Even the best-made resolutions and most committed financial plans can get thrown off course by an unexpected illness, breakup, layoff or other life surprise.
Making a plan for achieving your money goals is important, but just as crucial is making a plan for managing the setbacks you might face along the way.
First, get clear on your costs.
The first step is to estimate the cost of your financial setback.
For example, if you were evicted, you could calculate the cost of moving plus first and last month’s rent. The objective is to get clear on what financial resources you need to support you through your emergency.
By doing some research and making some cost projections, you can start grinding your way back to financial health with tangible numbers and clear action steps rather than just crossing your fingers and hoping you’ll get through it.
Cut the non-essentials.
Financial emergencies can turn into runaway trains full of expenses. Remember to stay grounded in your necessities when considering your emergency costs. You can always move on to funding your priorities once you get fully back on track with your finances.
Consider your financial options.
Once you figure out how much money you need to manage your financial setback, the next question should be, “Can I afford it?”
If you have an emergency savings account, you might be able to recover pretty quickly. However, if your emergency savings aren’t enough to get you back on track, consider your other financing options. Can you borrow money from a friend or relative? Can you shop around for a personal loan? Can you apply for a credit card that lets you work your way out of a temporary setback with a great introductory interest rate?
Create a strategy for getting back on track.
Once you’ve figured out how you’re going to fund your emergency, it’s time to decide what specific financial changes you’re going to make to prioritize the repayment process—whether that means repaying the loan, or refilling your emergency savings. Are there any temporary cuts you can make or things you can do to bring in extra money to expedite your financial recovery?
Remember: These changes don’t need to be permanent, but the more extra income and temporary cuts you’re willing to make, the sooner you’ll be able to return to financial health.
This article originally appeared in the November/December 2019 issue of SUCCESS magazine.
Photo by @lelia_milaya / Twenty20