7 Tips to Recover from a Financial Setback


why-meBad things happen to good people. Overcoming financial challenges – in whatever form – takes dedication, patience and planning.

In life, you will have trouble, that’s a given. This can include losing your job, going through a divorce, or experiencing a serious illness. Then there are all those unexpected expenses life throws at you. A leaky roof, flooded basement, major car repair – any one of these could cost thousand, with no time to waste and room to negotiate.

And to add insult to injury, often times, more than one of these situations occur at once. It’s fairly obvious to think that these challenges often affect your finances – so how do you recover?

Here are seven tips for getting back in track after a financial setback, as recently published in “Solutions for Financial Planning”, a periodical publication from Manulife Financial.

  1. Get Professional Advice – A professional perspective can be invaluable, no matter the size of your problem. An financial advisor can help you assess the impact on both your short-term and long-term plans, adjust your goals, and develop a plan that helps lead to recovery. Getting advice first, will help you avoid making bad decisions like, racking up a large credit card balance that could only serve to prolong your troubles. Your advisor should help you gain perspective, relax a bit and offer constructive solutions to your problem.
  2. Tighten You Budget – Your budget probably has some slack. Regardless of the cause of your troubles, it’s time to eliminate that slack and get your budget back in balance. Take a hard look at your non-essential costs. I encourage all of my clients to play a little game call “Every Dollar Has A Name” in order to find the margin in their budget. Are there free or lower-cost alternatives to the things you do on a regular basis? Borrowing books, magazines and videos from the library, activities in a local park or at a community centre, or the ever popular staycation versus expensive vacation can all help save thousands. You could even take a look at negotiating a better deal on certain products and services without cutting back.
  3. changesExplore Big-Ticket Cost Savings – If things look as if they could have a lasting impact, and a high cost, it may be time to make some significant changes to your lifestyle. Changes that go beyond simple trimming and include some of the biggest line items in your budget. Consider moving to a smaller home a more affordable area and can you make do with one car? Major changes are difficult, but they may be the key to helping protect your future.
  4. Earn Extra Income – Spending less can only go so far, can you bring in more money? Can you sell something of value like art, an antique or a collectible? Maybe you can work more hours or even take a second job. Or course, working more takes time away from other commitments and might increase certain expenses like child care. And don’t forget the tax implications of earning more income. Ask your advisor to help you run all the numbers to ensure your extra income will more than pay for those extra costs.
  5. Talk To Your Mortgage Provider – If you have a mortgage, you may be able negotiate more manageable terms. You could switch from accelerated to more standard payments or if you’ve made lump-sum prepayments in the past, you may qualify for a short-term holiday from payments. It might also be possible to lengthening your mortgage’s amortization and add any payments you’ve missed to your balance. Lastly, if you are close to the renewal date on your mortgage, a full scale consolidation and change of provider may be in order.
  6. Talk To Other Creditors Too – Don’t letting bills slide, call your creditors, explain your situation and ask to lower your interest rate or reduce your payments. Most companies recognize the value of keeping you as a customer long term and are willing to negotiate rather than take a hard line and risk losing your as a customer forever. This can give you the breathing room you need to get through the worst of a setback and help protect your credit rating.
  7. Borrow Sensibly – If you simply can’t find any more savings or increase your piggywaterincome and you’ve run through your savings, check into the lowest-cost sources of borrowing. This can usually take the form of a secured line of credit or the aforementioned consolidation loan. Your advisor can help you identify the best solution for you.

 

Recovery from a financial shock is a journey. It will likely take several months or even years to get back to where you once were. But with a little determination, patience, planning and hard work, it can be done!

As things start to improve, make sure you stick to a streamlined budget and put extra money towards your long term debts. Start building a substantial emergency fund (three to six months of expenses) so you have resources on hand the next time you hit a financial speed bump.

Once you are in a stronger position, with more a bit more margin, look at other ways to help protect yourself from future shocks, such as various forms of personal insurance including, health, dental, critical illness and disability coverage. Start to set some money aside for the future too in one of the many government sponsored tax advantaged savings vehicles like a Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP) or even a Registered Education Savings Plan (RESP).

After enough time has passed and you have recovered emotionally from the stress, take some time to look back and think about what you might have done differently. Hindsight is 20/20 so use it to your advantage. Learn from the experience, without assigning blame and make sure you’re in a stronger financial position in case another difficult situation occurs.

balancingLastly, and I can’t stress this enough, go back to the very first tip and engage the help of professional financial advisor. Strong financial advice means a strong financial future. Households with an advisor are more likely to:

  • Have enough money to live the life they want (61 per cent compared to 31 per cent with no financial plan)
  • Be able to take an annual vacation (74 per cent compared to 44 per cent with no financial plan)
  • Have enough money for splurges (65 per cent compared to 31 per cent with no financial plan)

It doesn’t “just happen.” But it does happen if you have the right plan and support.

Lauren C. Sheil is a serial entrepreneur who has been in business for over 25 years. He has operated a small farm, a recording studio and a music manufacturing plant, and has written 3 books on Economics, Ethics and Spirituality.  He has presented his ideas to business owners and leaders from all over the world. His latest book “Meekoethics: What Happens When Life Gets Messy and the Rules Aren’t Enough” is available on Amazon.com.

Mr. Sheil is currently a Financial Security Advisor and Business Planning Specialist with one of Canada’s premier financial planning organizations.  He brings to his work a passion for people and a desire to teach everyone to live life to the fullest while Eliminating Debt, Building Wealth and Leaving a Legacy.  

He can be reached at themeekonomicsproject@gmail.com or by calling 613-295-4141.

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Every Dollar Has A Name – Every Dollar Has A Job


Four Rules of Zero Base Budgeting

I love making my monthly budget!

I'm not crazy

But I get it, most people hate budgeting and I used to too. That is until I discovered the technique known as Zero Base Budgeting. The goal of Zero Base Budgeting or ZBB is simple. You start with nothing, you end with nothing and in between you get to spend everything.   Sounds like fun right?

It is!

I can hear you already, “wait isn’t that irresponsible?” No, ZBB is actually the most responsible, cleanest and most logical way of managing money I have found. And believed me, I’ve tried everything.

But in order to make ZBB work you have to follow a few simple rules.

Rule # 1 – Spend every penny on paper, on purpose before the month begins. Or as the title of this post suggests, give every dollar a name. That way, as the money comes in there is never any conflict as to where it needs to go.

Rule #2 – Escrow funds for monthly expenses. A lot of the things we pay for, rent, car payments, etc are due in lump sums once a month. But most of us get paid every two weeks. Rather than have to come up with a large sum of money all out of one pay cheque, divide those payments in two and set half the money aside. Then when the bill is due you already have money in your escrow account. You can do this on paper but I find I lack the discipline to leave money alone in my chequing account. I set up a separate savings account that I transfer the escrow funds into every payday. I transfer it back out again on the day the bill is due.

Rule #3 – Make savings a line item. If you want to save $100 a month for your retirement or some other future goal but you never seem to have anything left at the end of the month it’s likely because you’re not being deliberate enough. Put it in the budget and stick to it. This is the old “pay yourself first” adage but it’s not really. First or last is irrelevant, you’re paying yourself just like you would any other bill.

Rule #4 – There is no such thing as extra money. If a budgeted item costs less than expected, or you end up bringing in more than anticipated that is awesome! But be careful not to let it side track you from the ultimate goal. There are always items in your life that you could throw more money at if given the chance; paying down debt and saving for the future are two. You could also treat yourself to a night out or some other small luxury. But the goal here is to have a plan, stick to it and start over at zero at the beginning of the next month.

In my experience ZBB prevents overspending and promotes both saving and debt repayment.

Does anyone else have experience with ZBB?

What did you find?

What are some other techniques people use for budgeting?