With the ongoing COVID-19 pandemic, many families around the world are being forced to navigate a variety of financial challenges. The pressure of investment losses, decreasing sources of income, and more holiday debt has wreaked its havoc, and many are left wondering if they will ever financially recover.
If you have experienced or are currently experiencing a financial crisis, you aren’t alone. Everyone is susceptible to financial hardships, regardless of income or financial resources, but there is still hope! A recent study by Ameriprise Financial found that over 90% of respondents who experienced a financial crisis were able to get their finances back in order. Continue reading for a guide on the five ways to make a financial comeback from our Charleston wealth managers at Morris Financial Concepts, Inc.
Navigating the Path to Financial Wellness
The Most Common Financial Setbacks
While many of us have never experienced anything like the pandemic before, this is certainly not the first time people have faced financial hardships. According to the National Endowment for Financial Education, over 72% of American adults experienced a significant financial setback in 2019.
25% of respondents attributed their hardships to transportation issues, while another 23% faced repair or maintenance expenses for their homes. Another 21% resulted from expensive medical care for an injury or illness and another 20% were caused by the inability to cover debts. A few other common reasons that families face these hardships include:
- A Lower Income or Job Loss
- Marital and Family Issues
- Risky Financial Decisions
- Market Losses
- Lack of Money Management
How to Recover from a Financial Loss
The reality is that a financial comeback doesn’t happen overnight. It can take months and even years to recover from an unexpected setback. But with these steps, you can improve your financial situation and continue moving towards financial freedom.
Reset Your Spending Habits
After experiencing a financial setback, the most important thing to do is re-evaluate your spending habits. Objectively scrutinize your budget and categorize your spending by what is essential and what is optional. You might even find that it is better to create a completely new budget. Then, realistically evaluate what you can live without. Start by cutting out the things at the bottom of your optional “want” list until you can live on your current income and/or savings.
Save, Save, and Save More
Most Americans do not have enough in their savings accounts or emergency funds, forcing them into debt. Going into debt typically makes financial recovery that much more difficult. When adjusting your budget, make sure to set aside a certain amount of savings each month. That way, you can be better prepared for any unexpected expenditures in the future. Keep in mind that the sooner you begin saving, the more equipped you will be to deal with a crisis. As a general rule of thumb, you should have an emergency fund that can cover your spending for at least three months, however, six months’ worth of savings is ideal.
Generate Other Sources of Income
While this step may seem intuitive, it oftentimes gets overlooked in planning for financial recovery. And it is even more important if your family doesn’t have an emergency fund. There are a variety of ways to move towards financial recovery yet it boils down to three basic ways to adjust your money management strategy: earn more, spend less, or want less.
If possible, ask for more hours at your existing job or try working some odd jobs to supplement your income. Consider your skills and hobbies. Is there a way for you to monetize some of the activities that you already do in your spare time? The opportunities to make some extra cash are limitless, from childcare and cleaning and organizing to freelance designing and crafting.
Don’t Lose Sight of the Future
Emotional, panicked, or hasty decisions often accompany financial hardships. Our wealth advisors recommend avoiding impulsive decisions that could negatively impact your long-term goals. For example, withdrawing money from your retirement savings creates tax consequences and the tax-deferred growth of these funds ceases to exist. If you need an objective financial review, ask our wealth managers to provide an analysis.
Meet With a Wealth Manager
Dealing with a financial crisis is often difficult and stressful. However, a silver lining may be that you gain a new financial perspective and create better wealth management and savings habits. Most importantly, remember to stay calm and don’t lose sight of your financial goals. With some time, perseverance, and strategic financial planning, you can overcome a financial crisis. Your financial goals may still be within your reach.
Morris Financial Concepts, Inc. is here to help you navigate any financial setbacks you may face, no matter how big or small. To get back on track with achieving financial freedom in this new year, contact us to learn more about our coordinated wealth management strategies.
The opinions expressed herein are those of Morris Financial Concepts, Inc. (“MFC”) and are subject to change without notice. All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future results. MFC relies on information from various sources believed to be reliable, including third parties, but cannot guarantee the accuracy and completeness of any third-party information. MFC is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about MFC including our investment strategies, fees, and objectives can be found in our ADV Part 2, which is available upon request. MFC-20-30.