A financial setback can happen to anyone. Normally, they are surprising events that can arise from one of thousands of surprises. Given the poor state of the average American’s emergency savings, they can be devastating for many people.
Regardless of the specifics of your financial setback, the first step is to take a few deep breaths.
Panic doesn’t help anything.
After that, there are a few key steps to recovering that financial advisors generally agree on.
In this article, we will cover:
A financial setback is an event that throws your regular budget off balance. Financial setbacks are relative to the regular financial habits and budgets of the people experiencing them.
Most people experience more than one financial setback in their lives. They often arise due to:
Financial setbacks can be severe, and sometimes they make it feel like there’s no hope. No one likes having their predictable, healthy, stable finances thrown out of order.
No matter the cause or severity of the setback, there are a few steps worth taking.
This is the most important step, and it even touches on some of the other steps we will go over.
Budgeting is central to personal finance. After facing a setback, the first sensible step (after taking a few deep breaths) is to account for the specifics of the setback.
After you account for the change, in numbers, it’s time to create a new budget. Often, it’s just a temporary measure.
The reality of any loss in income is that, unless you had a lot of excess money you didn’t spend, you will need to cut some expenses.
It’s not nice, but it’s better than letting your savings empty and your credit accounts max out.
The first area to cut is entertainment and any unnecessary spending. That could include eating healthy, inexpensive meals at home instead of eating out and buying the most expensive groceries. But it should certainly include what you know to be unnecessary spending.
If you have a landline and a cell phone, it makes sense to consider cutting one of them.
Decisions like that can be a bit difficult to make, but they can make all the difference in the end.
It’s important to understand the breadth of resources available to you. Especially when facing a financial setback.
Take inventory of all the resources you have, including savings and assets. Also, pay close attention to your insurance policies and see how much can be covered.
For example, if your setback was due to a medical or vehicle-related expense, check your insurance so you can appropriately incorporate it into your recovery plan.
Make sure insurance has covered their obligations and that any expenses that can otherwise be accounted for do not need to be paid for out of your pocket. For the rest, emergency funds and any other savings should be employed.
If your situation is dire, you may want to consider free professional help. Financial counselors and some bank staff may be able to offer advice. At the very least, they can point you in the direction of resources that can help you recover.
Budget apps can help you with the readjustment of your expenses. Using a budget app has several benefits, including a visual representation of your budget alongside the numbers. You can use the most usable apps to reset your budget after a financial setback.
For whatever important expenses remain, some apps also help you manage your obligatory bills. They can also present the change that you face with a change in your income.
Lastly, it’s important to be proactive. While you don’t want to act rashly, you do want to collect yourself and start reacting to your situation in a proactive and level-headed manner.
The sooner you can account for the changes in your finances and act accordingly, the sooner you will recover.
After the budgetary reset that should follow a financial setback, it’s time to look toward the future.
A setback should not be a permanent event and should not define the rest of your life. It should simply serve as one of the many lessons that life can throw at you.
A setback is a bump on the road, and once you’ve crossed it there is only one thing that can create a smooth drive: Avoiding or having a plan for the next setback of this nature (whichever makes more sense).
This doesn’t mean you should be more frugal forever. In fact, it makes sense to offer yourself new rewards for the new financial milestones you’ve created.
Your mental health must stay a priority. Without it, it will be far more difficult to recover, and recovery may become redundant.
Financial stress, like other forms of stress, triggers certain responses in some people. Mental health and finances are always closely linked.
Financial setbacks can trigger some mental health symptoms:
It’s important to recognize these symptoms when you have them. After that, it’s also key to respond to your mental health symptoms appropriately.
Dealing with mental health challenges is no joke, and is beyond what we can help you with here. But the American Psychological Association recommends a list of steps for dealing with the connection between your finances and mental health.
Financial setbacks happen to people of all financial backgrounds. A “setback” is relative to your regular financial habits and expectations.
When faced with a major setback, it’s important to reset your budget and use the resources available to you. But it’s equally important to be proactive without panicking or allowing your health to deteriorate without addressing it.