Essential Steps Towards Financial Recovery

When life throws you a fast one and you experience a serious financial loss, then it can feel terrible. You may have gone a very long time feeling completely certain and relaxed in your current financial situation, then before you know it all that stability gets whisked into the air by fate’s hand. The first good piece of news I can offer is that you’re not alone. Countless people have been hit by massive financial losses, and countless people have bounced back from it. If you’re going to have any hope of a full recovery though, you can’t just sit there and wait for it to happen! Here, we’ll go through the essential steps to recover from any major financial loss. Hopefully, they’ll help you bounce back from your losses and put this dark chapter behind you.

The first, and in some ways most important step you need to take is accepting your situation. While a positive attitude won’t magic all your money and assets back into your accounts, psychology is the foundation for getting yourself through any tough situation. Yes, you may not have done anything to warrant this financial disaster, and yes, the results are emotionally devastating. However, it’s in the past, there’s no easy way to go back, and your attention should be fixed on your next move. The less energy you expend pining for all that lost capital, the more money you’ll have to dig yourself out of this situation.

The second, more practical step you need to take is doing a little inventory. Look into all the liabilities you face, the resources you have left, and try to make some prediction about how these are going to change in the future. Without knowing all the details of your current situation, you’re not going to stand much of a chance of carrying yourself back to a state of financial stability. A good place to start is taking stock of all the assets you have left over, and doing some extensive research to find out whether the values are going to rise or fall. Your outstanding debts are another big thing you need to quantify, and stack up against your current reliable income. Perhaps most importantly of all, you need to get out all your receipts and bank statements, and figure out how much you’re spending each month. One of the hardest things about financial recovery is tightening belts, and getting used to spending less on your day-to-day life. Your credit score is also a good thing to be aware of, as this will have a big impact on any loans and big purchases on the horizon. Finally, take some time to consider any long-term consequences of the financial disaster you’re currently going through. Private health care, child maintenance payments, and so on need to be a part of the math. If you come across any kind of uncertainties while you’re taking inventory, don’t simply wave them away. Talk to a trusted financial advisor and do your own research into it. If you fail to understand your finances completely, you could end up running headlong into a totally new disaster.

So, now that you’ve taken out your map and figured out where you are, the next step is to decide where you want to be. This needs to be both realistic and measurable so that you have an idea of your own progress, and you can tell where you need to change things. Saying “I want to have more money” is nodding in the right direction, but it’s far too vague to be of any use to you. Instead, you need to have a goal like “I want to have (x) pounds per month in residual income after taxes from (date)”. This is specific, gives you a clear deadline to meet, and will allow you to set yourself regular milestones to keep you going in the right direction. It’s also very important to do some maths and consider how attainable this goal really is. It’s easy enough to say “it would be great if my personal finances were like this”. However, this kind of vague planning is about as useful and productive as wishful daydreaming. Make sure your goal isn’t so easy that your recovery process slows to a crawl. Equally, you should make sure it isn’t so hard that you’ll need to strain your finances too hard. When you’re already struggling with money, the worst thing you can do is de-motivate yourself with failed ambitions.

Now that you’ve got a good handle on where you are and where you want to be, you need to create a solid plan for how you’re going to get there. By now, you’ll probably have a pretty clear idea of what your financial priorities are, and the smaller goals which are going to add up to the big one. A good way to start is thinking about the near, certain future, and planning for any more debts which you’re going to have to take on. Yes, added debt can be counter-productive to better financial stability. However, as long as it’s not on luxury holidays and jewellery, you can probably stand to deal with a little more “good debt”. Perhaps one of your children is getting to university age, and you’ll need to put your name on their student loan. Your car may be set to fail its next MOT, and you’ll need to plan to finance the replacement. You may have run into some kind of unexpected disaster with your home utilities, and need a short term loan to see you through.

Once you’ve got this out of the way, your next step should be a revised home budget. For a lot of people, this is the hardest part of recovering from a financial disaster, simply because of the leisure sacrifices they need to make. Have a look at your previous spending habits, and eliminate anything that’s superfluous. Quit your gym membership and set aside some money for your own weights. Look at how much you’re spending on your TV subscription and shop around for cheaper packages. Cut out the takeaways and start cooking for yourself a little more, or make that weekly dinner out a fortnightly ritual. As long as it’s not going to compromise your health, shave your expenses down or cut them out entirely. With the money you’ll save by cutting out some of the unnecessary luxuries, set yourself regular quotas for paying off your debts and putting money into savings. When you’re struggling as it is, it can be very hard to find the motivation to stick to these kinds of targets. However, even paying pennies off of your debt, and making small contributions to a high-yield savings account are good things. Just keep telling yourself that Rome wasn’t built in a day, and you should keep on the right path. This brings me onto my next point…

With this revised, smarter budget in place, your next step is to actually stick to it! This will probably sound simple, seen as you haven’t actually tried it yet. For a lot of people though, it’s the most challenging part of getting their finances back on track. Unless you’re a Buddhist monk (in which case you’re probably not reading this!) you suffer from stress. Even people who land their dream job will go through days where various external factors cause that horrible knot to rise in their chest. For most of us, the knee-jerk reaction is to throw money at the issue! Whether it’s wine, eating out or catching up with a series, you probably have some go-to method of dealing with stress. I hate being the one to tell you, but you may have to wave that thing goodbye in the course of your financial recovery. This is where many people fail in sticking to their budget. I’m afraid I don’t have the miracle secret to self-discipline, but I can advise you to make smaller cut-backs to adjust to a big one. Instead of massive, nightly Netflix binges, buy a movie three times a week, then two, then one.

Finally, try to find ways to pad your income. Again, this relies heavily on your self-discipline and your ability to make sacrifices. However, if you want to get back to a state of financial stability hard enough, it should be a breeze. A great way to start is selling any clutter or unnecessary furniture in your home. This small cash injection can make all the difference to your personal finances, and you’d be surprised what some things go for on classifieds sites. The more obvious option is to work more. Volunteer at your work to take more shifts, or look around for part-time work. If you have the right marketable skill, you may be able to pick up some work freelancing in your spare time. Ideally though, you’ll want some source of passive income. Renting out property and certain shrewd investments have dug countless people out of financial holes.

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