Restarting after a Financial Disaster

Recently I shared about getting hit by several financial disasters, which are resource-demanding emergencies- our cat was sick, necessitating thousands in emergency veterinary bills, and the hot water tank in my condo burst, requiring repair costs and hotel stays for my tenants, all not covered by insurance. I can’t express how disheartening it is to move from feeling good about saving $3 for each bike ride to and from work, to seeing such a large amount of money be spent suddenly.

When dealing with a financial emergency, your primary goal is going to be doing what needs to be done to rectify things, without regard for the costs. It’s only after all the dust settles and you start counting the dollars that despair sets in.

Feel the Loss

That’s right, normally chipper Lady Dividend wants you to feel the gravity of what has happened. What did you spend money on? Was it a good use, in hindsight? How much did you deplete your savings or do you now owe in debt? It sucks, so acknowledge it. This will help with motivating us to move past this incident.

My Story: What happened was horrible, emotional and created a lot of stress. The burst hot water tank could have cost more, and the vet bills could have cost less, if only we hadn’t let our emotions get in the way. We kept trying to figure out what happened to our cat and expensive tests never gave us that answer.

Go Back to Basics

Let’s talk about finance 101, which is that you need to spend less than you make, and put the difference to savings and debt. Reassess what your goals are. Obviously if you now have debt, repaying that debt will go to the top of the pile. Will you have to push back or change one of your goals?  Will your budget change? Was there a luxury in there which you will now have to forgo?

My Story: I put a lot of the costs on my line of credit, as I didn’t want to sell my investments to pay for the emergencies. I will have to start aggressively finding money to pay off this debt. I’ll have to cut back on some things I wanted to buy for myself which would have presumably been on sale after Christmas. I was hoping to purchase personal training sessions to supplement my gym membership, but that will have to be pushed back 6 months at least. I’ll also have to reassess our honeymoon plans for Japan next year. Maybe we can honeymoon in a cheaper Asian country instead.

Focus on Net Worth, not Cash Flow

While your finances are being rebalanced, your cash flow situation isn’t going to look great. You’ll have less spending and “play” money. Things will be tight for a bit. Instead I would encourage you to focus on tracking your net worth. Even if you don’t see your investment accounts grow, you’ll see your net worth is increasing again as you work on your new goal.

My Story: I’ve been watching my net worth increase every month this whole year, and December is going to be the outlier. Combining the hot water tank costs with some bills that were due, means when I run things on December 31st, that is going to be a tough pill to swallow. However, I don’t anticipate any major expenses in the first half of 2018, so by January I should be back on track, even if my cash flow situation is really tight.

A financial disaster doesn’t have to permanently derail your life goals. The focus is to acknowledge what happened, and use the negative emotions to propel you to kick things up a notch. By keeping an eye on your monthly net worth, you’ll see that you are back on track, which will encourage you to keep working on it. Good luck!

What was your financial disaster, and how did you deal with it?