The volatility of the past year and a half has left many Americans struggling with the aftershocks of financial disaster. Whether it’s due to a layoff, a smaller workload, medical expenses or a change in family circumstances, the financial fallout of COVID-19 has been devastating for people in every sector of the economy.
Recovering from a financial disaster, due to a pandemic or any other reason, is never easy; however, with hard work and the ability to look forward, it can be done. Here’s how.
Step 1: Assess the damage
Take a step back to evaluate exactly how much financial recovery you need to do. Are you thousands of dollars in debt? Do you need to find a new job? Do you have new ongoing costs you will have to cover each month? Are there any other long-term financial implications of the recent disaster, including alimony and IRS liens?
It’s also a good idea to review your overall financial picture at this point, including your current income and ongoing expenses.
Crunching the numbers and putting it all on paper will make it easier to take concrete steps toward recovery.
Step 2: Accept your new reality and stay calm
Shock and denial are valid stages of grief for any major loss or disaster, but in order for recovery to be possible, it’s important to reach a place of acceptance about your new reality. You can vent to a close friend or your life partner, express your feelings in an online journal or a paper-and-pen version, de-stress with your favorite low-cost hobby and then let go. Revisiting the past and constantly harping on what could have been will only drain you of the energy you need to move on.
Tim Essman, a financial professional with West Coast Wealth Strategies and Insurance Solutions in San Diego, also stresses the importance of remaining calm during an economic downturn. Don’t make any rash moves out of panic and fear, he cautions, as the best move in a financial crisis is to keep things stable until you can evaluate the situation and make rational decisions.
Step 3: Outline your goals
Before you get started on the actual recovery steps, define your primary objectives. Are you looking to rebuild a depleted emergency fund? Find gainful employment that will help bring your income back to its previous level? Pay down your medical bills? Outlining your goals will make it easier to move ahead.
As you work through this step, remember to choose goals that are SMART:
Specific — The goal should be clearly defined.
Measureable — It’s best if there’s a way for you to measure the goal, such as dollar amounts, credit score numbers, etc.
Attainable — Set a goal that challenges you, but is possible to achieve.
Realistic — Your goal should not be completely out of reach.
Timely — A goal without a deadline is just a wish.
Step 4: Create a Plan
You’re now ready to create a full-blown plan to help you reach your goal. Your plan should consist of consecutive steps that lead to a life of complete financial wellness.
Here are some steps you may want to include in your plan:
- Trim your spending until you can consistently spend less than you earn.
- Build a small emergency fund to help get you through an unexpected expense.
- Seek new employment or new income streams, as necessary. Consider moonlighting, blogging or selling stuff online for extra cash.
- Start paying down debts. You may want to consolidate your debts with an unsecured loan to make this step easier.
- Save more aggressively, with an eye toward your retirement and another toward a large emergency fund with up to six months’ of living expenses.
Step 5: Make it Happen
It’s time to put your plan into action. If you were careful to set goals that are SMART, you should be able to take the first steps in your plan immediately.
Be sure to review your plan occasionally and adjust it if any changes are needed.
Times are hard, but with a forward-thinking attitude and the willingness to work hard, we can all recover.
Download our Financial Emergency Response Plan worksheet to help you get started!
Your Turn: What steps have you taken toward financial recovery after COVID-19? Share them with us in the comments.