Life is unpredictable, and when you least expect it, it can throw you a major curve ball. Unexpected layoffs, pay cuts, or medical emergencies can derail your financial goals.
While this can be overwhelming, with the right mindset, you can get back on track with your finances. In this article, we’ll show you five simple tips to help you get back on your feet.
Get a Clear Picture of Your Finances
While financial setbacks can happen in a day, the recovery won’t be overnight. With that in mind, you should slowly assess your financial situation to know where you stand. How much is your current income? How big are your expenses?
From there, review your debts. If you have multiple loans, consider secure debt consolidation loans as they can lower your interest and provide a more manageable payment plan.
Once you’ve listed all your debt obligations, review your monthly bills to understand your current situation. This will help you identify where adjustments are needed and set you on a path to rebuild your savings.
A detailed financial assessment also allows you to set realistic goals for recovery. Once you have a clear understanding of the setback’s extent, you can then develop a plan to address immediate needs and avoid additional debt.
Create a Budget and Stick to It
One of the main reasons why many people struggle to rebuild their finances is resistance to change. Once you’ve fallen on hard times, the first thing you should do is adjust your lifestyle to fit your current financial situation. Create a budget that aligns with both your income and liabilities.
When creating the budget, prioritise essential costs like housing, utilities, and groceries. After that, you should allocate funds for debt payments and any other unavoidable expenses. Remember, the aim of creating a budget isn’t just to fit your expenses within your income but also to pay off debt and rebuild your savings.
Reduce and Consolidate Debt
Missing a loan repayment can make your already bad situation even worse. Most lenders charge a late fee and may add additional charges, causing your credit card bill to balloon into an out-of-control debt. On top of that, a late repayment on one loan can affect your credit score, making it harder for you to get loans in the future.
If you have several debts, you can apply for a consolidation loan to bring them under one account. Some consolidation loan companies will even offer you fixed interest rates, which will give you more control of your budget and repayments. On top of that, you won’t have to worry about early repayment fees if you’re looking to get out of debt quickly.
Another benefit of debt consolidation loans is that they can lower monthly payments and possibly your interest rate, giving you much-needed relief as you work toward rebuilding your finances.
Build an Emergency Fund
Building a sizable emergency fund is the best defence against future financial setbacks. If you get laid off or suffer an illness, it can help you weather the lack of income without going into high-interest debt. We recommend saving at least three to six months of your living expenses.
The 50/30/20 rule can help in a big way here. Basically, it involves allocating 50% of your income to necessities such as rent and utilities. 30% then goes to “wants,” and 20% to savings or debt repayment. This will help you get more control of your finances. However, the percentages may not be enough when facing a financial setback. Try to eliminate most unnecessary expenditures, such as going to concerts, as this will help clear out debt faster.
Take Action Now
Having a strategy is great, but it only counts if you act. If you decide to cut your unnecessary expenditures, do it now, not tomorrow. From there, you can set small, realistic goals, such as the amount of money you want to save up within the month.
Once you start making strides, you’ll build momentum for larger milestones, like paying down a significant portion of debt or rebuilding your emergency fund. Remember to track your progress and celebrate each win along the way.
