Sometimes, despite our best efforts, life circumstances derail our budgeting and saving plans and, in some cases, lead to devasting financial losses. Whether it’s a medical emergency, a business going under, or some other unforeseen circumstance, certain lifechanging events can totally wipe out our finances—and it can seem like the problem is insurmountable.
In some cases, an economic downturn can result in a job loss or other financial setback that causes us to deplete our savings and retirement funds. Minor financial issues are not uncommon, but sometimes, these losses total into the hundreds of thousands and sometimes, millions. Facing a loss like this can be overwhelming. If you’ve experienced a major financial loss, it is possible to rebuild by following the tips detailed here.
Assess Your Financial Situation
After a major financial setback, the first order of business is to take stock of your current situation. The only way to fully recover from any financial loss—big or small—is to take an honest look at where things went wrong. In assessing the situation, you should look at what financial resources you currently have available, who your creditors are, and how you can plan to bounce back. Developing a realistic plan for the future involves taking an honest look at what got you to this point.
You can also examine your spending patterns before and after the loss—see how they may have contributed to the current state of your finances. List all income you bring in every month (both recurring and one-off income sources) and calculate how much money goes out, down to the penny.
Ask yourself how long you expect your present financial situation to last. For example, some financial issues can be overcome in a few short months with creative planning, while more serious setbacks may take much longer and cost more to fix.
The main objective at the planning stage is to take an inventory of your current situation by learning from your mistakes. Although some financial setbacks can be largely out of our control, others are a product of the decisions we consciously made, so it is important to objectively look at each part of your financial picture.
Set SMART Goals
After you have reviewed the damage, it’s time to set some realistic goals for getting your finances back on track. SMART goals are more detailed than simple goals such as “I would like to raise my credit score.” SMART goals are essentially broken down as follows:
S stands for specific: Financial goals should be as detailed as possible. Simply saying “I’m going to spend less money,” is too vague and doesn’t help you identify what you need to do to reach that goal. Instead, try “I’m going to budget a specific amount of money for non-necessities.”
M stands for measurable: All goals should be easy to measure. For example, if you want to save more money, define how much you want to save and give yourself a deadline to meet the goal.
A stands for achievable: A plan is great, but a plan that you can really stick to is even better. If you have suffered a major financial loss, getting back on track means being realistic about how much you can do and when.
R stands for relevant: When making your SMART goals, make sure it means something to you or is relevant to your life circumstances.
T stands for time-sensitive: as mentioned earlier, deadlines are important when trying to climb out of a financial rut. Define what is doable and set a date to reach the goal.
Seek Professional Help
Sometimes, analyzing your financial situation may be too overwhelming or your problem may be more complicated than you originally thought. In these cases, you might consider seeking the help of a professional who can help you with your money troubles. Whether this is a certified financial planner or a credit counselor, someone who is financially savvy can help you assess your situation and point out areas for improvement.
Financial professionals can also give you real-world advice that can help you determine your next steps. In some cases, bankruptcy may be a viable option, but it is best to discuss this with a professional before going this route. Regardless of how you choose to approach your financial loss, the key is to get focused and be realistic about where you’ve been and where you’re going. Effectively addressing your situation will not only improve your finances, but it will help you feel better while you get back on track.