Like it or not, financial setbacks hit all people as well as businesses. They can be major money disasters or merely bumps in the road. But the way you handle these situations could determine your future financial success–or failure.
“While it may be difficult, after a financial setback the first thing you need to do is accept what has happened. What’s done is done and you can’t change that. You have to pick up the pieces and move forward,” advises financial expert Carmen M. Herrera, who partnered with Dr. George C. Fraser, Les Brown, and others for the book, “Mission Unstoppable: Extraordinary Stories From Failure’s Blessing.” “At this point, you need to access your situation and take inventory of where you are so that you will know how to move forward. You then need to develop a plan and work with a financial professional that has the experience and skill set to help you create a realistic plan. Lastly, take action. Having a plan is one thing, but acting on it is another.”
Don’t give up hope, either. You can bounce back. You may need to reorganize the structure of your company, or in some cases start all over. But you can recover nonetheless. “It is possible to recover from a financial crisis. What you should do is analyze available financial resources. Determine what resources are available to you, i.e. unemployment, insurances, etc. If you haven’t before, create a budget and start an emergency reserve fund,” says Herrera, founder of CMHC Wealth Advisors, LLC, an elite financial consulting firm that offers specialized wealth, tax, retirement and estate planning strategies. “You must also make sure that all necessary insurances are in place to prevent what I call the ‘what if’s’ which may be why you are in this situation. What if you get hurt or sick and can’t work. How are you going to make ends meet? What if you die too soon, who is going to provide for your loved ones? Once you gain some stability with your finances you can then start to create both a short and long terms savings plan.”
In the worse case scenario, bankruptcy may be the ultimate option. But again, it is not the end–just a process to take to ensure your or your company’s financial survival. “Filing for bankruptcy can be a scary and even embarrassing situation. While I don’t promote anyone filing for bankruptcy as a first, second or even third option, there are times that it may be necessary,” notes Herrera. She says to only consider bankruptcy if: 1. You have been out of work for an extended period and have no unemployment income or savings. 2. You have delinquent taxes. 3. You have a home that’s nearing foreclosure. 4. You have wages that are being garnished. 5. You have pending lawsuits for delinquent bills. Always consult professional advice to make sure that you have exhausted all your options before filing for bankruptcy.
Still, make sure this is the route you want to take.
“Before you do file for bankruptcy, try to work out a favorable payment plan with creditors. Or even get credit counseling. If you own a home, try applying for a loan modification or refinancing,” explains Herrera.
You will also need to take a hard look at why you are facing these financial woes. “The main reason for a financial crisis is poor money management and living beyond your means,” Herrera points out. “One of the best ways to avoid a financial crisis is to spend less than you earn and have a spending plan – a more common term is a budget. The reason why a lot of people that have financial setbacks is poor judgment with their finances.” Of course, sometimes there are external issues that cause financial troubles, such as loss of employment, death, disability, divorce or unexpected medical, home and car repairs.
“Recognizing the causes of a financial crisis will help you know what to avoid and plan for a better outcome in the future,” adds Herrera.
For the future, you can take preventative measures to help ensure you won’t hit a financial challenge. According to Herrera, you can: 1. Create a spending plan (a budget); 2. Have an emergency reserve of at least 6 to 12 months of your monthly expenses; 3. Stay away from unnecessary expensive debt like credit cards. If you don’t have the cash to buy it then maybe you don’t need it; and 4. Lastly, make sure that you have a well-designed insurance portfolio.
“Life is unpredictable, but with proper planning a financial setback doesn’t have to turn into a financial crisis,” she says.