Dealing With Financial Setbacks

This post was written by Chris. He is a twenty-something battling his way out of more than $150,000 in debt. You can read more about him at Money Relationship.

When my wife and I decided to get out of debt, we went at it full force. We felt like nothing was going to stop us. However, almost immediately, financial troubles began to pop up. They weren’t necessarily large, but they were putting a damper on our extreme dedication to get things rolling. For example, my car needed new brakes, rotors and registration ($1000). My wife needed a small amount of surgery ($300), etc., etc. It just kept adding up and it felt like we were getting nowhere. After dealing with those setbacks, I’ve thought about some things that we did wrong (and right) in dealing with them. I’ve broken them down into some tips for dealing with financial setbacks.

Don’t Make Excuses

Over the past few months, I’ve realized that I made a lot of excuses for not paying down as much debt as possible. For example, every time we ran out of cash in our grocery envelope, I thought it was OK to just take it from somewhere else (the debt envelope for example). I figured, eh, what’s one month, we will get it rolling next month. That excuse seemed to pop up almost every month. Maybe one month we needed the extra cash for car expenses and the next we needed it for something else. All I can say is, stop making excuses and start getting angry at your debt.

Have a Small Emergency Fund

Everyone knows the importance of emergency funds. They’re there in case you have a financial setback or lose your job. Having a small emergency fund while in debt insures that if you do have a small financial emergency, you won’t have to accumulate more debt to handle it. Our emergency fund is set at $1,000. It’s a simple, round number that we feel comfortable using. You can make yours whatever you feel comfortable using. I think Frugal Dad actually used a $3,000 emergency fund while he was getting out of debt. Before you start paying off your debt, get an emergency fund set up. It will save you a lot of pain in the long run and it will prevent you from adding on to your debt.

Save Elsewhere

Something that we continued to do even when we had financial setbacks was spend elsewhere. I mean, we had $50 in our clothing budget, so we spent it on clothes. Looking back, we should have rolled that $50 into our debt snowball and postponed the enjoyment of clothes shopping for a month. Would we have gone crazy if we didn’t spend that for one month? No way. When you have financial setbacks, find other ways to save money. Maybe you shop at the discount grocery store that month or brown bag it the whole week. Why not pick up some overtime at work or a side job? These small things can make financial setbacks easier to handle.

Refocus and Get Moving Again

Once the setback is in your rear view mirror, it’s time to refocus and get back into gear. After our setbacks, we really started to attack our debt. We managed to pay off our $1,500 Best Buy credit card in 2 months. It just angered us so much knowing that we could have had it already paid off and we would be almost done with another debt. But, things happen and you just deal with them.

Comments

  1. @Rob – We feel the exact same way. They were tough for us to deal with because they were in the first month of our new debt free goal and we had yet to save up for an emergency. Not wanting to put the expenses on a credit card, we had to find more creative ways to pay with cash.

    We have begun to save a few extra dollars per month towards things such as repairs and medical expenses. It doesn’t amount to much, but it will definitely help if we run into something again in the future. Thanks for the comment!

    @2 Cents – There is no way that there will not be slip ups each month. If anyone says that their budget is flawless, they are lying. Thanks for the comment!

  2. For example, my car needed new brakes, rotors and registration ($1000). My wife needed a small amount of surgery ($300), etc., etc. It just kept adding up and it felt like we were getting nowhere.

    My experience with budgeting has taught me that we need to plan for “emergencies.” No one emergency is anticipated. No one knows that a particular type of surgery is going to be needed or a particular car repair is going to be needed or whatever. But it is possible to form realistic expectations of the dollar amount of emergencies that are going to take place over the course of a number of years and to use budget category numbers that reflect such expectations.

    My point here is that there are different types of emergencies. A true emergency is something totally unanticipated, something that comes out of the blue. We need money put aside to deal with something like that. But the types of emergency being referenced here are really things that could be anticipated in at least a general way. No one knows that a particular medical procedure or a particular car repair is going to be needed. But with experience we can form reasonable expectations as to how much we are going to need to spend on a yearly basis for unexpected medical expenses and for unexpected car expenses.

    My approach is to incorporate a dollar amount for these things in my monthly budget and then permit that category to grow for however many years it is not needed so that the amount is big enough to cover expenses when it is needed.

    For example, you might have one budget category to cover whatever you need to pay for health insurance and then another to cover expenses that you will end up paying out of pocket. You might not need to use the second category for several years. But if you let the money in this category accumulate until it is needed, you will have enough to cover the “unexpected” expense when it appears.

    The point here is that there are some expenses that truly are “unexpected” in that they do not occur every month or even every year. But they cannot fairly be said to be entirely unexpected because they always do show up sooner or later. They need to be accounted for in a truly effective budget.

    Rob

  3. Good advice Chris. I guess in the end we need to decide how badly we want to achieve our goals.

    At our house, we are not burdened by a ton of debt, but we would like to be debt free. Still, I find myself letting key budgeting disciplines slip through the cracks at times. I wonder if that’s because things are basically OK for us.

  4. Chris, my wife and I find ourselves using similar excuses. At the end of the month, I look back thinking where did all this money go?! Our debt is not extremely high by others debt, but for our family and our budget it is too much. It is all credit card debt and therefore bad debt for us. It really makes me wonder how my grandparents lived without credit cards.

    It’s helpful to hear other people working to get out of debt and having similar experiences. Keep up the good work and keep sharing as I am looking forward to your posts.

  5. Having an emergency fund helps. Months like this one full of holidays and a little more expensive I tend to over spend and if something happens I may need more money. It’s nice to have a little extra stock pile just in case I need to borrow some money from another account

  6. For you first point, ‘don’t make excuses’… our family has stopped stealing from peter to pay paul. Because you are right, it happens every month thereafter. So we stopped and it took some more getting used to living within the available cash. But with a little budget revisions, we done well.

    And it can go hand in hand with ‘save elsewhere’. I will pack my lunch or cook a more frugal meal to get us thru periodic rough spots. Not a problem because it is all for a good cause. :)

    Nice post.

  7. @Joshua – Thanks for the comment! Just keep with it and try and employ some of these tips. They are working for us.

    @Ken – We’re angry.

    @Craig – We are paying with all cash this Christmas. It feels wonderful!

    @Money Funk – Things happen. You can’t stop them so you just have to make due.

    Thanks for the comments everyone!

  8. That stinks about the setbacks. I’m assuming your wife’s surgery was not covered by health insurance? Double stink. But, your tips are right on. If you re-focus it will lead you to get back on track more easily.
    Jerry

  9. As half of a couple with severe health problems, I know all about financial setbacks. I actually just posted something last night about how we were finally cracking the $3,000 level on one of our cards. Today, we got the car looked at and got a $300 bill. So we are (temporarily) back up over $3000 again.

    We’ll live but these things can’t always be avoided. Like when my husband had to keep taking steroids for his condition and, over the course of a year, gained about 40 pounds. It happened just slowly enough that we ended up having bought 2 sets of jeans. (And his skin is so sensitive that he can’t wear clothes more than once between washings. So we’re not talking a couple of pairs.)

    The setbacks are never the end of the world. Even if you’re like us and living on just about $3,100 a month, $300 isn’t a death blow. But it does knock you down a peg, morale-wise.

    That, to me, is the biggest hurdle. (Well, that and not being able to just take up more work to pay down more debt. It’s hard to feel so powerless.) It’s about taking a blow to the budget and standing back up. Or, at the very least, keeping sane and doing as much as you can to keep expenses down to compensate.

  10. I’ve really decided to get frustrated with my car loan lately. My goal back when I took it on in June was to pay off/have enough in the bank to pay it down to $1,500. (Started at $2.5k) Lucky for me, I’ve managed to keep that goal. :) It seemed ambitious at first, but then I’ve had enough money slip through my fingers to pay the loan off by now, too. (Instead, funneled into a new engine for the car — step one of three major mods for the project. Yes, she was bought knowing this.)

    While I regret not paying the car off faster, the point of taking on the loan was to build credit anyhow! How much credit do I get for having a loan for six months?? (Bad pun, I know.) I wanted it for about a year to show good management of different loan types, plus for history length, which is the only thing hurting me really.

    Then I found out we’re moving in June, and I’ll be unemployed… Ouch. When I thought of the possibility of me having to start paying back student loans if I took a break from school, I knew I had to axe it before I lose my job right now. So, my super ambitious goal is to pay her off in April. That means roughly $500 a month needs to be set aside for the loan. (The interest rate is low and it’s on automatic payments, so I only make the payment and bank the rest until I can pay it off at once. I didn’t want to mess with the automatic payments because there’s an interest rate reduction thanks to it.)

    For me, $500 is sometimes more than half of my take home pay. I need a good challenge, though. :) Preparing for the student loan battle that will ensue in the next few years!

    Man, I gotta stop leaving these massive comments….. o_O

  11. Foxie@CarsxGirl – Does that mean you will be completely debt free by April? If so, congratulations will be in order!

    I remember being a slave to the banks quite a few years ago with $35K in credit card debt from a business I tried to start. And now, being debt free except for the mortgage, I’m able to make the comparison between the burden of debt and the freedom I have now.

    That alone is enough to make me never want to be in debt again. Ever! :)

  12. My experience with budgeting has taught me that we need to plan for “emergencies.”
    My point here is that there are different types of emergencies. A true emergency is something totally unanticipated, something that comes out of the blue. We need money put aside to deal with something like that.
    Months like this one full of holidays and a little more expensive I tend to over spend and if something happens I may need more money.

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