Financial setbacks come in all shapes and sizes. There are the unexpected, but not terribly surprising household and car repairs. Some setbacks are more extreme, like getting a pay cut at work or a medical emergency that isn’t covered by insurance. A financial setback can also come in the form of good news that can cost you a bundle, like a wedding or the birth of a baby.
Regardless of the size and scope, It’s impossible to plan for every financial hit you will take in your lifetime.
The question is: What are you going to do about it?
You could ignore it, and keep borrowing or charging to pay for daily expenses. By going that route, you’ll be paying a lot more than you should for this setback because the interest on this debt will continue to accumulate interest. Instead, consider these options and proactive steps you can take when you’re hit with hard times.
1. Don’t panic
Panic is the first reaction many people have when experiencing a financial setback. It won’t be easy, but do your best to keep your cool. Keeping calm will allow you to think more clearly and resolve your deficit quicker. Remember, as difficult as things seem, they’ll always look a little better after some levelheaded planning.
2. Crunch the numbers
“I’ll disappear if you just ignore me and pretend I don’t exist”, said no problem – ever.
That’s because problems won’t disappear when they’re ignored, especially money problems. If anything, they snowball into a mountain of financial issues you really don’t want.
So, difficult as it might be, sit down and figure out exactly how much more money you’ll need in order to cover your new expense, or to fill the gap of an income loss.
3. Work twice as hard
When you’re dealing with a financial setback, you’re looking at less money than you need to get you through the month. The only way to stretch what you have to fit your needs is to earn more or to spend less.
Since tightening your budget is almost always stressful, try to find ways to add to your income first. If possible, put in more hours at work or seek extra projects, even if it means working nights and/or weekends. Take a side job for some extra cash.
Do whatever it takes to bring in a little more money to cover the additional expenses.
4. Trim your spending
Now, it’s time to see which expenses you can trim. Before simply cutting your budget in half, take the time to prioritize.
List all the expenses you cannot do without and the ones that would be irresponsible to neglect. Don’t skip mortgage payments or neglect your insurance premiums because you’re short a few hundred dollars. Instead, take an honest look at your remaining expenses and see where you can cut back.
Trim spontaneous purchases by only using cash – and keep a minimal amount on you at all times. If you’re a two-car family, consider scaling back to one car for now. Push off your vacation plans until things start looking up. Do whatever you can to come up with the extra cash.
Will this take some sacrifice? Yes, in the short run. But the sooner you get over this financial burden, the faster you can get back to the life you want without nagging money worries.
5. Contact your creditors
If you absolutely cannot make some of your minimum monthly payments anymore, contact your creditors before they come calling on you. It’s always best to be up front about your financial situation. Most creditors will be happy to work out a reasonable payment plan with you.
6. Reach out to family and friends
The people who care about us most are the ones who can get us through anything. Don’t be embarrassed to tell your family and friends what’s going on.
They’ll support you and encourage you until you get back on your feet, and they may even be able to help you out with employment opportunities or helpful contacts.
7. Be proactive
Hindsight is always 20/20. Harness the urgency you feel now to get into the habit of building up an emergency fund. As soon as you’re back on your feet, start putting away money that can be pulled out in future setbacks.
Experts recommend that you have 3-6 months worth of living expenses saved up in case you can’t work for any reason. Knowing you have that money to fall back on will take the stress out of these situations.
Do you need help recovering from a financial crisis? Genisys Credit Union offers members free debt management through GreenPath Financial Wellness.
Contact us today to help you on the path to financial wellness.
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