Despite our best intentions, we all inevitably seem to go through financial setbacks that catch us off-guard and throw off our financial progress.
Mine came in 2017 when my ex-husband and I decided to end our marriage. Between the discrepancy in our incomes (I made way less than he did), the costs associated with the divorce, and my lack of financial safety net, it was a struggle for a while.
Once I finally got back on my feet and started to regain some balance in my life, I had to get my finances back on track.
I’m not going to lie – it was an uphill battle. There was a lot of work that went into figuring out where my finances were, making a plan to get them back on track, and actually following through on it.
Throughout the pandemic, plenty of people have gone through financial setbacks of their own. Whether you were laid off from a job or just let your spending get away from you, it’s time to get a plan in place to get back on course.
In this post, you’ll learn the nine steps to follow to get you get back on track with your finances and lessen the blow of future financial setbacks.
Evaluate your current financial situation
The first thing you have to do to get back on track financially is to figure out where you are now. As with any journey, you have to know where you’re starting to map out the route to your final destination.
As you’re evaluating your financial situation, determine the following:
- Your current income and expenses
- Your net worth
- How much money you have in savings
- How much debt you owe
- Any outstanding bills
Figure out where you went off course
Once you figure out where you’re at with your finances, determine how you got there. Really narrow down what caused you to get off-track with your finances.
In some cases, it wasn’t anything you did. Cases of unemployment, especially during COVID, were unavoidable. It wasn’t a scenario any of us ever expected, and as a result, most of us weren’t financially prepared.
But in other cases, you might look back and realize your own actions caused you to get off course with your finances. For example, maybe you stopped tracking your spending a few months ago or took on a debt you couldn’t really afford.
Identifying the root cause of the problem can help you to avoid getting off-track for the same reason again.
Create a new budget from scratch
I’m constantly tweaking my budget to make sure it’s still working for where I’m currently at in life. But some circumstances call for a full overhaul.
Anytime I’m going through a major life change or find that I’ve gotten completely off-track with my finances, I like to start fresh with a brand new budget.
Think of it like Marie Kondo-ing your budget. Instead of going through your existing budget and deciding what stays, throw everything out and only put back those things that really belong there.
Starting fresh with a new budget is especially helpful if your income or expenses have changed at all since the last time you put together your budget.
Read More: How to Create a Monthly Budget That Really Works
Start with any outstanding bills
Before you dive into any new financial goals, make sure you’re up-to-date on any outstanding bills you have. When you go through a time of unemployment or another financial struggle, you may end up falling behind on one or more of your expenses.
Once you start getting things back in order, settling up any outstanding bills should be the first thing on your to-do list.
Create a long-term plan for debt and financial goals
One of the most valuable lessons I learned on my own financial journey is the importance of having a plan in place. And when it comes to your finances, there are two plans you absolutely have to have.
First, make sure you have a plan in place to pay off your debt. Ideally, you’d be able to make extra payments to pay your debt off ahead of schedule. But even if you can only swing the minimum payments right now, knowing when you can expect to be debt-free is critical.
The other plan you should have in place is one for your financial goals. How many times have you found yourself dreaming of a future home or a dream vacation but never actually taking steps to get there?
When you don’t have a plan in place, you’re far less likely to take action. By creating a written plan, you’re exponentially increasing the odds of actually reaching your goals!
Track your spending
I always think tracking your spending is important to financial success. But when you’re working on getting your finances back on track, this becomes even more important.
Tracking your spending allows you to know exactly where each dollar is going. This ensures you’re being super intentional about your spending. Doing so can also avoid being caught off-guard when an unexpected bill hits or you go over budget without realizing it.
There are plenty of budgeting apps that can help you to track your spending. I also recommend a good old-fashioned spreadsheet, as it forces you to personally check in with your finances on a regular basis.
Look for ways to increase your income
In many cases, we realize that our financial troubles stem from the fact that our current income isn’t sufficient to help us pay our monthly bills and reach all of our financial goals. In that case, you might consider looking for ways to increase your income.
There are a few different ways you can go about making more money:
- Negotiate a pay increase: Perhaps the simplest way to increase your income is to negotiate a salary increase at your current job. This strategy allows you to make more money without taking on a second job.
- Get a part-time job: If negotiating a raise isn’t in the cards, you might consider a part-time job. When Brandon and I were paying off debt and saving for our RV, he worked a few nights per week at a bar in town to bring in some extra money. Meanwhile, I worked on my freelance writing business while working at my government job.
- Join the gig economy: If working specific hours at a part-time job doesn’t work with your schedule, you can join the gig economy. Options include rideshare apps such as Uber, grocery delivery apps such as Instacart, or pet-sitting and dog-walking opportunities through a service like Rover. These opportunities allow you to pick up jobs only when you’ve got some time available.
- Start a business: If you want more of a long-game solution to increase your income, you might consider starting a business. Know that this option usually won’t result in making money right away. In fact, you’ll probably have to put in a lot of work before you’re profitable. But in the long run, this option can result in the most amount of money. The good news is that technology makes it fairly easy and extremely low-cost for anyone to start a business!
Put a safety net in place
Once you start getting back on track financially, it’s time to put a safety net in place for the next time things don’t go as planned.
There are two key strategies to help you avoid or lessen financial struggles in the future:
- Emergency fund: Your emergency fund is a pool of money that can help you with a one-time financial emergency, such as home or car repairs. Even more importantly, your emergency fund serves as an income replacement in case you lose your jobs. In 2020, COVID caused people to be laid off from work for far longer than anyone would have expected. This taught us all the importance of an emergency fund that can cover your bills for several months.
- Sinking funds: While your emergency fund helps you cover any unexpected financial emergencies, sinking funds help you to plan for expected but irregular financial obligations. With sinking funds, you set aside money each month for an expense that comes around less often. For example, let’s say you spend $600 on Christmas each year. Instead of taking $500 out of your December budget, you’d set aside $50 per month all year. Sinking funds can also be used for costs such as:
- Car insurance
- Home and vehicle repairs
- Property taxes
- Annual subscriptions
- Financial goals
Have regular money dates
If you share finances with a partner, or even if you share a life with a partner without having joint finances, communication around money is key.
Regardless of whether you’re just coming back from a financial setback, money dates are critical to making sure you and your partner are on the same page and that you both have a seat at the table.
These check-ins become even more important when you’re working on getting back on track after a setback.
No one expects financial setbacks to come, but they inevitably seem to pop up once in a while. By following these steps, not only can you get your finances back on track, but you can also prevent future setbacks from being quite as painful.