6 Steps To Recover From Financial Disaster
6 Well-Proven Steps That Guarantee Financial Recovery
Key Ideas
- Reveals the exact actions you need to take to get back on your feet financially.
- How to set goals you actually have a chance of achieving.
- Why there's no need to aim for perfection when it comes to improving your situation.
If you're suffering from a serious financial setback, don't worry – you're not alone and there is a solution.
In fact, the recent stock market crash, real estate decline, and banking panic has left many people in the same position.
And if the recent financial crisis wasn't enough to take you down, it seems many people found their way to financial disaster through more traditional routes like divorce, overspending, medical bills, or bankruptcy.
The reality is more people than ever face serious financial difficulty today.
Regardless of what caused your financial setback, your path to recovery and prosperity will require a common set of action steps.
You may believe your situation is unique, but many have walked this path before you. The road to financial recovery is well-worn, and the steps to come back after financial disaster are fully proven.
So let's get started with the six step process that will help you recover from any financial disaster…
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Step 1 – Accept Your Situation
The starting point for financial recovery is to stop wallowing in your misery and accept reality.
Yes, it’s a bummer. Yes, you’re likely the victim of somebody else's wrongdoing. Yes, it’s devastating.
Most important of all – none of that matters now. What's done is done and there is no turning back.
Resisting what’s already a fact is futile, so don't waste your energy. Accept reality.
Living in the past only makes forward progress more difficult. Instead, accept the setback, let go of it, and commit to forward movement.
Not because it’s the right thing to do, but because it’s the best way to help yourself.
Related: 5 Financial Planning Mistakes That Cost You Big-Time (and what to do instead!) Explained in 5 Free Video Lessons
As long as you waste your energy wallowing in your misery, you’ll have that much less energy to dedicate to solving the very real challenges you face to move forward in life.
The best defense is a good offense, so get out of defensive mode and get started on the road to recovery with a clear offensive strategy.
Step 2 – Take Inventory
The second step to financial recovery is to take inventory of your current situation.
You must know what resources you have, and what liabilities you face, when developing your plan to come back from catastrophe.
You have to know where you're at now before you can develop a realistic plan to get where you want to go in the future.
It’s no different than using a road map to plot your path to a destination. In order to plan the route to reach your goal, you must first locate where you are now on the map.
It’s the same thing financially – you must define your starting point based on what is true today.
Ask yourself the following questions to assess your situation:
- What are your remaining assets?
- How much money do you owe?
- How much income do you bring in each month?
- How much do you spend?
- What is your credit score?
- Are they any long term implications to the financial disaster (alimony, health issues, I.R.S. liens) that must be included in your recovery plan?
The objective at this stage is to take an inventory of your current situation. You want to know everything that will affect your financial recovery plan so you’re ready for step 3.
Step 3 – Define Your Goal
The third step in your financial recovery plan is to define your objective or goal. You must determine where you want to go financially.
Staying with our road-map analogy, this step is akin to locating your end destination on the map.
Once you know where you are (step 2), and you know the end destination (step 3), it’s simply a matter of plotting the course to get there (step 4).
Setting your end destination is the same thing as setting a goal.
The “S.M.A.R.T.” goal setting system provides helpful guidelines:
- Specific: There must be a clear and definable end result. For example, “I want to make more money” is too vague and general, but, “I want to have $10,000 per month residual income after taxes by January 5th, 2017″ is specific and points you in a clear direction.
- Measurable: You must have some way to measure your progress toward the goal. In the example above, the measurement is dollars of residual income per month. I also encourage you to add interim goals along the way to break big goals into more realistic chunks. For example, how much residual income should you have one year from now? Three years? Five years?
- Attainable: There’s a fine balance between setting a goal that stretches your ability while still remaining within reach. If you set a goal that’s too easy, then you're not challenging yourself. If you make it too hard, then you're setting yourself up for failure. A properly designed goal achieves that razor-edge balance that stretches your comfort zone without being out of reach.
- Realistic: If you're deep in credit card debt and filing for bankruptcy, it probably isn't realistic to set a goal of becoming a millionaire in 12 months. Enough said?
- Timely: A goal without a deadline is just wishful thinking. You may want $10,000 per month residual income, but unless you include a date for this to occur by, it doesn’t qualify as a smart goal. It’s just wishful thinking. Give yourself a deadline.
Step 4 – Develop Your Plan
Now that you have your goal for financial recovery and you've assessed where you’re at today, the next step is to develop a plan that bridges the gap between where you are now and where you want to be.
Staying with our road-map analogy, you need to figure out the most efficient path to get from point A to point B.
It’s important to note you must balance offensive and defensive strategy at this point to keep the process fun and fulfilling.
For example, one mistake I often see people make when paying down debt is to do nothing but pay down debt. The problem is that's not very fun or very rewarding for most people.
One solution is to balance paying down debt with adding in a little tax deferred retirement savings or other assets.
The reason is to experience some emotional satisfaction so you feel rewarded by the asset growth, which increases your odds of staying with process long-term.
We aren’t robots: our emotions are part of the process and must be honored.
Step 5 – Take Action
The fifth step – taking action – sounds obvious when reading it, but for some reason, it eludes many people in practice.
The reason it’s important is because a plan for financial recovery is nothing more than wishful thinking until it’s converted into action.
Nothing happens until you take action. It’s where the rubber meets the road. Action is the fuel that converts goals into tangible results.
A lot of people dream about improving their financial situation, but few take consistent action, and that makes all the difference. The ability to consistently and persistently direct meaningful action toward achieving a goal is what separates successful people from those who are not.
Step 6 – Correct And Adjust
As you take action, the one result you can be certain of is you'll learn from your experience – and mistakes.
You’ll improve your skills and become more knowledgeable as you take action. That’s why you should never try to perfect your plan from the beginning.
Instead, just get started with a reasonably intelligent approach and correct course as you learn more.
The wise goal achiever knows that perfection is impossible, but correction is desirable; therefore, he just gets started as best he can. Then, he adjusts along the way to achieve his goal more quickly and efficiently.
Seldom (almost never) will your first plan be your best plan, so don't waste the effort trying. Starting immediately is more important because you’ll have plenty of time to correct course later.
Perfection is impossible – correction is desirable.
That's it – six simple steps that can help anyone turn the corner following a financial setback. Now that you know what to do, having a concrete wealth plan to achieve your financial goals might help you stay focused.
And if you have any other tips I left out, please add them in the comments section below.
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I found your site looking for recovering from financial disaster. After divorcing I find myself starting over with no assets and no savings, two young kids to support, no help from the ex, but I do have a good job. Your ideas and planning advice are just what I am looking for. Knowing at first I will have a little money saved what is the best first investment step to make? How can the first investment be diversified or balanced? How little can you start with? It seems that the downside risk has to be especially thought out.
@ Annette – Thanks for stopping by. I’m glad you found me and got good value from this post.
Regarding your questions, they can’t be appropriately answered in a comment. They require more background knowledge about your goals and situation to give them the respect they deserve.
Make sure you sign up for my newsletter in the right sidebar because I will be announcing some affordable group coaching programs later this year that will be perfect for where you are at now and where you are heading. These programs will provide an affordable forum and educational resources to answer questions just like these.
Hope that helps, and I look forward to hearing more from you in the future.
Nice
I NEED SOME GUIDANCE TODD I’ve been suffering from financial problems from my childhood as my father’s business collapsed in early phase of my life today I am 22 and tryin for gov. Sector job I am ready for aptitude exams and in every exam I just can’t qualify by thin margin I know i can go far beyond the cutoff but somehow I am not able to bring that appropriate enthusiasm or motivation while taking the exam plzz help. My goal in life is to more ethan abundant life to my parents and make others learn from my experience in life
There’s no magic formula or secret trick. Success is every bit as much about persistence and disciplined habits as anything else. And discipline is just remembering what we want. You either want it bad enough to do the work, or you don’t. You’re not a victim. You have full control over your future and plenty of time to create whatever you want out of life. You just have to be willing to pay the price to get there and learn what is necessary to do it right. It’s not easy, but it sure beats any other alternative. Hope that helps.
Todd…I am 56 and having to start over financially. I lost everything after divorce including savings, home and just returned back to work after a 8 month lay off, I make around 50 k and have to pay $700 a month in alimony for next 2 1/2 years. I am looking for a better job because the current one is temporary. I’m in good health and live with family who are very supportive. I think I should go to a financial advisor to help me plan this out, and if you agree, how do you find a good one. What else do you suggest.
Todd- I forgot to add that I will be paying off $7000 in debt in about 6 months, so I will have more to save and invest….again what would you suggest is a good strategy.
Thank you,
Mark
I’m glad to hear you’re getting back on your feet and the information is helping. Unfortunately, your questions are way to open ended to properly be answered in a blog comment. You’re essentially asking for a wealth plan and investment strategy education in a blog comment. I have an entire course that teaches you how to design your life to result in wealth here https://www.financialmentor.com/educational-products/seven-steps-to-seven-figures/wealth-plan and the next course I’ll build will be teaching the investment strategy. So anyway, the resources are there to help you, but it obviously can’t be taught in a blog comment. These questions you’re asking are much bigger than that. Hope that helps!
I am 72 years old. I have worked for 45 years. I have not saved enough for retirement although I could have if I had planned well. I went back to school in my 50s to get a better job after a marriage breakup. However, I did not save as I should have. I presently am about to retire as I cannot work any longer. I am tired and burned out. I discover now that I have made many mistakes in the past 10 years financially. Had I been more careful, I could have been well off today. My heart is broken and I can’t believe my stupidity. I own my home, have no debt and approximately $200,000. saved. When I return, I will receive approximately $2000. monthly from pensions. My lifestyle is about to change drastically and I am so afraid. This has sent me into a serious depression and I can’t bear the sight of myself in the mirror. I want to just die and be finished. I have worked hard and I have no strength left to fight anymore. I am all alone.
I’m sorry to hear that Margaret my prayers are with you. I’m 43 and Lost everything and I’m starting over.
I know that feeling of not wanting to look yourself in the mirror it’s horrible .
Don’t beat yourself up too much we’re all human. You have to think about salvaging what you can now .
Count your blessings . Just staying in good health to reach your age is an accomplishment . I read about really wealthy people experiencing tragedies all the time . So do your best to count your blessings .
Hi, Margaret — You are better off then you think. You own your own home and you have $200,000 saved, and $2,000 in retirement income. YOu are already better off than 99% of the people on the planet. Please try to be grateful for what you have and then give your situation to the Universe/ God and try to do some part-time work and do things to make yourself feel gratitude for your life which is a gift. I am in worse shape than you by the way and I also feel stupid, but I am not giving up. When we decide not to compare ourselves to others, but to take happiness in the small things, and change our attitude, everything else will fall into place.
I would like to thank you for your realistic 6 steps and really believe what you have mentioned is really touching my heart. i have done many business and i failed in all of them. now i don’t have any money with me and i am so tired thinking about the money i lost. my biggest reason of being a failure was the trust i was giving to my staff. what to do now
Wow! I wish I read this article in year 2005 or before.
I am at age 67, my financial condition is almost death. But, I still have time and energy to bring my financial situation to be little bit better,
From reading your article, two things hitting me hard; “knowledge is your only defense” and ” Success is every bit as much about persistence and disciplined habits.”
Around year 2009 financial melt down ……damaged baby boomers more than money.
We lost our faith in financial system.
Many senior citizen took own lives or into depression…this topic never on news.
We are old and broke. Where do we go from here?
I tried and almost gave up looking for job.
I am facing a complete business failure as a result of my own mistakes and poor decisions. The legal action coming from these mistakes will likely leave us personally bankrupt, although i am hopefull that assets in my wifes name will not be acccessible. This may all come about at the end of this year and i am looking for advice on how to face this situation. I seriously considered exiting this life but thanks to God for reaching out to me i am here and ready to fight, but very scared about the long term future.
Sir Todd,
I am Ashiara from the Philippines, 36 years of age and a clerk to a certain government agency. My salary was not enough and cannot cope with our monthly expenses. I invested in such forex trading with my co-workers with the goal to help us for an additional source of livelihood. But suddenly the company we invested were a fraud and they scammed us. I am responsible to give back the money that my co-workers invested with me and here I am stressed and depressed. Every day they keep contacting me asking about their money and since from the start I was very transparent with them. So unfortunate of me they don’t really care and understand the situation am into. The most important to them is to get their money with me on an already invested capital. I am not the who scammed them. My funds are also scammed. I already gave some co-workers partial amount just to keep them calm. As I surfing the internet, I found this site of yours and reading it then and then. It’s really helpful and this will be my reference to survive my situation as of now.