Whether you went on a few too many credit card-fueled shopping sprees, missed a series of payments that damaged your credit report, or lost your job for a prolonged period of time, there are ways to fix your credit and take control of your financial future. It starts with getting back to financial basics and creating a realistic plan that will help you achieve your financial goals. Here are some things you can do right away to make a financial comeback after a setback:
Check your credit report. You are entitled to one (1) free credit report each year from the three major credit reporting agencies — Equifax, Experian, and TransUnion. Take advantage of this and order your free credit report today. Verify that all the information listed on the report is accurate, and immediately dispute any errors and mistakes.
Track your spending. Even if maintaining a budget hasn’t been your forte, now is a good time to start tracking your income and expenses. Don’t look at budgeting as a necessary evil. Instead, focus on the benefits it offers: knowledge of where your money is going, better cash flow management, and peace of mind as you stop living paycheck to paycheck.
Live on a cash basis. One of the most powerful ways to get a handle on your finances – and stop living beyond your means – is to start living on a cash basis. Simply put, you don’t buy something if you can’t pay cash for it. Living on cash helps to break the cycle of dependency on credit cards. It also makes you far more conscientious about your spending habits, since it’s a lot tougher to part with cash than it is to simply whip out a credit card to pay for something.
Create your “rainy day” fund. This is a small savings account, usually between $500 and $1,500, that can help you deal with the unexpected things that pop up in life – like the flat tire on your car, or the leaky toilet that requires a visit from a plumber. Typically you’re forced to use credit to pay for short-term or one-time emergencies. A better strategy is to set up a rainy day fund and make small, regular contributions to it in order to properly prepare for those inevitable setbacks that happen to all of us.
Build an emergency fund. In addition to creating your “rainy day” fund, work on amassing a more sizable emergency fund. This savings account should be between $3,000 and $10,000 in size – or even larger. To accumulate this fund takes time, but unlike a “rainy day” fund, which helps you recover from a one-time event, the purpose of an emergency fund is to tide you over during a long-term personal or financial crisis, such as when you get a pink slip or go through a divorce. Set a goal of saving either a percentage of your paycheck or a base amount that’s non-negotiable, and insist on making this savings a priority so you’re not spending everything you earn.
Get financial help. If you want professional advice on how to manage your current assets and finances, set up a meeting with a financial planner or a financial advisor. Professionals from reputable companies can take an objective look at your financial situation, help you set goals, and create a plan that will help you achieve your financial goals after a setback.