Say you made a bad investment and now you’ve lost a considerable amount of your savings. Or maybe you had an accident that left you with hefty car repairs and medical bills. Whatever the case, an unforeseen or unavoidable mishap doesn’t need to turn into a financial crisis.
The first step to any problem is admitting there is one. By recognizing you’re facing a financial dilemma, you’ve already made the first step toward coming back from financial ruin. Now that you’re ready to tackle the issues that resulted from a financial mistake, these tips can help you as you start recovering from financial disaster.
Take Inventory
If you’re trying to bounce back from a financial mistake, a great first step is to take inventory of your finances post error. Facing the problem head-on may be difficult, but it’s the best way to gauge the situation. And it can help you gain perspective on how large the problem actually is and how impactful the losses could be on your goals for the future.
Take stock of how much money you owe on any outstanding bills or loans. How much money is left in your bank account? Were your investments or retirement savings affected? Getting all of the information out in the open will help you determine how bad the damage is.
Now that you understand how your financial mistake has impacted your savings, it’s time to create a plan so you can move forward and start working toward overcoming financial setbacks.
Make a Budget
Now that you understand your current financial situation, it’s time to make a new budget. With a fresh perspective on your finances, take this opportunity to set new goals. Whether it be recovering from this financial mistake, growing your emergency fund, or breathing new life into your retirement investments, now is the time to make those decisions and craft a budget that will help you meet those goals.
You’ve already done the hard part and taken stock of your current financial situation and reviewed all the relevant financial documents and accounts. Next, make a list of all of your monthly expenses and sources of income.
Also, list out any savings or investments. You should have a complete picture of your finances, which will give you a good idea of where you can make some improvements in your spending habits to save for your financial goals and recover from your financial setback.
Get Professional Advice
When you’re in the middle of a financial crisis, it can sometimes feel like there is no way out. If you’re dealing with monetary issues and are not sure what your next steps should be, it can be worth seeing a professional for advice. A financial advisor can help you review your finances, set goals, and establish a plan to help you reach those goals.
Yes, getting professional advice will usually cost you a bit upfront, but investing in the financial health of your future is worth it. If you’re too strapped for cash to pay for professional consultation, consider speaking with a trusted friend or family member who has a strong track record with their own finances.
Sometimes a fresh pair of eyes and a new perspective is all it takes to start formulating a plan. And remember, you’re not the first person to make a financial mistake, and you won’t be the last. It’s okay to ask for help.
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Secure Your Home
Overcoming financial setbacks can be a challenge, but with some budgeting and strategic planning, you’ll be able to bounce back. One of your top priorities should be securing your home.
If you are in danger of missing mortgage payments or losing your home, finding a way to make those payments and keep a roof over your head should be priority number one. There is no one-size-fits-all solution to mortgage issues, but finding an attorney or real estate agent that specializes in working with homeowners can help.
Target Credit Card Debt
Next up on your to-do list: Get your credit card debt under control. If your financial mistake caused you to rely heavily on your credit cards and your outstanding balances have somehow ballooned, focus your resources on paying down your credit card debt.
If you have multiple credit cards, try using the snowball method to tackle your debts one by one. Using this method, you’ll focus on paying off the debt with the lowest balance first. When that debt is paid off, roll that payment into the debt with the next highest balance. This provides incentive to continue making payments as you pay off all your debts.
Another alternative to consider is consolidating your credit card debt with a personal loan. This results in one easy-to-manage monthly payment instead of multiple bills with different credit card companies.
This can also help you limit the money you spend on interest. When you take out a personal loan, you can often reduce the interest rate, especially when compared with high-interest credit cards.
Keep Your Credit Score on Track
It may seem difficult while you’re in financial turmoil, but try to keep your credit score from dropping dramatically while you are dealing with the results of your financial mistake.
Do everything in your power to make the minimum monthly payments on your debts, like credit cards, student loans, or mortgages. If you’re having difficulty making payments, contact the respective lenders and see what they might be willing to do to help you.
Try to keep your credit utilization rate low. General financial wisdom is to keep your credit card utilization to 30% of your limit. Lower credit utilization rates suggest that you can use credit responsibly and could lead to higher credit scores.
Find a Side Hustle to Supplement Your Income
It’s time to get proactive. Finding a side hustle to supplement your income could help accelerate your financial recovery. The key is to find a side hustle that works with your schedule, interests, and skills. Are you able to take on a part-time job at a coffee shop? Is there an event space in your town that needs help on the weekends?
Are you a skilled writer, editor, or photographer who can find some freelance gigs? When it comes to side hustles, there are seemingly endless options. Take the time to review your skill set, passions, and interests and see if there is anything you can turn into part-time work. In addition to a bit of extra income, you may surprise yourself with how rewarding you find your new gig.
Start Saving
Now that you’re on your way to financial recovery, stay ahead of the curve and start saving for the future. You never know what the future holds so it’s wise to prepare for the unexpected. If your savings took a serious hit because of a financial mistake, it’s time to fortify your emergency fund so you’re prepared for unplanned expenses.
As you build or rebuild your emergency fund, aim to have three to six months’ worth of living expenses saved. This money should be easily accessible in cash—think: savings account, not 401(k) or IRA—in the event of an emergency. This way you can easily access the money you need to pay off, say, an emergency room visit, without paying any penalties or fees to access your money.
Saving with SoFi Checking and Savings
Consider opening a SoFi Checking and Savings® account to start saving for your emergency fund.
You can access your money from anywhere in the world, and with SoFi Checking and Savings, there are no account fees (subject to change)—that means no account minimums and no overdraft fees.
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