You’re cruising along, absolutely crushing it on the financial front. You’re paying off your debt, or you’re saving 15% of your income. You’ve got an emergency fund, you’ve automated savings, you live within your means. Everything is just great!
Then boom. Something comes out of left field and ruins all your plans. You’ve got to bounce back, but how?
Financial setbacks come in a variety of forms and they all pretty much suck. Everything from car repairs, moving, child expenses, or (god forbid) a health crisis, there are a million things that can knock you off course.
Earlier this year, right when I was in the thick of my debt payoff, I was hit with two unforeseen costs in back to back months. In April I had a $500 medical bill and in May I had another one clock in at $750. When you consider I make around $2,000 a month, these are large charges to randomly come up.
Not only did I have to manage to find these sums of money, but I was in debt payoff mode. I didn’t want to derail my debt payoff schedule to afford these costs. I felt demoralized and exasperated. When was I going to catch a financial break?! When would my money truly be MY money?
I paid those costs and I was able to stay on track with my debt. I ended up becoming debt free just one month later, on June 5th. (WHOO!)
Don’t Panic or Despair
The first thing I thought when I got my medical bills was how flipping unfair this was. I wasn’t even sick! All the doctor’s appointments I had been to had sort of been unnecessary and now I was being charged an arm and a leg for them. I felt angry, sad, and anxious. How was I going to pay this AND my debt? Why was healthcare so damn expensive? Was I ever not going to be totally broke?
Those are dead end thoughts. They don’t fix the problem in front of you and they don’t make you feel good. You have to keep yourself in a positive and capable mindset. If you think you can, you can. If you think you can’t, you can’t. Positive thinking makes all the difference!
That said, I think it’s entirely reasonable if you want to be angry/sad/anxious for a short while. Bad news is hard to handle and you absolutely should process however you need to. Then you turn around and refuse to let that bad news ruin your life.
Use Your Emergency Fund
This is what that fund is for. When a true emergency happens, it’s time to let that account take the lead on your costs. The most commonly given advice is to have 3-6 months of living expenses saved. For someone like me that’s $6,000-$12,000 sitting around. That is a very nice chunk of change that should be able to help you deal with any random costs.
In good times, make sure you’re always contributing to your emergency fund. Don’t assume nothing bad will ever happen because that’s just not how life works. Take the windfalls when they come and prepare yourself for the famine that may come.
Set up monthly automated savings into your e-fund. I recommend 20% a month until you have 3 months of expenses saved. Then you can ease back to 15% until you get to the 6 month mark.
Remember, You Can Come Back
After I paid off my debt this past June I started automating more money towards my emergency fund and retirement account. I was so excited to be taking large sums of money and putting it towards my own goals and my future. It was finally my money!
It was a short lived joy. In August, I was hit with the realization I owed some back taxes. I had to hire an accountant, pay fees, and those pesky taxes. All the money I’d been able to put into my emergency fund over the last two months came right back out again.
I’m lucky I didn’t have to fully drain my e-fund, but I still felt like I had taken one step forward and three steps backward. I was pretty bummed for a few days that I had to go into my emergency fund. I sort of felt like a failure and I wasn’t optimistic about when I would be able to get that money back into my fund.
Fast forward one month to today. I’ve paid all those fees and I’ve already put money back into my emergency fund. In fact, I’ve put back 1/3 of what I took out in only one month. Now that I’m all squared away with the government, I’m thinking in November, I can put the other 2/3 back into my fund and be right back on top!
Nothing is permanent. The bad times will come to an end. The road will eventually clear up in front of you. Keep an eye on your money and practice good habits and you’ll be able to weather anything that comes your way.
Have you experienced any financial setbacks? How have you dealt with them? Do you try and keep a positive mindset during hard times?