68% of Americans Had a Financial Setback in 2020: How to Recover
Don't let a money-related hiccup get in the way of your goals.
It's been a tough year for many of us, thanks to the coronavirus pandemic. From unemployment to income loss, a lot of people have struggled in 2020 due to circumstances outside their control. In fact, Fidelity reports that 68% of U.S. adults experienced a financial setback in 2020. If you're part of that statistic, here's how to move forward in the coming year.
1. Assess the damage
Maybe you racked up $1,000 in credit card debt when your hours were cut at work. Or maybe you wound up in the hospital and have a $1,200 bill. No matter your exact circumstances, figure out just what hole you've landed in so you can make a plan to climb out.
In the case of credit card debt, for example, it'll help to look at how many cards you owe money on so you can pay them off in order of highest to lowest interest rate (or, better yet, do a balance transfer to lower the interest rate on all that debt). And if you owe money to a medical provider, you may be eligible for a low-interest payment plan.
2. Get your spending in order
If your finances took a hit in 2020, look to spend more conservatively in 2021 to get back on track. Following a budget will help, especially if you're somewhat clueless about what your various bills cost. If you are, don't beat yourself up -- you just need a budget to get your facts straight.
Comb through the past year's credit card and bank account statements to see what your expenses have cost you on average. Then record every expense somewhere -- a notebook, a spreadsheet, or a budgeting app. From there, go through your spending categories and find ways to cut costs.
3. Protect yourself moving forward
A big reason people experience financial setbacks is that they're ill-equipped to deal with unplanned bills. If you're without an emergency fund, aim to build one in the coming year. Ideally, keep three to six months' worth of living expenses in a savings account -- but don't worry if you can't hit that goal soon.
If you're starting with nothing, it will take time to reach your ideal emergency fund balance -- aim to achieve it over time, and start by simply doing the best you can. If your goal is to build a $9,000 fund, but you close out the year with $2,000, that's a heck of a lot better than nothing.
The past year was stressful at best for many people. For others, it was an utter nightmare. If you fell victim to a financial setback in 2020, take comfort in the fact that you're in good company -- but take control of that situation. Don't let it continue to hurt you. If you approach your recovery calmly and methodically, there's a good chance you'll close out 2021 in a much stronger place financially than where you start.
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