In an unpredictable world, a personal financial crisis can arise due to various reasons – a lost job, a divorce, a medical emergency, or any situation that leads to the loss of financial security. The consequences of a financial crisis are often similar: stress, confusion, perceived loss of control and loss of confidence. While dealing with a financial crisis may be difficult, we should remember that it is always possible to regain financial stability. The right frame of mind and a solid action plan come in handy, when facing a difficult financial situation. Here’s what you need to do;
Get back in control
Before dealing with the actual crisis, it is important to deal with the emotional elements. You need to accept that emotional turmoil is a normal part of the process. You may feel stress, depression or anxiety, but these emotions will likely pass over time as you adjust to your situation.
Learn to accept your situation. When faced with a crisis, people often tend to ignore or deny it. Accepting the situation gives you the power to face your problems and deal with them head-on.
Talk to your close friends and family members about your situation. Your confidants may be able to offer valuable suggestions from their own experiences. Not only does this provide emotional support, but it also gives you a new perspective on your situation.
Always stay positive. Remember, that regardless of your situation, others have been in your place and overcome their problems. Be grateful for what you have, like your friends, family and health.
Assess your situation
After you’ve regained some control over your emotional situation, it’s time to focus on the problems. Start by looking at your assets, which can be simply defined as the value of what you own. Assets are the source of financial strength. They include any value you have in your home, money in bank accounts, vehicles, investments, etc. Sit down and sum up the total value of your assets.
Next, make a list of your liabilities or what you owe. Liabilities include credit card debt, home loans, unpaid bills, car loans, etc. After you know the value of your assets and liabilities, calculate your net worth by subtracting liabilities from your assets. Knowing your net worth will help you understand your options.
Once you know your net worth, it is important to look at your income and expenses. Calculate your total monthly income and your monthly expenses. You can use your bank account statements to determine your monthly expenses such as food, housing, utilities, entertainment, etc. Subtract your monthly expenses from your total income to determine your monthly savings. If your monthly savings is too little or negative, you will need to make changes in your spending pattern.
After you’ve assessed your situation, motivate yourself to work towards regaining financial stability. Understand that if you don’t start managing it, it could hurt you and your family in the long run.
Make a recovery plan
The exact nature of your recovery plan will have to address the problem that got you into your financial crisis in the first place. If you have debt, you will need to increase your income or sell assets to pay off your debts. One way to increase your income is by reducing your expenses.
In order to reduce your expenses, start with cutting down on variable expenses. These are your wants, as opposed to your needs, and cutting down on them will give you some room in your budget for debt repayment.
In order to increase your income, you may also consider pursuing additional sources of income. Although this may not be possible in all cases, a part time job can really help you in finding financial stability. You can also consider selling certain assets and using the proceeds to pay off debt.
After you have your plan in place, it’s time to set it in motion.
Follow your plan
Start with your plan as soon as possible. The longer you delay, the more your debt will pile up. There will be certain abrupt changes in your lifestyle and the best way to deal with that is staying positive. Remember, it’s only temporary.
Prioritize your debt repayment. First, pay off your secured loans. These include mortgages, car payments, etc. Next you should look at paying high interest, unsecured loans such as credit cards. Finally, focus on low interest unsecured loans. Incase you’re having trouble paying off a certain debt, contact your creditor and explain your situation. You may be able to renegotiate repayment in certain cases. Do not ignore their calls, although it may feel like the easier thing to do. If you feel overwhelmed consider consulting not-for-profit debt counseling services. These services help you plan your debt repayment.
Although it may seem like a daunting task, getting out of your financial crisis is achievable. All it takes is good planning, discipline and most of all, a positive attitude.