Experiencing a financial disaster can be a daunting and overwhelming experience. Whether it’s a job loss, a medical emergency, or unexpected expenses, it can throw your finances into disarray and leave you feeling helpless.
But there are steps you can take to get back on track after a financial disaster. The good news is not only will these steps get you back on track, but they will also protect you from future financial disasters as well.
Steps To Overcoming Financial Disaster
#1. Assess The Damage
The first step is to assess the damage and take stock of your financial situation. For example, if you lost your job, you need to review your monthly spending and account for how much money you were making.
In the case of a medical emergency, you need to see what the total cost of the medical procedure is and then review your finances. Do you have the cash to pay all or a portion of the bill? Can you shift your spending in the short term to cover the bill?
Before you can do anything else, you need to see where you stand so you can make the correct decisions moving forward.
#2. Prioritize Your Debts
Chances are that a major financial disaster will force you into debt. When this happens, you need to create a plan for how you will dig out of the hole.
One of the best ways to prioritize your debt based on balances. Make minimum payments on all your debts except for the smallest balance. For this one, focus on paying as much as you can each month. Once it is paid off, move on to the next smallest balance debt.
Alternatively, you can organize your debts based on interest rate, and pay off the ones with the highest rate first. This will save you in interest charges, but it is not as motivating as quickly paying off debt like the other version.
#3. Build An Emergency Fund
One of the best ways to protect yourself from future financial disasters is to build an emergency fund. Set aside a portion of your income each month and put it in a separate savings account. Aim to save at least three to six months’ worth of living expenses.
This will take you some time, but it is worth the time and effort.
#4. Find Ways To Increase Your Income
Look for ways to increase your income, such as taking on a part-time job, taking on a side hustle, or selling items you no longer need.
You might even want to talk to your manager about taking on more responsibilities at work to earn a higher raise.
Another option is to figure out what skills you need to be more efficient at your job. The faster you can get work done, the easier it will be to take on additional duties. Also, you might be able to turn these new skills in to higher pay by looking for another job.
The trick when investing in yourself this way is to not go into debt to do so. See if there are ways you can learn for free. Many colleges offer free non-credit courses and there are plenty of books and YouTube videos on all subjects as well.
#5. Seek Help If Needed
If you’re struggling to get back on track, don’t be afraid to seek help. There are non-profit organizations, credit counseling services, and financial advisors that can provide guidance and support to help you get back on your feet.
One great free option is the Dave Ramsey Baby Steps. This is a proven, 10-step process that will help you to get on track. People that follow this plan end up in better financial shape, and in many cases, reach levels of wealth they didn’t think was possible.
If you decide to look for help elsewhere, know there are many questionable companies out there that prey on vulnerable people. Be very careful of any person or business that asks for money upfront or promises to change things quickly. These are most likely scams and you will only end up in a worse financial situation.
#6. Stay Positive And Stay Focused
Getting back on track after a financial disaster can take time, but it’s important to stay positive and stay focused on your goals. You need to remember that nothing will change overnight.
Because getting back on stable ground is time consuming, you may need to use some tricks to keep you motivated. One of the best is celebrating small victories along the way.
Here, you have a small celebration when you pay off every $1,000 worth of debt, or for every $1,000 you save. These small acknowledgements don’t seem like much, but they are powerful in helping you to keep working towards your long-term financial goals.
Experiencing a financial disaster can be a difficult and stressful experience, but it’s not the end of the world. By following the steps above, you can overcome the issue and put yourself in better shape for the future. This will protect you when the next unexpected financial surprise comes along. Only this time, with better preparation, you will be able to handle the situation with ease.