A financial crisis can be scary at any age. Perhaps you’re behind on saving for retirement or have too much debt from unnecessary spending. Or maybe your finances took a direct hit from an unexpected challenge, such as a job loss, illness, or break from the workforce for care giving responsibilities.
Regardless of how you got to this point, developing a strategy will help you re-establish financial stability. Below are six helpful tips to get your finances back on track:
Start by accepting the reality of your situation. This may be easier said than done. It’s okay to feel negative emotions, but being realistic is imperative to creating a plan that will get you on track. They are likely to pass with time as you come up with a plan to regain control.
Review your spending. Create a budget to help establish positive cash flow. If you’re spending more money than you earn, cut back on your discretionary spending immediately. If you’ve made cuts and your monthly income still isn’t enough, explore options to reduce your fixed expenses or increase your income. This could mean refinancing a home or vehicle loan, picking up some extra hours at work, or a small side job.
Reduce your debt
Debt is likely one of the reasons you’re facing a financial crisis. One survey found that people between the ages of 45 and 54 reported the highest amounts of debt overall, totaling $134,600.1 This includes: mortgages, student loans, car loans, credit cards, and other debt.
To reduce overall debt, try the snowball method. Identify the amount and interest rate for each obligation you have, then tackle it by paying off the debt with the highest interest rate first, then the next highest, and so on.
You might also consider restructuring your debt. This involves negotiating new repayment terms with creditors so you can meet your monthly expenses and pay off your debts within a more reasonable amount of time. If you do not feel comfortable trying this on your own, a professional credit counselor can help you manage or restructure your debt.
Rebuild your emergency savings
The future can be unpredictable, so it’s important to stay prepared for all of life’s unknowns. If you’ve taken money from an emergency savings during a financial crisis, you’ll need to build it back up. Otherwise, you’ll risk racking up credit card debt or dipping into your retirement savings if you fall into another crisis again.
Start small! Set aside a percentage of your paycheck each pay period to go into your cash reserve. Continue adding money after reaching your goal.
Revisit your financial relationships
In order to prevent another financial crisis, what changes will you need to make to your current financial relationships? Consider the following:
- Do you need to increase your income with a second or a part-time job? Is there room for growth in your current career?
- Do you currently live in an expensive area? Does it make sense to downsize your home or move to a lower-cost area?
- Can you make a lifestyle change to improve your health to help avoid future issues and potentially reduce medical costs?
- Do you overspend to reward yourself? Are you an emotional shopper? Do you buy things you need, or are you just trying to keep up with trends?
- If you’re financially supporting other people, can you reduce or discontinue it? Similarly, if you support your elderly parents, can your adult sibling(s) share the costs of care?
Reassess your finances periodically. As you get back on the right financial track, it’s critical to monitor your progress. Make it a habit to continually review your finances. You might benefit from working with a financial professional who can help you stay on track with your financial goals as your situation changes. You can also use online tools to help you easily monitor your finances. One example is GECU’s Money Management tool available to Online Banking and mobile app users.
Need additional guidance?
Our GECU Member and Relationship Consultants are available to meet with you to review your situation and offer advice and solutions to turn your finances around. And, if the best option for your situation is to work with a professional debt management company, we have a trusted partner who can help with our Debt Management Assistance Program.