Financial setbacks happen all the time, and many people don’t realize it until it’s far too late. You might expect a financial setback to include only the major things in life, such as job loss or a serious illness. These things do occur all the time and unexpectedly, but they’re not the most common setbacks that people face with their finances. Many families face financial setbacks that are smaller, less significant, and far more dangerous. While the loss of a job or a major illness is shocking, unexpected, and devastating, it’s the little mistakes people make day in and day out that lead to financial setback and panic.
What is A Financial Setback?
A financial setback is anything that puts you in a financial place you didn’t plan on being at any point in your life. What counts as a financial setback for one family might not for another, because everyone’s financial setbacks are far different? Some common financial setbacks include:
– Major illness
– Not having health insurance
– Job loss
– Divorce
– Weddings
– Going back to school
– Not saving for emergencies
– Not saving for retirement
– Irresponsible spending
– Unexpected expenses
There is such a broad array of financial setbacks that no one can predict what they might be. The point is you don’t see them coming. Perhaps you went to school, you didn’t use credit cards, you worked hard to pay your way but you took out student loans. Your plan was to graduate and make a ton of money in your chosen field, but you realize quickly you must start at the bottom and work your way up earning next to nothing. That’s all right since you were financially careful in college and didn’t run up any debt. You’re making enough money now to buy a new car and a starter home, and life is good. That’s when you get that first student loan repayment bill in the mail. You realize quickly you owe tens of thousands of dollars in student loan debt, and you have no way to pay it and your mortgage payment and expenses every month.
That’s a financial setback for one family. Another is the family who doesn’t pay for health insurance because it’s too expensive, and they end up in the hospital suffering from moderate injuries due to an unexpected car accident. Without insurance, a simple deductible or 20 percent co-pay is now tens of thousands of dollars in medical bills require payment. Another financial mistake might come in the form of the couple who spends within their means, buys a nice house, raises some nice kids, has a nice life, and can’t retire because they didn’t bother to save for retirement. That’s a financial setback that will affect them for the rest of their lives.
Financial setbacks happen all the time, and they look vastly different for everyone. It’s not something you can avoid in many instances, but it’s something you must learn to handle at some point in your life. Predicting financial setbacks is virtually impossible, but you can handle them if you prepare in advance.
Handling Financial Setbacks
You never know when this might occur to your financial life. If you knew when financial setbacks might occur, you’d have plenty of time to avoid them and move on with your life. Prevention and preparation are key here, and there are many ways you can avoid financial setbacks by employing just a few common-sense methods to your life.
– Save for retirement
– Open a savings account and contribute to it with every check
– Create an emergency fund
– Buy health insurance
– Buy life insurance
– Put down money when you buy a home
– Spend within your means
– Don’t run up credit card debt
There’s no way to guarantee you won’t have some financial setbacks in life, but being prepared for them is key. All households should save. This means making yourself an expense. Just like you count your insurance, groceries, and mortgage as a monthly expense, count your savings as a monthly expense. Pay yourself first, not after what’s left. The best way to handle this account is to contribute to it all the time. Don’t cap it out at a certain amount.
Create an emergency fund. This is not the same as your savings account. This is a fund you should start out with at least $1,000 for those unexpected emergencies, such as a household repair you didn’t see coming. Work hard to grow that amount to at least six months of living expenses to protect yourself. Another great way to handle financial setbacks is to put a down payment down on a home. Many people like the idea of financing 100 percent of their home now that so many lenders allow that, but it’s a terrible idea. You want equity in your home so you have a cushion, and so you can minimize your monthly payment.
There are so many ways you can prep for a financial setback. The best thing you can do for yourself and your financial future is educate yourself about finances. Learn all there is to learn, and keep applying those methods to your financial life. You don’t have to become a victim of your own overzealous spending or the “Keeping Up with the Joneses” mentality. Be smart, be prepared, and you’ll be just fine when it comes to handling financial setbacks.