Financial setbacks can happen to anyone, whether due to
sudden medical expenses, loss of income, theft, or other unexpected
emergencies. No matter what form it takes, however, a big setback can feel
completely overwhelming to anyone who experiences it. The pressure of mounting
expenses and financial obligations can be extremely stressful and make it seem
impossible to regain stability.
But although some financial setbacks may seem like the end
of the world, remember that they are not permanent. The right mindset and a
strategic approach can do a lot to help you recover and regain control of your
finances.
If you’re going through financial difficulty, take comfort
in the fact that your proaction will make a huge difference for both the
present and your financial future. From managing expenses wisely to finding new
income streams, here are some examples of practical and actionable steps you
can take to help you move forward from a financial crisis:
1) Assess Your Current Financial Situation
The first and most important step towards recovering from a
financial setback is finding out where you currently stand. Without a clear
picture of your financial situation, it will be difficult to make the smartest
possible decisions on how to move forward.
Start by listing all your income sources, expenses, and
outstanding debts. Identify which financial obligations require immediate
attention, such as rent, utility bills, or loan payments.
2) Set Up a Dedicated Account for Savings and Other Purposes
Even during financial difficulties, setting aside money for
savings should remain a priority for you. Your effort to keep a substantial
emergency fund can prevent similar setbacks in the future. While it may not be
possible to save large amounts right away, you will still benefit from being
able to start small.
One of the most effective ways to manage your savings is to
open a dedicated bank account specifically for saving purposes. Instead of
mixing savings with everyday spending money, look for open bank account options for the former.
This will allow for better tracking and reduce the temptation to dip into your
savings for unnecessary expenses.
Aside from an emergency fund, consider setting up other
accounts for monthly expenses and paying off debts. This method will help you
observe financial discipline and ensure that your funds are allocated
efficiently for specific purposes. If you’re based in the Philippines, explore
a high-interest savings account with a digital bank like Maya. Your Maya
Savings account will require no maintaining balance, and it will be easy to grow
your savings at up to 15% per annum.
3) Manage Your Current Expenses Wisely
Another immediate action to take after a financial setback
is to reduce unnecessary spending. While some expenses, such as rent and food,
are non-negotiable, there are always ways to make smarter financial choices.
For example, cooking meals at home instead of ordering food out very often can
significantly reduce your daily costs.
Now is also a good time to look for ways to maximize value.
Shop at local markets instead of convenience stores, and buy in bulk to stretch
your budget further. With these small adjustments to your daily spending
habits, you can free up more funds to allocate towards more urgent financial
needs.
4) Revisit Your Budget and Make Necessary Adjustments
A budget that worked before may no longer be effective after
a financial setback. This is why it’s crucial to review and adjust your budget
based on your current income and expenses.
Common approaches to budgeting include the 50/30/20 rule,
which allocates 50% of income to essentials, 30% to discretionary expenses, and
20% to savings and debt repayment. However, if your financial situation is
strained, you might need to adjust this ratio and allocate a bigger portion of
your income to immediate needs while temporarily reducing your non-essential
spending.
5) Explore Additional Income Streams
When dealing with a financial setback, you can also regain
stability by increasing your income. See if it’s a viable option to pursue side
hustles or freelance work to supplement your earnings, especially if it seems
like you’re cutting it close with only your main source of income to cover your
expenses.
Freelancing opportunities such as virtual assistance,
graphic design, and social media management are in high demand. You can also
sell products online to generate additional income. Even simple gigs such as
offering tutoring services, baking and selling homemade food, or providing
delivery services can make a difference in easing your current financial
burdens.
6) Create a Debt Repayment Plan
If debt is a major contributor to your financial stress,
you’ll want to be ready with a structured repayment plan. Instead of feeling
overwhelmed by multiple debts, break them down into manageable amounts and
prioritize repayment. List all outstanding debts, along with their interest
rates and due dates, to determine which ones should be paid off first.
Consider the debt snowball method as a repayment method.
Through this method, you focus on paying off the smallest debt first while making
minimum payments on larger debts, which will foster in you a sense of progress
and motivation. Alternatively, you can try the debt avalanche method, which
prioritizes paying off debts with the highest interest rates first. This will
reduce the overall amount that you pay in interest over time.
Again, while they’re extremely difficult to deal with at the
moment, financial setbacks don’t last forever. The tips mentioned above should
help you adopt a strategy for dealing with the setback and work towards a more
stable and secure future. It’s true that recovery will take time and effort,
but each small step will bring you closer to financial freedom.
