achieve those goals. They can help you navigate the problematic periods while encouraging you through the big wins you have.
With the help of a professional and a clear plan forward, you can get back to basics and build your wealth and financial strength one step at a time. The first step, though, is to spend the time it takes to learn as much as you can about financial management and wealth building and then to put a plan into action.