Money focus: How can I overcome financial setbacks?

Each week we ask a question to help you focus on an area of your finances that might need a closer look. This week: How can I overcome financial setbacks?

You’ve worked hard to develop a financial plan, built a workable budget and set up an investment plan to reach your long-term goals.

You’re tracking along like a champ for months and you’re thinking, “Look at me go! I’ve finally cracked it! I’m going to be rich!”

And then…

the markets start sliding and your investment balance withers away
interest rates go up and your mortgage repayments soar
you unexpectedly get made redundant
a huge medical bill wipes you out
you file for divorce
the river rises and washes away everything you’ve ever owned.

Financial setbacks are no joke. Not only do they devastate your present, they also decimate the future you were working towards. All your good work, slowly building your wealth, can be obliterated in an instant.

There’s a reason I’ve chosen words like devastate, decimate, obliterate – financial setbacks truly can feel catastrophic.

But before you start imagining that you’re starring in the next Armageddon movie, it’s time to take stock.

While a financial crisis can feel almost impossible to overcome, the fact is that people overcome them every day. In fact, there will always be hills to climb on the road to financial security – even when things are generally going well. A financial crisis is just a bigger-than-average hill.

Here are some thought starters to help get you over the mountain.

1. Literally take stock

Before you can move forward, you have to understand exactly what happened. This is a good opportunity to take a deep breath, suck in the panic, and take your time. Any decision you make here should not be a knee-jerk reaction, but rather thought through long-term.

Focus on what you can control. List your financial losses and note the potential impact on your lifestyle and future plans. Then take a broad-view of what exactly happened to land you in strife. In some cases, the reasons for your situation will be obvious (floods, anyone?), but in others you may need to dig deep.

For example, a pullback in the markets is not a catastrophe for most. Sure, it’s disappointing, even disheartening, but it’s not a life-changer (it can even be an opportunity). If it’s wiped you out, you need to ask yourself why. Were you over-extending yourself? Were your investments sound? Was your investment strategy realistic for your life right now? Were you trying to time the market? Were you playing too short a game?

There will be a reason. Taking stock of your financial setbacks will help you better understand them and change your strategy for next time.

2. Re-evaluate your spending

Your new circumstances will either mean you’ve got less money coming in, or increased debt – or both. As a result, all financial setbacks will require you to immediately rein in your spending.

With a bit of luck, you’ll already have done the groundwork on this one. Your ‘old’ budget (pre-setback) should start as the blueprint for your ‘new’ budget (post-setback). Now is the time to strip out all unnecessary spending. That means all ‘wants’ and, depending on your situation, some ‘needs’ have to be stripped out. You’ll need to ruthless here – what can you live without?

List your outgoings in order of importance – food, housing (mortgage/rent), medical, utilities, education and insurance should be top of your list. After that, you’ll be working through a series of ‘wants disguised as needs’ and only you can be the judge of how necessary they are.

While it will feel like a crushing exercise at the time, once it’s done, resetting your budget to your new reality will bring you peace of mind during a difficult time. Taking control of your situation is like that.

This should help:

3. Check for financial hardship help

Most banks and utility providers offer financial hardship assistance. The first step is to contact them, explain your situation and ask for help (the Australian Banking Association has a list of numbers here). Outcomes can include reduced payments, payment plans or deferring payments.

You can also get in touch with the National Debt Helpline to talk through your options.

Depending on your situation, you may also be eligible for support from either the state or federal government. MoneySmart is a good place to find out more.

4. Find extra money

Unfortunately, “finding” money isn’t as easy as searching down the back of life’s giant sofa. But bringing in extra money through working more or selling your things will speed up your recovery process.

Ask for overtime at your current job

If you’ve got a work structure that allows for it, taking on extra shifts is the easiest way to bring in more money.

Just remember to look after your health while you’re working hard. It’s easy to burn out when you’re doing long hours, especially when you’re in recovery from financial setbacks. Eat well, take regular breaks, get some exercise, connect with your family and do your best to get good sleep.

Ask for a pay rise

If overtime isn’t an option (and even if it is), now is a good time to ask your current boss for a pay rise. It can be a daunting conversation, but you can do this! Here are all the tips and support you need:

Take on a second job

Another earner can be in the form of a side hustle you start yourself, or working for someone else part time. Doing the night shift stacking shelves at Woolies has saved many a household, believe me.

The side hustle option doesn’t mean you need to crank out a fully-fledged, profitable business from scratch. That is as much work as it sounds and right now giving your energy to such an exercise is probably the last thing you feel like doing. Side hustles like that take time and often money.

Instead, consider classic home-help side hustles like baby sitting, dog walking, gardening or cleaning. All of these options have low entry barriers and are relatively easy to establish.

Start by asking friends and family if they need any help and be clear about your rates up front. Yes, it will feel slightly awkward; no, that shouldn’t put you off asking. Your friends and family will want to help and they provide the fastest route to establishing your side hustle. Remember, there is no shame in wanting to better yourself.

More ideas here: 10 passive income ideas to up your game in 2022

Sell your stuff

Sell your car, sell your clothes, sell your extra TV – whatever you can afford to lose to bring in extra cash. Sites like Gumtree, Facebook Marketplace and eBay are great for general goods, but specialist sites might get you a higher price. Try The Closet for fashion (more site listed here), Mega Cash for electronics and Car Sales for your car.

Things to keep in mind:

You’ll probably get much less than you think things are worth – keep a lid on your expectations. You might have paid $2k for your TV last year, but you’ll be lucky to get 50 per cent of that on a resale.
The more places you list your items, the higher chance you have of selling them
Good photos matter, so take your time to produce clear, professional-looking shots
Add as much detail to descriptions as you can – you want to cut down on unnecessary questions
List measurements of all goods – it’s a question you’ll definitely be asked many times if you don’t

Rent out your stuff

The share economy is growing and getting involved is an excellent way to increase your cash flow. You can rent out your car, car space, house, study, garage, tools and so much more Find out everything you need to know here: 19 ways to make the most of the share economy

5. Build up your resilience

The ABS General Social Survey reports that in 2020 nearly one in five households were unable to raise $2,000 within a week for something important. That’s really not a huge amount of money and it illustrates how easy financial setbacks can occur for many Australians.

One of the best ways to survive financial setbacks is to prepare for them. That means building up an emergency stash of cash, having the right insurance, paying down debt and learning to live within your means.

Once you’re on the road to recovery, start building your financial resilience so you can better handle future financial setbacks. These resources will help:

Remember, while they’re stressful and demotivating, financial setbacks are normal and should be expected. The main thing is to pick yourself up and dust yourself off so you can get back to travelling the road to wealth as quickly as possible.

Find the rest of our Money Focus series here.

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