5 Steps to Rebuilding After a Financial Crisis
Sometimes life takes a detour, and finances take a setback from the original goals planned. Whether financial hardship is created through a job loss, unexpected medical emergency, or uninsured loss, it’s important to know how to rebuild after a financial crisis.
Step 1. Budget
Budgeting is key all the time, but especially while recovering from a financial crisis. List all income, then develop a plan for expenses with the ultimate goal to pay all bills on time, save money, and eliminate debt.
If expenses exceed income, make budget cuts where necessary - start with subscriptions, luxury items, and other non-essential while recovery is still in the budgeting step.
Step 2. Debt Repayment
During a financial crisis debt repayment is typically a challenge most face, and often rely on credit cards to make ends meet. While it’s understandable someone may prefer the assistance of credit cards for a brief time, utilizing any emergency funds and reviewing all debts from the budget is the recommended approach. Most creditors would prefer to work out a repayment plan than not receive any repayment, so don’t be afraid to call creditors to ask for up-to-date account information.
Step 3. Rebuilding Credit
Credit history can be tracked with a credit report. Credit reports include payment history and balances owed for credit accounts both open or closed, including auto loans, mortgages, credit cards, and student loans. All lines of credit and repayment help establish a credit score, which is a numeric system that falls on a scale of 300-850.
After a financial crisis, a credit score may drop if payments are missed. The best way to avoid hurting your credit score would be to contact a creditor to discuss repayment options, always strive to make payments on-time, avoid taking on additional debt, and dispute any errors.
Step 4. Emergency Savings
Rebuilding from a financial crisis will include thinking about future emergencies. Preparing for the unexpected creates a more secure, successful financial future. The simplest way to build an emergency savings account is to allocate a portion of your paycheck to be deposited into a separate emergency savings account.
Step 5. Replenishing Retirement Savings
During a financial crisis, individuals may turn to their retirement fund for additional assistance. Withdrawing against a retirement fund may cost a significant penalty—and unfortunately, it’s harder to “unborrow” or “unwithdraw” funds from a retirement account.
Interested in contributing more to retirement or replenish retirement savings? Contact us to make an appointment with a financial advisor.
