Life setbacks happen to all of us at one point, and when we are in these situations it is important to be financially prepared to get back out our feet. Learn about these 4 ways to get back on track after facing a financial burden in this RealEstate.com artcle by Stefanie O’Connell.
Money touches everything. Emergencies are no exception.
When you hit a major setback, be it a career crisis, a health crisis, a relationship crisis, or otherwise – the money you do or don’t have available will play a major role in determining your options as you try to get back on track.
The framework below can give you a way of approaching these tough times in a way that serves your immediate needs without doing any unnecessary damage to your long-term financial goals.
I know it’s not fun to think about, and honestly, there may be some tough choices you have to make along the way. But the sooner you tackle these inevitable setbacks, the faster you can get back on track to rebuilding your finances and your future on your terms.
Step One: Consider the Costs
Whether it’s a medical emergency or a hit to your cash flow, your first step is to get clear on the projected cost of your setback.
For example, if you’ve lost your job, you might predict that you’ll need around six months to find a new job. In this case, you’d calculate how much money you’d need to support your basic cost of living for six months.
The goal is to get clear on what financial resources you need immediately to support you through your setback. Obviously, this is going to be an estimate.
It might take more or less time for you to find a new job, but doing some research and making some cost projections can help you start grounding your way back to financial health with tangible numbers and action steps, rather than just crossing your fingers and hoping you’ll get through it.
Step Two: Cut Back Where You Can
It’s easy for financial setbacks and emergencies to snowball into runaway trains of expenses.
For example, if you go through a break up with your live-in partner, you may need to move and cover your new housing and moving costs. But the cost of brand new furniture, accessories and decor for your next place isn’t so much a financial emergency as it is a financial goal. So remember to stay grounded in your true necessities when considering your emergency costs, and see if you can find ways of reducing, negotiating or even eliminating some of your necessary expenses.
For example, if you’re moving out of an old place, maybe you can cut your costs by downsizing when you move or renting out a spare room in your new place or maybe even stay with family for a while?
While not always ideal, these alternatives can help reduce the immediate impact on your financial life, giving you more time to save up for future financial demands.
For example, if you can stay with friends or family while you are saving up for your own place, that can alleviate some of the emergency funding you need right away.
Step Three: Take Inventory of Your Financial Options
Once you figure out how much money you need to manage your setback and get back on track, the next step is to take inventory of your funding options. That is, where are you going to get the money to cover your costs?
If you have an emergency savings account with enough funds, you may be able to recover pretty quickly by pulling out some cash to satisfy your immediate needs. (Though you will want to make rebuilding your cash cushion a priority as soon as possible.)
Continue reading the full article HERE.