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How to get back on track after a financial setback
Whether it is your financial misstep or a financial disaster that lead to a financial setback, there are ways to get back on track.
Have you come across an incident in your life, that has set you back by a couple of years financially?
Ravi was diligently planning towards his future goals by investing in mutual funds using systematic investment plans. He had managed to accumulate an amount of Rs 5 lakh in mutual funds over three years. Through his employer, he had covered his family including parents with a medical insurance of Rs 5 lakh for each member. It was all well until Ravi’s mother was detected with cancer. Her treatment cost Ravi Rs 12 lakh and at the end of it all, he lost his mother.
Ravi was crestfallen. He had lost his dearest family member and as if that wasn't enough, his savings over the last three years were wiped off and he had to take an additional personal loan to cover the medical treatment.
In the above example, it would be harsh to say that Ravi was unprepared. On the other hand, he had done all the right things and yet, the financial setback was out of his control. There also may be cases where people land up in a financial mess due to their own mistakes. Uncontrolled spending leading to a debt trap is quite common today. So, irrespective of whether it is your financial misstep or a financial disaster that lead to a financial setback, there are ways to get back on track.
Let us look at some ways to get your financial life back on track after a financial setback.
The author Aditya Prasad is chief evangelist at Perfios.com and can be reached at adi@perfios.com.
How to get back on track after a financial setback
Accept the situation and have the courage to move ahead
The first step is an emotional one and not so much a financial one. A lot of times, people are in denial and are not willing to accept their situation. Unless you accept the problem and evaluate how you landed there, you will never be able to find a solution.
Often, a financial setback may come out of the blue, like in Ravi’s case. Most other times, it may be a result of your own financial misdeeds. Irrespective, it is important to understand and accept that it has happened and recognise the fact that you need to get out of it.
The lesser time you take to accept and take charge, the better it is.
Evaluate your financial situation
If you have had a financial setback, the important thing to do is to take stock of your financial situation.
Evaluate your assets, especially financial assets to see where they stand. Evaluate your liabilities to check which high cost credit is affecting you the most. Use a part of your investments to pay off the high cost credit.
In case no assets are available, consciously start setting aside money, first to create a contingency surplus and then to target your high costs credits such as credit card or personal loan debt. Have a time bound action plan and stick to it.
How to get back on track after a financial setback
Keep a check on spending
When the going is good, people often tend to be liberal with their spending. Spending on things that are unnecessary may not hurt when you are in a good financial situation, but unnecessary spending can rapidly deteriorate an already financially messy situation.
Cut back on the discretionary spending such as eating out, shopping, travel etc. when you are trying to get back on track with your finances. You may not totally eliminate these heads of expenses but think of ways in which you can bring them down drastically.
Also, reward yourself once in a while if you have been able to curb your spending habits. The reward may drive you to meet your goal.
Draw up your action plan
Situations such as the ones we are talking about require a more focused approach and dedicated effort. Set some targets for yourself in terms of the to-dos.
For example, if your finances are totally wiped off and you are carrying debt, prepare an action plan with timelines and approach towards creating some buffer and then targeting the debt.
For example, first 3 to 6 months savings may be dedicated to building a contingency fund for any emergency situation. Look for avenues to replace high cost debt with low cost debt.
A credit card liability may be replaced with an advance against salary or a personal loan. Keep monitoring your action plan to see if you are on track to achieve your goals.
How to get back on track after a financial setback
Take professional help
It is not impossible to get yourself out of a financially bad situation on your own, but having someone by your side may make it less painful, error free and quicker. A personal finance professional such as an advisor or planner may have past experience of dealing with situations similar to yours.
They may be able to suggest solutions that may not occur to you and they can help keep any emotional aspects at bay. A rational mind is very important to tide over a financial setback and an unrelated party is always in a better position to evaluate things critically and suggest the best options.
Forget the incident but remember the lesson
Once you are getting back on track and have managed to come out of the situation mentally, look back and see if there was anything that you could have done differently or were their any mistakes you made which should not be repeated. Think of how you can be better prepared to handle a difficult situation in future.
For example, creating a contingency corpus of 4 to 6 months expenses, being adequately insured for risks to life, health and property and setting some money aside towards future goals are the very basics, which should be in place in that order. You may forget the bad experience itself, but do learn the lesson which it may have taught you and remember that lesson for the rest of your life.
A financial setback to a few people may come as a blessing in disguise to help them mend their ways. Whether you are responsible for it or not, it is important to accept it, move forward and divest all your energies towards financially secure and healthy future.