Handling a Financial Setback

Financial setbacks come in all shapes and sizes. It can be an expensive household repair or major car trouble. It may be increases in your insurance plus a rent hike taking effect at the same time. Or, it can be something more extreme, like getting a pay cut at work—or even being given a pink slip. It may be a medical emergency that isn’t covered by insurance, or some good news that will cost you a bundle, like a wedding or the birth of a baby.

It’s impossible to plan for every financial hit you will take in your lifetime.

The question is: What can you do about it?

You could keep borrowing or charging to pay for daily expenses when your income is swallowed up by the surprise, but by going that route, you’ll be paying a lot more than you should for this setback because of accumulated interest. You have options, and there are proactive steps you can take.

If you’re hit with hard times, keep these tips in mind:

1. Don’t panic
   Panic is the first reaction many people experience when faced with a financial setback. It won’t be easy, but do your best to keep your cool. Keeping calm will allow you to think more clearly and resolve your deficit quicker. Remember, as difficult as things seem, they’ll always look a little better after some levelheaded planning.
2. Crunch the numbers
   “I’ll disappear if you just ignore me and pretend I don’t exist,” said no problem, ever. Problems won’t disappear when they’re ignored, especially not money problems. If anything, they snowball into a mountain of financial issues that will bring you even more stress. As difficult as it might be, sit down and figure out exactly how much more money you’ll need in order to cover your new expense or to fill the gap of an income loss.
3. Work twice as hard
   When you’re dealing with a financial setback, you’re looking at less money than you need to get you through the month. The only way to stretch what you have to fit your needs is to earn more or spend less. Since tightening your budget is always stressful, try to find ways to add to your income first. If possible, put in more hours at work or seek extra projects, even if it means working nights or weekends. Consider freelancing or consulting if you can. Take a side job for some extra cash. Do whatever it takes to bring in a little more money to cover the additional expenses.
4. Trim your spending
   Evaluate your budget to see which expenses you can trim. Before cutting your budget in half, take the time to prioritize. List all the expenses you can’t go without and the ones that would be irresponsible to neglect. Don’t skip mortgage payments or neglect your insurance premiums because you’re short a few hundred dollars. Instead, take an honest look at your remaining expenses and see where you can cut back.
5. Contact your creditors
   If you can’t make some of your minimum monthly payments, contact your creditors before they come calling on you. It’s always best to be upfront about your financial situation. Most creditors will be happy to work out a reasonable payment plan with you.
6. Reach out to family and friends
   The people who care about us most are the ones who can help us get through anything. Don’t be embarrassed to tell your family and friends what’s going on. They’ll support you and encourage you until you get back on your feet, and they may even be able to help you out with employment opportunities or helpful contacts.
7. Be proactive
   Hindsight is always 20/20. Harness the urgency you feel now to get into the habit of building up an emergency fund. As soon as you’re back on your feet, start putting away money that can be pulled out in future setbacks. We recommend that you have 3-6 months’ worth of living expenses saved up in case you can’t work for any reason. Knowing you have that money to fall back on will take the stress out of these situations.