An unexpected tax or medical bill, a pay cut, losing a job … these are the kinds of financial setbacks that can strike fear into anyone’s heart. Usually the first response in these situations is panic. That’s normal. But remember: if you’ve been working to build a strong financial foundation, these are the exact moments you’ve prepared the foundation for! Once the initial panic has worn off, take these steps to begin to right the ship:
Assess the Situation: As soon as the financial setback comes to your attention, sit down and assess the overall impact. Often it looms larger in our mind than it is in reality. Set aside the emotion, if you can, and give the setback a clinical look. If you owe something on your taxes or received an unexpected medical bill, what amount do you owe and by when? If one of you lost a job or received a pay cut, exactly how much income per month will you be losing and when will this begin? Having the numbers and dates in hand will help you feel like you have a little more control over the situation.
Tip: If the setback primarily impacts your partner more than you (like your partner losing their job), you might want to ask your partner if you can give them space to grieve while you take the first step on your own, promising to make no decisions without their input.
Analyze the Levers You Can Pull: Once you get your arms around the setback, it’s important to see what options you have at your disposal — even if they aren’t options you plan to use. For a short-term setback like an unexpected bill, might there be a way to extend the due date without penalty or even a way to negotiate the bill down? Could you take money from an emergency fund? (Remember: this is why it’s there!) Could you wait a little longer for a trip you’ve been saving up for or cut some corners on the trip you had in mind? Could you tighten up your budget for a few months to help you pay for the expense? For a longer-term setback, you may want to explore the process for collecting unemployment, applying for a new job, or even adding on a side hustle. Then be sure to consider not only the impact of tapping into savings for the short term but also how to tighten your budget over the long term.
Tip: Even if there’s not assistance available for your specific setback, there may be levers you could pull in other areas of your financial life. For instance, if you lose your job or your pay is cut and you’re still paying back federal student loans, an income-based repayment plan could provide some financial relief. You may also want to see if rent or mortgage assistance is available. You may not need either option, but it’s good to know they are there.
Take a Proactive Step Forward: Once you’ve taken into account the options at your disposal, decide what step(s) you want to take. Especially if this is a large setback, it might be best to be strategic about tapping into short-term savings and then tightening your financial belt.
Tip: While guilt or regret could arise at any time during this process, it’s likely to happen at this point since it’s when you’ll actually see the full extent of the setback. Be especially sensitive to the emotional, not only the financial, implications of your actions. If you find guilt popping up, walk through the steps outlined in this blog post to help you get to the root of what’s going on.
Take a Reflective Look Back: Don’t just take the step and move on; take the time to check back in and assess its impact. Did it accomplish what you hoped for? Are there additional steps that need to be taken? It’s not uncommon in the face of a financial setback to take a bigger step than needed. You might have tightened your belt too much, taken assistance you didn’t end up needing, or pulled money from your savings when you ended up having enough in checking. This is your moment to right-size your step.
Tip: The check-in phase is a great time to consider how you’d like to prepare now in case this situation happens again. What financial safeguards would you like to have in place that weren’t there this time? It’s best to make a plan while the details (and feelings) are still fresh in your mind.