Coping with Bad Financial News

Have you had the situation where you plan out your budget meticulously, are relatively satisfied with the outcome, only to find out one of the major parameters may shift dramatically.  Just last week, our landlord (of 9 years) informed us that we will have to move soon.  A move is a big hassle, but additionally there is the uncertainty of what the resulting new housing costs may do to the budget.  I have friends that have had to deal with similar budget shifts due to unplanned medical expenses and an emergency replacement of a vehicle.  What I’ve found is that a jolt of bad financial news can have two effects: it can permanently send you on a spiral downward, or it can be only a temporary blip that will not have a long-term impact.  Here’s what I do to prevent the former:

–Confront the new situation head-on — a big part of many financial problems is being in denial of the situation.  My friend Karen was losing a substantial amount of money each month through poor management of her accounts, subscriptions, and payments.  For all the time she refused to get a clear picture of things and plan a strategy forward, not only was she losing a lot of cash, she was allowing the problem to take on a life of its own and increase her stress levels and anxiety.

–Re-do your new budget — when Karen finally itemized all of her debts and payments, she was able to consolidate everything into one number and create a plan to pay it down over 14 months.  Although her new budget left less room for spending and investment, it also puts her on a trajectory for being free of her debt obligations.

–Do not let a problem cascade into a spending binge — One of the most interesting behaviors I have seen is to have one unexpected problem crop up, and then use that as an excuse to suspend all discipline and careful planning.  I see this all the time with people on diets, “I ate a big piece of chocolate cake, and since I failed the diet today, I’m going to allow myself to binge for the rest of the day.”  While I have been guilty of this myself (both with spending and food), I recognize that this is some of the most self-destructive behavior imaginable.  If you encounter a financial problem, it’s best to think of compensating moves rather than inflicting more damage.

–Aggressively look for ways to “get back on track” – in a previous post on restoring an emergency fund, I talked about both finding budget areas to cut back and seeking additional income.  Incorporating some of these ideas is the best way to resume a healthy financial trajectory.

shared at this week’s Carnival of Personal Finance