Sometimes, things just don’t go according to plan. And that can feel especially true when it comes to your finances — one day you’re feeling fully confident about hitting your goals, the next day a leaky roof or the latest smartphone splurge makes you take two steps back.
But don’t be discouraged. Financial setbacks happen to everyone, and they aren’t impossible to overcome; in fact, you can use each one as an opportunity to reexamine how you manage your money and learn even better strategies for meeting your goals.
Not sure if your actions match your intentions? Here are tips to help you rebound from these common financial setbacks.
4 common financial setbacks
Your debt got out of hand
If your debt has gone up in recent years, you aren’t alone: 51 percent of adults with credit card debt saw their balances increase during the pandemic. If you’re among them, Jennifer Raess, CFP®, Advice Integration Lead at Northwestern Mutual, suggests taking inventory of all your debts and jotting down the balances and interest rates for each.
Using that information, decide whether you want to pay down debt using the snowball or avalanche method (the snowball method helps you knock out quick wins for better motivation, but the avalanche method will help you pay less in interest).
No matter the method, ideally you’re aiming to pay off your debt within two to three years. If that feels too aggressive, look for quick ways to cut costs from your budget. “Could anything be reduced in the interim to help you have a little extra cash flow to accelerate some of those debt payments?” Raess says.
Raess adds that using a balance transfer offer or a lower-interest personal loan to pay off higher interest debt can also help you save money and get out of debt faster. Just make sure you understand the terms before making any adjustments.
Also, think about why your debt got out of hand. Did a big emergency knock your budget out of whack? Or did one too many impulse purchases catch up to you? Being more financially mindful can help you tackle not only the debt, but the mindset that led to it.
Your emergency fund is dwindling
If you’ve dipped into your emergency fund more than you care to admit, now’s a good time to build it back up to having six months’ worth of expenses saved. Understandably, you won’t be able to do that all at once, so Raess suggests starting small and aiming for one month.
“That at least gives you a baseline of emergency fund savings, and from there you can continue working on getting it up to that higher target,” she says. “If you’re also paying down debt, it can be helpful to make minimum debt payments until you get to that one-month mark. After that, you can begin balancing the two and making progress on each.”
A healthy emergency fund is important because it can prevent you from accumulating new debt when you face your next financial emergency. Revisit your budget to see how much you can realistically put into your savings each month. Set up automatic transfers and treat it as a regular monthly bill.
“Anytime you can automate these things, it helps,” Raess says. “Then your remaining balance is left to utilize for discretionary spending.”
You fell behind on retirement savings
When your finances are tight, it’s easy to cut back on things like saving for retirement — after all, you’ve got plenty of time to catch up, right?
Just remember that the power of compound interest is actually reason to start early, no matter how small the amount. If for some reason you hit pause on contributing to retirement, Raess suggests looking to your employer to help you get back on course: What percentage of your gross pay would you have to contribute to get a full employer match? That’s the goal to shoot for.
“That’s basically like free money to you,” she says. “If that amount doesn’t feel comfortable right now, you can work on gradually getting there.”
Beyond that, Raess recommends increasing your contribution amount by a percent or two every year. This can help you recoup some of the losses from when you weren’t saving. If you don’t have a 401(k) through work, look into an individual retirement account (IRA), which can help you save for retirement in a tax-friendly way.
You can’t seem to save for goals
Maybe you started that separate savings account labeled “Starter Home” or “Dream Vacation,” but are feeling discouraged by the fact that it’s not growing as fast as you’d like.
Rather than feel bummed, use this time as an opportunity to regroup. For starters, “reevaluate what your goals are and make sure they’re still in alignment with what you want for your life today,” Raess says. For instance, is it really a new home you want, or the money to finally remodel? Are you still set on a trip, or would you rather use that money to turn your side gig into your full-time job?
Once you’re clear on your goals, Raess says to look at your budget to determine a realistic and comfortable savings target for each one — then automate those savings. The key is to make your goals an active part of your budget, rather than an afterthought that gets your leftover money at the end of the month.
“And be sure to celebrate the small wins,” she adds. “It’s been such a tough time for everyone. As you’re making this progress, it’s good to just acknowledge that you’re getting back on track. And if you have trouble doing it on your own, reaching out to a financial advisor can help.”
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
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