People make roughly 35,000 decisions each day. With that much riding on each person’s shoulders, it comes as no surprise that some of the decisions will end up being mistakes. Occasionally, the mistakes might even be disastrous. When people make catastrophic financial errors that wipe out their savings, there are five steps that they should take to recover both mentally and monetarily.
It is important to acknowledge and learn from mistakes, but when a person dwells on a financial misstep, it can lead to fear, damaged confidence, and self-punishment, all of which can undermine recovery. Instead, a better option is to acknowledge the mistake and then move forward without constantly ruminating over the event.
Be realistic about recovery
The panic after losing their savings prompts many people to become overly aggressive with savings goals as they try to quickly rebuild and erase the past. Putting this much pressure on an already stressed financial situation will not help. Instead, recovery should be driven by reasonable goals and a steady pace of savings. It may take only a few minutes to lose money, but rebuilding savings can take years. Accepting this will make a recovery much easier to achieve.
Rebuilding their savings should be a top priority for anyone whose financial mistakes have devastated their savings. One key way to rebuild savings is to adjust the spending budget so that more money can be put toward savings.
Don’t neglect debt
It can be tempting to reduce debt repayments after losing savings since those payments could instead help rebuild the savings account. This, however, is an expensive choice since prolonging debt means increasing lifetime interest payments. Reducing these payments can also put individuals in danger of reduced credit scores, over-limit fees, and late payment penalties.
Prioritize emergency savings
An account with emergency savings is one of the most critical resources a person can have. Access to emergency funds helps ensure that additional debt isn’t created by a health crisis, job loss, unexpected purchase, or expensive repair. This useful fund lessens the overall financial burden on an individual and saves money by reducing the amount of interest paid for their debt, all while protecting their credit score.