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How to Recover from a Financial Setback in Your 20’s

28 November 2018 No Comment

When it comes to facing financial problems in your 20’s, the first rule of thumb is knowing that most of your peers are in the same boat – unless they are trust-fund kids. The second rule of thumb is recognizing that you are in trouble and then taking steps to climb out of debt.  While you only live ones, the reality is that in your twenties, even your late twenties, time is on your side.

So how did you end up in your financial predicament? One of the obvious suspects is the debt you took on to complete your college degree but sometimes stuff happens. Maybe you’ve been hit by a drunk driver or maybe that degree in medieval basket weaving doesn’t quite have the job prospects of something more practical.

Either way, being down doesn’t mean that you need to be out for good. In fact, you can bounce back stronger than ever before and here are some tips on how to recover from a financial setback in your 20’s.

Step 1: Face the Music

It might be easier to act as if the party will go on forever, but you are now in your 20’s. This means that college is probably over and now you are living with the reality of moving back into your parent’s home or sharing an apartment with five roommates.

Does this sound grim?  Well, starting out is never easy but getting yourself on the road to something great starts with facing the music. As such, come to terms with your current financial situation – including the perceived mountain of credit card and student loan debt you are facing.

Only by coming to terms of where you actually stand can you start to take steps to improve your situation. As such, don’t act like the party is going to last forever; instead, face the music and start acting like the adult you are.

Step 2: You’ll Need a Plan

It doesn’t matter if you are 25, 45, or 75, when it comes to your finances you need a plan – you always need a plan. As such, start thinking about what your near- and long-term goals are. These financial commandments might include paying down your debts but over the long run this might mean living debt free and starting to save enough money for retirement.

Granted, the very concept of retirement is alien to most people in their 20’s – it might even be alien for people in their 40’s. But if you think about it, the odds are that Social Security probably won’t be around when you “retire” in 2070 or so.

As such, the only way to get a head start on this is to position yourself to be able to put money away today. By the way, this will also help you take advantage of the miracle of compound interest.  In this way your money can go to work for you instead of the other way around.

Step 3: Set a Budget

Even if your income is still inconsistent, you want to set up a monthly budget that tracks your income and your expenses. Only by doing this can you get a read on the reality of your financial situation and this will put you in a position to make informed decisions about how you manage your expenses.For example, there might be nights when you will need to stay home rather than going out with friends. Sure, this might hurt at the time, but realize that there will always be another Saturday night.

If you want to recover from a financial setback, then set a budget and stick to it. Before you know it, you will have some extra money left over than this means that you can start saving instead of worrying about money.

Step 4: Hide Your Credit Cards

No doubt about it, credit cards are addictive, and this can lead to problems for everyone – regardless of their age. While having access to credit can make life easier, it can also create a world of hurt. As such, you are best served by hiding your credit cards and only using them when absolutely necessary and not for restaurants and trips.

In this way, you will preserve the credit available to you while making sure that most of your check is not going to pay down these bills. After all, enough of what you make is going to cover your student loans and rent expenses, so why do you want to give the banks any more of your money?

Remember, falling into financial problems in your twenties does not mean game over as you have 20, 30, or even 40 years to recover. But if you want to recover, then you need to face the music, come up with a plan, set a budget, and hide your credit cards.

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