How to Recover from a Financial Setback

If you had financial difficulties last year, you’re not alone. More than two-thirds of Americans experienced a financial setback in 2020, according to a recent survey. Of course, financial setbacks can happen any year, not just during a once-in-a-lifetime event. In this article, we’ll help you recover from a financial setback, now or any year, by explaining the best steps to take next. Money trouble is one of the most stressful problems to have, but instead of reacting emotionally and possibly making it worse, take a deep breath and step onto the path to improvement.

Understand what caused your financial situation. 

First, determine the type of setback you’re facing. Is this a one-time situation, such as a broken-down car or expensive medical bill? Or might it be more chronic, such as losing your job and not knowing how long it will take to find another one? 

Job/Income Loss

As of December 4th, the national unemployment rate was 6.7%, and a second COVID relief package was signed into law on December 27th. This will send another round of stimulus checks and extend the pandemic unemployment programs passed in the CARES Act. So, if you haven’t already, file an unemployment claim through the Illinois Department of Employment Security (IDES). Remember that the Pandemic Unemployment Assistance (PUA) program extends unemployment benefits to previously ineligible individuals such as self-employed workers and independent contractors.

Unexpected Bills

Received a large medical bill in the mail? Charged up your credit cards to get by and having trouble making payments? Many institutions such as banks, hospitals, and more have offered greater flexibility to customers in light of COVID-19. If you’re having trouble making payments, call your creditors to see what options they can offer. Here at Town and Country Bank and Peoples Prosperity Bank, we are committed to assisting you throughout the pandemic. Schedule a personal financial review to discuss your goals with one of our experienced retail bankers.

Take stock of your current finances and other assets. 

Understand how much cash you have on hand, calculate your cash flow, and update or create a budget. Do you own a home that would enable you to leverage home equity?

First, write down your financial assets:

• Checking account balance
• Savings account balances
• Retirement accounts
• Taxable investment accounts
• Equity in your home
• Possessions you could sell

Next, total up your monthly bills and debts:

• Rent or mortgage
• Car payment
• Credit card bills
• Utilities
• Phone bill
• Internet/cable
• Home/car insurance
• Child support and alimony

How much money do you bring in each month? Unemployment benefits count if that is your only source of income right now.

• Does your monthly income cover your expenses and bills? If not, talk to your creditors and/or look for other ways to generate income, such as taking on odd jobs or selling possessions.
• If you have money left over at the end of the month, consider putting most of it into an emergency fund. A healthy savings account is one of the best ways to ride out tough financial times. Alternatively, you may want to prioritize paying off debt with any extra funds to avoid accruing more interest.

What is your credit score?

Your credit score touches nearly every aspect of your finances, from whether or not you get approved for new credit accounts to how high or low your interest rate is.

Check any credit card accounts you have to see if access to your FICO score is a free benefit. If not, you can purchase your score online or use free apps like Credit Karma and Credit Sesame to view an estimate of your score along with tips on how to improve it. 

Are they any long-term implications to the financial disaster (alimony, health issues, I.R.S. liens) that must be included in your recovery plan?

Identify your financial goals and priorities

When you’re mired in present troubles, it can be hard to see the light at the end of the tunnel, let alone to plan for a better future. However, figuring out what’s important to you (priorities) and making a plan to reach those goals can give you a greater sense of control over your situation as well as positive outcomes to look forward to. 

Take a few minutes to jot down your hopes and wishes for yourself and your family. They may not seem financially related at first, but there is always a connection. For example, deciding that you want to “spend more time with my kids” may lead you to reduce your monthly spending so that you don’t need to work as many hours to make ends meet.

Once you have a list of core priorities/goals, it’s time to create or adjust your budget accordingly.

Create or update your budget

First, look at your last month of spending. Pull up your checking account statement online or print it out. For every transaction that isn’t a recurring cost (such as groceries or your electric bill), create a category, and add up the spending. You also want to list recurring costs. Don’t worry about fluctuating seasonal expenses or getting a “perfect” month. You will continue to tweak your budget as you go on. For now, you need a snapshot. 

• What is your monthly income? Include your average paycheck or salary, unemployment benefits if you’re currently out of work, and any other sources of income.
• Is that amount more than you spent last month? If not, you can’t save, and you’re likely to go into credit card debt, digging an even deeper financial hole. 
• Is there anything you can cut? Many people spend more than they need to on food, for example, including groceries and takeout. You may also be able to switch to a cheaper cell phone plan or get rid of cable. 
• Does your spending reflect your priorities? If you want to save for retirement or start an emergency fund, for example, you need to put those savings transfers/deposits as line items in your budget. 

Schedule regular financial checkups

Whether you’re budgeting alone or with a partner, schedule a regular “budget date” at your favorite cafe or coffee shop (or with a to-go treat at home). Check-in with your priorities and goals, as well as how you’re doing with spending less than you bring in. Consider additional sources of income as needed, such as part-time or gig work. Can you pick up babysitting jobs or sell homemade goods online? Make sure you’re accumulating an emergency fund so you’ll be better positioned to deal with future setbacks. 

Town and Country Bank and Peoples Prosperity Bank is here to help!

As a longtime community bank serving Central Illinois and the Metro East, we are here to support our customers through current and future financial setbacks. If you’re a business customer, schedule a financial review to learn about all the ways we can help. Having trouble with your mortgage? Town and Country Banc Mortgage Services, Inc. is prepared to offer assistance to those impacted by their ability to make their mortgage payment. If you have experienced the loss of a job, loss of income, or illness due to COVID-19 and would like assistance, please fill out this online form today. We will review the information provided and be in touch with your options for financial relief. For all other concerns, our Customer Service Solution Center can be reached at 1-866-770-3100 and is available to further help with all your banking needs.