4 Ways to Recover From Your Financial Setback

It’s almost impossible to predict all the surprises life can throw at you. Some are quite pleasant, while others can threaten to derail a person, both emotionally and financially. Unfortunately, these unexpected circumstances often call for instant and risky decisions that may result in substantial financial losses and the depletion of life savings.

The COVID-19 pandemic, coupled with business slowdown and even closures, has inevitably led to unemployment. It’s a telling example of such unforeseeable circumstances.

The service industry took the hardest hit, with many leisure and hospitality businesses and restaurants forced to downsize their staff. Some have been compelled to shut down entirely and declare bankruptcy. This has caused serious concern and uncertainty for hundreds of thousands of people. Many are now faced with social and emotional consequences, ranging from difficulty paying their medical bills to meeting their mortgage obligations.

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How Do You Overcome a Financial Setback?

1.   Have Faith in the Process

Financial recovery doesn’t happen overnight. Keep in mind that it will require time and a lot of effort, hard work, dedication, and perseverance. Financial setbacks may happen quickly, but recovery from their consequences and achieving the desired goal of financial stability takes time.

This doesn’t mean that there are no steps that you can take to recover as quickly as possible. Be patient with yourself and the people around you.

2.   Manage How You Spend

One of the obvious first steps in recovery is to adjust your expenditures. Review and amend them by concentrating on the essentials, such as rent and mortgage, food, school, and various insurance fees. In these situations, it’s important to find the right balance between “needs” which are essential, and the “wants” and pleasures that must be scaled down, at least temporarily.

Giving up some expenses, such as restaurants, non-necessary streaming services, and hobbies, may affect your quality of life. Think of these reductions as temporary freezes. You’ll quickly notice that these are quite helpful in getting you back on the right track. Within a relatively short period of time, you’ll be aware of the difference and the savings you have made.

3.   Temporarily Settle For Less

When people lose high-paying jobs, they often try to find another in the same field with similar wages. Unfortunately, this isn’t always feasible nor realistic, especially if the job loss is caused by broader social circumstances. A wise choice might be to look for a temporary interim position, which, while offering a lower wage, will still provide a  level of security.

The job market is usually quiet in times of uncertainty. Therefore, the most sensible solution is finding a job that will secure a certain amount of funds to help you navigate times of hardship.

4.   Have a Backup Plan

Times of financial turmoil and uncertainty show that people need to be prepared to set aside some funds from their earnings for emergency purposes. Dubbed an “emergency fund,” this is money that you set aside for real and serious emergencies, such as a job loss or significant unexpected expenses. If the pandemic has proven anything, it’s that having a backup plan is not only recommended but also necessary.

When wages are high and times aren’t rough, people tend to forget about the need to have backup plans and prepare for the unexpected. Once you’re back on your feet, set a goal and an amount you’re comfortable with for such emergencies. You’ll be able to revert these emergency funds to help you bridge difficult times and allow for more freedom of choice when making difficult financial transitions. According to Blackhawk Bank, having 3 to 6 months’ worth of your overall expenses saved up is a sufficient amount for your emergency fund.

Takeaway

It’s impossible to predict a financial setback, and bouncing back from one can be tricky, depending on how substantial it is. Whether it’s a medical emergency, a loss of a job, or moving to a new home, being proactive and preparing in advance will help you minimize your setback and get back on your feet quicker.