So you first messed up your finances in your 20s, then made matters worse in your 30s.
But now you’re ready to act your age, get serious about the business of fixing your credit and start writing your financial comeback story, right?
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 still ways to bounce back and take control of your financial future.
It’s all about 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.
Order your credit report from AnnualCreditReport.com, and verify that all the information listed on there is accurate.
Don’t fall into the trap that so many people do and live in fear about your credit report. Unfortunately, according to the National Foundation for Credit Counseling, about two-thirds of adults in the U.S. haven’t seen their credit reports in the past year.
You won’t know what’s in your files with Equifax, Experian and TransUnion until you check those reports. So just go ahead and do it. If you find errors in your credit reports, dispute credit mistakes right away.
Track your spending.
If maintaining a budget hasn’t been your forte, now is a great 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.
Start living 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, this means that if you can’t pay cash for something, you don’t buy 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.
If you’ve struggled with finances in the past and never seemed to be able to get ahead, one reason may be that you lack a “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 you a visit from a plumber.
Without a rainy day fund, you’re forced to constantly 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.
Work on building an emergency fund.
In addition to creating your “rainy day” fund, you should also work on amassing a more sizable emergency fund.
This savings account should be between $3,000 and $10,000 in size – or even larger.
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.
Therefore, an adequate emergency fund will have enough money in it to cover all your monthly bills for a period of at least three but preferably six months.
To accumulate this fund takes time. So 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 that you earn.
Your hard work will pay off if you ever find yourself in need of cash to cover an unplanned, long-term setback in your life.
Get financial help.
If you want some professional advice on how to manage your current assets and finances, set up a meeting with a financial planner or a financial advisor.
Experts from the Financial Planning Association and the National Association of Personal Financial Advisors are good starting points.
Professionals from these reputable groups can take an objective look at your financial situation, help you set some goals and create a plan that will help you achieve your financial goals after your setbacks.
Whatever setbacks or embarrassing money issues you’ve experienced in the past, those personal or economic challenges don’t have to be the final chapter in your life story.
By getting back to financial basics, you can write a happy ending for yourself and make a financial comeback of which you can be proud.
This article originally appeared under Lynnette’s Uncommon Wisdom column on DailyFinance