How To Recover From A Financial Setback

Financial setbacks are an unfortunate reality that almost everyone faces at some point—or multiple points—in life. Whether it’s due to a job loss, a costly medical bill, a failed investment, or unexpected home repairs, financial challenges can throw even the best-laid plans off track. The good news is a recovery is possible, and with a strategic approach, you can bounce back stronger. Here’s a guide on how to regain control of your finances after a setback, reduce stress, and rebuild a solid financial foundation.

1. Assess the situation honestly.

The first step in financial recovery is understanding the full scope of the setback. This requires an honest assessment of your finances:

• List all your debts, including credit cards, loans, medical bills, and any other outstanding obligations.
• Calculate your monthly expenses, such as rent or mortgage, utilities, groceries, and other essentials.
• Review your assets. Take stock of any savings, investments, or other resources you might have to help during the recovery period.

While it might feel overwhelming to see everything laid out, knowing your financial situation precisely can relieve some uncertainty and create a foundation for moving forward.

2. Prioritize your expenses

When you’re in financial recovery mode, prioritizing expenses is crucial. Focus on needs over wants to make the most of your resources:

• Essential expenses like housing, food, and utilities should always come first.
• Debt payments should be prioritized based on interest rates and minimum payments. Paying off high-interest debt can prevent it from growing further.
• Nonessential expenses, like dining out, subscriptions, and entertainment, should be minimized or cut out (at least) temporarily.

This short-term budget shift may feel restrictive, but it’s a powerful way to free up funds that you can use toward debt reduction or savings.

3. Create a debt repayment plan

If your setback has left you with debt, devising a repayment plan can help you regain financial stability. Consider strategies like:

• The debt snowball method. Focus on paying off the smallest debt first, then move to the next one. This can provide a sense of progress and motivation.
• The debt avalanche method. Prioritize debts with the highest interest rates first. While it may take longer to see progress, this approach can save more money over time.

Stick to the method that suits you best and celebrate small victories to stay motivated.

4. Build an emergency fund

An emergency fund is essential to safeguard against future setbacks. If you’ve been through a financial setback, your emergency fund has likely been depleted and needs to be built up from scratch. While it may seem impossible to save while recovering, even small contributions can add up over time. Aim for an initial goal of at least $500–$1,000, then gradually work toward saving three to six months’ worth of expenses, as recommended by financial experts.

To make this easy, you can set up an automatic monthly transfer to a dedicated savings account until your emergency fund is fully funded.

5. Consider earning extra income

Supplementing your primary income can accelerate your recovery and reduce financial stress. There are several ways to earn extra income, depending on your skills and schedule. First, you can freelance or do gig work. Online platforms, like Fiverr and Indeed, offer opportunities in fields ranging from writing to graphic design and consulting, while ride-sharing platforms, like Uber and Lyft, will allow you to accept gigs on your own schedule. You can also work part-time in retail or at other seasonal positions. Finally, you can pad your pockets by selling unused items you no longer need on platforms like eBay or Facebook Marketplace.

6. Seek professional guidance if needed.

If your financial setback is severe or involves complex issues, consider seeking advice from a financial professional. Credit counseling agencies, financial advisors, or accountants can provide personalized assistance, helping you navigate debt, improve budgeting, and build a sustainable plan for recovery.

Be sure to choose reputable, certified professionals and verify any fees before committing. Many nonprofit credit counseling agencies offer free or low-cost services for those experiencing financial distress.

At Abri Credit Union, our Financial Advisor and team of Financial Professionals are here to assist you with all your financial needs. Whether you’re planning for retirement, managing your finances, or making investments, our Financial Advisor is ready to guide you. Our Financial Professionals can also support you with budgeting, debt consolidation, improving credit scores, and more. Visit abricu.com to schedule an appointment today.

7. Set new financial goals

A positive mindset is critical during financial recovery. Shifting your focus from the setback to the future can help you stay resilient and motivated. Set achievable, short-term financial goals, such as paying down a specific amount of debt each month or saving a set amount or percent from each paycheck.

As you achieve these smaller goals, you’ll build momentum and see that progress is possible. Over time, you can adjust your goals to reflect your improving financial health.

Recovering from a financial setback is challenging, but it’s also a chance to reset, reflect, and refocus on what’s important. Use our guide to recover successfully from a financial setback.