How to recover from a financial setback
Financial setbacks can appear in our lives when we least expect it. Paying back a loan like a mortgage or settling debt can be overwhelming to deal with. As individuals, we must take control and choose how to react in tough times. Here are seven strategies that may help restore your financial wellbeing in 2021.
Think rational and long term
First up, it’s very important to approach any financial decisions carefully and take time to think things through. People tend to overspend when they are stressed or take greater risks in the hopes of making a faster financial recovery. They may even decide to withdraw all their money out of their investment for fear of greater losses.
But history shows us that the market always bounces back eventually. Before deciding to sell up your shares or tapping into your super, it’s worth assessing your total financial situation and staying focused on solutions, without letting your emotions take over.
Make an audit
Making a list of your financial losses can give you a much better perspective on what sort of impact these may have on your lifestyle and future goals. Once you have a clear sense of your financial situation, it will become easier to put together a plan. Mentally, it also helps to accept the losses and move forward with your recovery plan.
As a next step, you’ll want to draw up or review your household budget, considering all your current sources of income. You’ll need to make a list of your regular spending, such as bills, groceries, and rent or mortgage payments, as well as additional expenses that crop up from time to time. This will enable you to see exactly where your money is going and identify where you might be able to free up some cash.
Prioritise your spending
Once you have a budget in place, you can look at areas of spending that are non-essential. For example, you might be able to cut out recurring expenses such as multiple streaming services, unused gym membership, or monthly subscriptions you don’t need or perhaps didn’t even realise you were paying.
If you are in a position to do so, it’s also a good idea to factor paying down debts into your budget –these might include credit cards and personal loans that you have relied upon to ride out this period of financial instability. You may not be able to pay them all off at once, so prioritise those that are most urgent or incurring the highest interest.
Get a helping hand from the government
The Federal Government introduced a range of measures to assist Australians experiencing financial hardship due to the impacts of Coronavirus. The Job Keeper payment has been extended to 28 March 2021 – you may be eligible for $1,000 a fortnight if you previously worked for 20 hours or more a week. State governments are also offering Pandemic Leave Disaster Payments if you are unable to work because you are in self-quarantine or caring for someone with Coronavirus.
If you receive these payments, it’s worth considering how you can put this money towards your financial recovery. For example, as a matter of priority you could pay off any amounts that are immediately due to avoid generating a late fee – such as bills, mortgage payments, or credit card debt.
Prepare for the future
While it is unlikely, we will face another crisis like Coronavirus any time soon, there will always be financial challenges ahead. That’s why safeguarding your finances for the future is a vital part of your recovery. Now is the time to start putting money away for an emergency fund, so that unexpected expenses won’t have you reaching for the credit card. Many financial experts recommend setting aside enough money to cover between three to six months of living expenses.
As an extra financial safety net, you should also review your insurance cover – and make sure it’s adequate for your circumstances. Some may find it useful to know income protection insurance can provide regular payments of up to 75% of your salary if you are temporarily unable to work.
Develop a growth mindset
While everyone experiences challenges in life, it’s up to everyone how they will react to difficult situations. One way to stay positive is to consider how to best use this period as an opportunity for growth. Developing a growth mindset is an important strategy for building resilience and overcoming future obstacles. It helps to keep the endpoint in sight, as we know this current crisis will not last forever, and to focus on taking small steps towards your goals.
Get the right support
If your financial situation is causing anxiety, the most important thing is to take care of yourself first. Make sure you are getting enough sleep every night, staying active, eating properly, and avoiding unhealthy coping mechanisms such as alcohol. It’s easier to manage financial stress when you are in good physical and mental shape.
Don’t be afraid to reach out to others for support – whether it is from trusted friends or family members, or a professional. It can be challenging to navigate life’s ups and downs on your own, particularly after everything that 2020 has thrown at us. So, consider talking to a therapist and a financial adviser to help get you back on your feet in 2021.