Getting back on your feet after any 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 just came from and what it took for you to win financial freedom from your debts! Never forget the past and learning from it are powerful tools and great motivation to carry forward. Getting back on your feet financially requires all your focus and constant monitoring and review. Here’s how to get back on your feet after debt settlement:
1. Consult with your tax professional. You should have done this before you negotiated the settlement of your debts and that IRS Form 1099 should come as no surprise. Be sure you have done your income tax planning so you don’t wind up owing the IRS!
2. Build an Emergency Fund: I’m a huge fan of the Dave Ramsey program, for the most part. One of my favorite tools that Dave always advises that we start with what he calls a “murphy account.” Murphy’s law says that anything that can go wrong will. 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 this savings. Then, when Murphy comes calling and you get a flat tire, need car repairs, a new fridge, or dental work; you can use this emergency fund for these events. If you use this account, then you must work hard to replace those funds for the next time.
Gone are the days of having a credit card for emergencies and didn’t you just learn how hard it is to get out of debt? So, why go back? Make a promise to yourself that you’ll never go back. You don’t have to anyway with an emergency fund [aka a Murphy Account].
3. Live and Die by the Budget! There is no magic bullet, no pill you can take and no ‘get rich quick’ scheme that will magically transport you to your financial goals. The only way to ever get ahead financially is the spend less than what you make, period. A budget is a requirement and there is no way around this. Make it fun by doing what Dave Ramsey calls ‘prespending’ your money before you even get it. Review your budget every month to see where your money is going. Over time, you’ll begin to see patterns in your spending and look at each bill and ask how you might reduce it.
Examples include unplugging appliances to reduce your electric bill; cut out those extra television channels; ask your insurance agent whether you need that additional insurance; learn to do a mini version of your own ‘extreme coupon’ game to save at the grocery store.
4. Plan for your Future. No one 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 complimentary consultations and you’ll need to at least take advantage of asking questions that will help you set your goals. You may be working hard to pay off a mortgage, send kids to college, build up a retirement account, etc.
Having the right insurance policies 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 responsibility and set out your plan in writing.