Financial CPR: R is for Recovery
This post is the third installment in the Financial CPR series. Financial CPR comprises a set of tools to use in the event of a sudden crisis, such as unforeseen unemployment. The following information should be seen as general education and is not intended to constitute individual financial advice.
This situation does have an end.
At some point, the unemployment crisis will be resolved and it will be time to think about how to get back on your feet. Ideally you will have:
- Kept your monthly deficit to a minimum;
- Protected yourself from penalties due to non-payment of accounts;
- Incurred as little new debt as possible.
Don’t zone out!
When you have been through a period of high stress it’s normal to want to decompress once the worst is past. You may feel an overwhelming “urge to splurge” and buy yourself those comforts you’d been denying. But before you throw out your budget, take a deep breath and pause.
Create your Recovery Cash Flow Plan.
Now that your income is back on track, you will need to move forward with paying your regular bills and addressing any debts you accumulated during the interruption. Your Recovery Cash Flow Plan should allow for the following:
Net Income
(minus) Fixed Expenses (reg. housing payment, reg. car payment, utilities, etc.)
(equals) Discretionary Fund
Take the Discretionary Fund and subtract your necessary out of pocket costs. Then try to budget for one non-necessary treat if you can, such as a monthly movie with the family.
Discretionary Fund
(minus) Out of Pocket (groceries, gas, parking, etc.)
(minus) ONE treat (if you can afford it)
(equals) Repayment Fund
Resume payment on your regular bills.
Once you have income again, begin making on-time payments on all of your regular bills. This does not necessarily mean that you return to all of your pre-unemployment expenditures. If you reduced your cable package for example, you may need to continue with the lower-priced plan for awhile until you’ve paid off some debts.
Determine your proposed repayment plan.
Divide the amount in your monthly Repayment Fund by the number of creditors for an equitable repayment strategy, or direct more of your resources toward certain accounts to give them priority.
Re-connect with your creditors.
Using your Recovery Cash Flow Plan as ammunition, contact your creditors and propose the terms of repayment. You may need to negotiate like crazy to get your creditors to accept the plan, and you may not be able to budget for the “treat” at this time. But try to resist at all costs having to miss payments on any of your regular bills in order to repay debts.
Be secure for the future.
Once you’ve paid up all of the debts, convert your Repayment Fund payments into a Contingency Fund payment. Try to have three to six months of financial reserves for any future disruption in income.