Why Setbacks Don’t Need To Wreck Your Personal Finances

by / ⠀Finance / October 6, 2023
Why Setbacks Don't Need To Wreck Your Personal Finances

Setbacks happen financially from time to time. You might lose your job, receive a fine, or be the victim of a crime. However, while failure can feel bad, it isn’t “final” in the words of British WWII Prime Minister, Winston Churchill. Even if your personal finances have taken a significant hit, you can quickly get back on the road to recovery and make them healthier again. 

Taking Advantage Of Insurance

One of the biggest things you can do to protect your personal finances is take advantage of insurance. Policies protect you against many of the most common losses, like writing off your car, or serious fire damage to your home. You can also get protection for legal claims, including being sued for doing a shoddy job on a project or having someone injured on your property. 

Naturally, insurance won’t cover everything. Some losses are uninsurable. But it can reduce a big chunk of the risk for relatively low monthly payments. 

Being Adaptable

You can also avoid financial setbacks from wrecking your money situation by becoming more adaptable. If you are the sort of person who can flow with the direction of the stream, you are in a much better position to recover when the good times come back around. 

What does being adaptable mean in practice? One way is to be flexible with your living arrangements. If you’re currently in a big mansion with an expensive pool and maid service, you might consider downsizing to something much smaller that will cost you less. 

You could also cut your discretionary spending. Reducing the amount you pay for unnecessary items can improve your finances significantly over time, making it easier to recover financially from setbacks. 

Lastly, on this point, you might look for additional sources of income. Having multiple feathers in your cap enables you to spread risk and stop being dependent on just one job for an income. 

Getting Professional Help

You can also prevent setbacks from wrecking your personal finances by getting professional help. Individuals who understand your situation can provide advice to help you get out of it. 

Demand the Limit, a car accident lawyer does this sort of work on behalf of its clients every day. Instead of bearing all the losses, it looks for ways to make the person or entity at fault pay up. 

“We see many people who come to us in a dire state of financial health because of an injury. People have to take time off work and fork out for expensive medical bills, which hammers their finances,” the firm says. “But it doesn’t actually have to be this way. The law protects people financially against losses that weren’t their fault and allows them to recover compensation from the at-fault party. It’s actually quite easy, but it is surprising how many people don’t come forward because they don’t want to ask for help.”

Getting professional help for a financial setback can take all sorts of forms. It doesn’t necessarily mean going to an attorney. For example, people at risk of going bankrupt might want to talk to a credit counselor. These professionals have expertise in helping individuals reduce or eliminate their debt, usually by rolling it up into a single monthly payment. 

Others might want to seek the advice of an accountant. Many people suffer financial setbacks because of high taxes or a loss of business revenue. Accountants can help mitigate these effects. 

Managing Debt

Related to this, managing debt better can also help avoid wrecking your personal finances. People who get a grip on the money they owe others can benefit from tremendous savings in the future. 

Consolidating debt is the most popular strategy for this problem. Rolling it all up into a single monthly payment makes it significantly more manageable. 

You can also do things like negotiate for lower rates with creditors, or opt for bankruptcy if you can’t see a way out of your current situation. Some creditors might also offer payment holidays or forbearances that reduce the financial pressure you face significantly. 

“Many people get into financial debt to pay for medical bills after their accident,” Demand the Limit says. “A single event can wipe out years of savings. That’s why it is so essential to seek compensation. The opposing party’s insurance company pays out, which is why so many people wind up with large payments in their bank accounts. It’s not tokenistic. The money is real.”

Taking A Long-Term Perspective

When it comes to financial setbacks, it’s also an excellent idea to take a long-term perspective on the matter. While spending a fortune on a house or education might feel like a burden today, it can pay off significantly in the future. 

Many people believe they are in dire financial straits when they have one or two bad years in a row. But working lives are often thirty or forty years, meaning there is always plenty of time to make up lost ground. 

When you think of your financial life over long time horizons, problems diminish significantly. The things that are eating up all your income today cease being so onerous the further forward in time you go. 

For instance, the money you pay on your mortgage goes down in real terms over time. That’s because the value of repayments relative to your income also goes down. 

At the same time, the value of your property also rises. Demand is going up in most Western countries. 

Networking

Finally, setbacks don’t need to wreck your personal finances if you build a decent network. Having people around you who can provide support and new opportunities is an excellent way to re-enter the labor market quickly if you lose your job, or get a promotion if income and cash is the main issue. 

Networking is also a good idea from an emotional perspective. If you can talk about your money worries with others, it can often make them feel less challenging. 

Finally, networking can help you with resources or financing. People who know you might be more willing to invest in your business than strangers. 

Featured image provided by Vinicius “amnx” Amano; Unsplash; Thanks!

About The Author

Kimberly Zhang

Editor in Chief of Under30CEO. I have a passion for helping educate the next generation of leaders.

x