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Do You Have a Financial Recovery Plan?
A crucial part of safe financial planning is having a fund in place for disasters. Many people keep some form of rainy-day fund to help bail them out of financial trouble when an unexpected expense lands on their lap, like an unforeseen home or car repair, a sudden medical issue or something else. Yet, many of these people don’t think about what happens after that rainy day is over.
With your emergency fund depleted or running low, how do you bounce back and quickly protect yourself from the next big disaster? The answer is a financial recovery plan.
A financial recovery plan is a pathway to gaining stability after an unexpected, disastrous expense depletes your reserves. It's the steps that will allow you to build your savings back up and ensure that you're quickly able to recover and prepare for the next significant expense. Like a rainy-day fund, a financial recovery plan is something we hope never to have to use. Yet, it is often inevitable that we'll one day need to get back on our feet after facing a period of financial peril.
Creating a financial recovery plan is a 7-step process. Remember, everyone's financial situation is different, which means your economic recovery plan may be different from that of a friend or neighbor:
Assess the Damage: After any type of considerable expense (expected or unexpected, disastrous or not), you should take a look at your finances.
Be Honest: You should immediately be honest with your friends and family about your current financial situation.
Create a New Budget: The manner in which you have been budgeting your money needs to be revised. You need to start saving more than you were before.
Set Short and Long-Term Financial Goals: Along with your budget, you should also create some short-term and long-term goals. These financial objectives will help you stay on target.
Prioritize Your Spending: When you have to rely on minimal funds, you need to prioritize your spending. As you're cutting items off your budget, focus only on spending money on the very essential things.
Find Additional Sources of Income: Finding added sources of income is one of the best strategies towards recovering from a significant, unforeseen expense.
Routinely Update Your Budget: You should evaluate your budget every couple of months, or as you feel fit. Updating your budget is also an excellent opportunity to readdress where you stand financially.
Now that you've developed your financial recovery plan, all that is left is to implement the seven steps described and begin saving money. It is essential to keep to your new budgets and follow each financial goal as rigorously as possible. This will ensure that you get back to solid financial ground as fast as possible.
For more information on understanding financial recovery plans, access the full article here.
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