Getting back up after a financial setback can seem like a daunting task, but I assure you that you can do this. The most important thing to remember is where you are from and what you need to win financial freedom from your debt! Never forget the past and learning from it is a powerful tool and great motivation to move forward. Getting back on your feet financially requires all your focus and constant monitoring and review. Here’s how to bounce back after paying off debt:
1. Consult your tax professional. You should do this before you negotiate settlement of your debt and IRS Form 1099 should come as no surprise. Make sure you have done income tax planning so you don’t end up because of the IRS!
2. Build Emergency fund: I’m a huge fan of Dave Ramsey’s program, for the most part. One of my favorite tools that Dave always recommends is that we start with what he calls the “murphy account”. Murphy’s Law says that anything that can go wrong will happen. So, a murphy account is a savings account that you immediately set up with a minimum amount of $1,000.00 and continue to build on this savings. Then, when Murphy comes on the phone and you get a flat tire, need a car repair, a new refrigerator, or dental work; You can use this emergency fund for such events. If you use this account, then you will have to work hard to replace the funds for the next time.
Gone are the days of having a credit card for emergencies and haven’t you just learned how hard it is to get out of debt? So why come back? Make a promise to yourself that you will never come back. After all, you don’t need an emergency fund [aka a Murphy Account].
3. Life and Death by Budget! There are no magic bullets, no pills you can take, and no ‘get rich quick’ schemes that will magically get you to your financial goals. The only way to get ahead financially is to spend less than what you make, period. Budget is a requirement and there is no other way around this. Make it fun doing what Dave Ramsey calls ‘squander’ your money before you even get it. Review your budget each month to see where your money is going. Over time, you’ll start to look at your spending patterns and look at each bill and ask how you can reduce it.
Examples include unplugging appliances to reduce your electricity bill; cut off those extra television channels; ask your insurance agent if you need the additional insurance; Learn to do a mini version of your own ‘Extreme Coupon’ game to stock up at the grocery store.
4. Plan Your Future. Nobody can do this for you and I certainly don’t expect to live well on Social Security alone, if at all. Many financial experts provide free consultations and you should at least take advantage of asking questions that will help you set goals. You may be working hard to pay off your mortgage, send your kids to college, build a retirement account, etc.
Having the right insurance policy and the right amount of insurance coverage is also important to protect everything from your health to all of your assets. Speaking of assets, have you also considered that dreaded estate planning conversation? Stop avoiding your financial responsibilities and put your plan in writing.