At one time or another, many people experience a major life event that disrupts their incomes and potentially throws them into financial turmoil.
Whether it’s a job loss, divorce, illness, the death of a loved one, addiction or a natural disaster, these occurrences can put even the most financially savvy among us in dire financial straits.
However, the good news is that many have recovered from similar situations, and so can you. Keep reading to learn more about recognizing financial trauma and taking eight actionable steps toward financial recovery.
1. Recognize Your Financial Trauma
The first step in overcoming financial trauma is recognizing that you’ve experienced it. It’s easy to brush off disruptive, sometimes catastrophic life events as mere “bad luck” or temporary setbacks, but acknowledgment is key.
Often, financial trauma is accompanied by stress, anxiety, depression or feelings of hopelessness. These emotional responses can manifest in many ways, such as ignoring bills, avoiding discussions about money, feeling overwhelmed by financial decisions or experiencing apathy about one’s finances.
Some people even turn to unhealthy coping mechanisms, which could include substance abuse or other harmful, compulsive behaviors like gambling or overspending.
[Read: Inside the Psychology of Overspending and How to Stop.]
Take a moment to reflect on your recent experiences and be honest about how a traumatizing life event could have led to recent financial distress. Once you’re ready to face this reality, moving forward with solutions will be much easier.
2. Prioritize Your Mental Health
The state of your finances can often reflect deeper emotional issues. Because of this, prioritizing your emotional well-being will be the foundation for getting back on track.
For instance, you may need help processing feelings that led to your current economic hardship, such as disappointment, guilt, shame, despair or hopelessness.
Consider seeking out a therapist who can help you sort through and deal with these feelings in a healthy way.
“The first step is to address the shame and fear that comes with trying to manage debt,” says Eleanor Victorioso, a certified public accountant, life coach and founder of The Doubleline Advisory Services.
“Most of my clients are really hard on and judgmental of themselves because they believe they should have known better. Instead of coming down hard on yourself, practice self-compassion, cry, scream and then ask yourself, ‘What’s one step I can take now that can get me closer to paying off this debt?,'” she says.
3. Assess Your Financial Situation
With the emotional groundwork in place, it’s time to get a complete picture of your financial circumstances. Gathering this information might feel overwhelming, but it’s necessary to move forward.
Start by listing any debts you’ve accumulated, such as credit card balances, loans or unpaid bills. Cut out any unnecessary expenses, like subscriptions or services you no longer use.
Next, evaluate your savings. Consider how much has been depleted and what’s left. Take note of any assets that have been lost or diminished in value, such as property, investments or retirement accounts. Try to track down monies owed to you, like refunds, unclaimed funds or overpayments.
[READ: How to Ask For Money You’re Owed From Friends and Family]
4. Create a Recovery Plan
Now that you’ve got a clear understanding of both your emotional and financial states, you’re ready to plan your comeback.
Begin by setting realistic goals, such as paying down debt, rebuilding savings, or recovering lost assets. Break these goals into smaller, manageable action steps to avoid becoming overwhelmed.
“If you’re dealing with a high amount of debt, creating a budget and listing income coming in and expenses going out is an important first step. Then, you can prioritize your debts and create a repayment plan once you know how much money you have to work with each month,” says Leslie H. Tayne, a financial attorney in New York and the author of “Life & Debt.”
Tayne also encourages those in the financial recovery process to consider their legal options. “You might want to speak with a financial attorney to discuss debt consolidation or settlement as an option if you’re feeling overwhelmed by your debt,” she says.
Finally, explore opportunities to increase your income, like taking on part-time work, freelancing or selling things. Use any extra income to accelerate debt repayment or replenish your savings.
5. Build Financial Literacy
Take time to educate yourself about personal finance topics such as budgeting, investing, debt management and saving strategies. There are plenty of resources available, from online courses and workshops to books and podcasts.
Choose the format that suits your learning style and schedule. By building your financial knowledge, you empower yourself to take control of your finances.
[READ: 12 Best Free Online Personal Finance Courses.]
6. Recalibrate as Needed
You’ll likely need to reassess and adjust your plan along the way. Life will continue to present new challenges and opportunities that require shifts. Try a different approach if certain aspects of your plan aren’t working. Stay flexible and open to change.
7. Practice Self-Care
Though this catchphrase has garnered harsh criticism over the past few years, it’s not all about decadent self-indulgence. Self-care is just one way to remind yourself that your worth extends beyond financial circumstances, which is an important mindset in financial recovery.
“Allotting a portion of disposable income, even just 5%, toward mental healthcare can help manage distress. Affordable options include online therapy apps, support communities and relaxation techniques courses. Maintaining emotional stability grants perspective critical for problem-solving during difficult periods,” says Mary Poffenroth, a biopsychologist and lecturer at San Jose State University.
Taking care of yourself physically and mentally actually supports your overall well-being and resilience. Incorporate activities that bring joy and relaxation into your routine, whether it’s partaking in exercise, meditation, hobbies or spending time with loved ones.
[READ: Do Employer Financial Wellness Programs Really Work?]
8. Choose an Accountability Partner
An accountability partner can play a crucial role in helping you recover from financial trauma by offering both emotional support and practical guidance.
Recovering from financial setbacks often involves confronting feelings of shame, guilt or fear, and having someone to share the journey with can make the process less isolating.
An accountability partner can help you set realistic financial goals, track your progress and hold you accountable to your commitments. They can also provide a fresh perspective, helping you reframe negative beliefs about money and offer encouragement when setbacks occur.
Ultimately, a trusted partner helps restore confidence and motivation, creating a sense of security as you rebuild your financial foundation step by step.
9. Trust the Process and Celebrate Small Wins
Recovering from a major life event and the financial setbacks it can bring isn’t an overnight process. Most often, it’s a gradual process with ups and downs.
Remember that setbacks are normal and that you may continue to make mistakes along the way. When things get tough, remind yourself how far you’ve come and what you’ve accomplished.
Don’t forget to recognize your awesomeness and celebrate your small wins. It seems like a small thing, but it can provide motivation you need to keep going while reinforcing positive behaviors that will ultimately lead to your emotional and financial recovery.
More from U.S. News
Hate Budgeting? Here’s How to Reframe It
Fun Ways to Save on Holiday Shopping
How to Stop an IRS Wage Garnishment Immediately
9 Ways to Bounce Back from Financial Trauma originally appeared on usnews.com
