Christmas shopping can get out of control very quickly. Sometimes things don’t go as planned, or you don’t have the luxury of time. So most likely, you end up making decisions on the fly that have a direct impact on your finances. Thus, if this is a good summary of your Christmas this year, now it is time to come up with your financial recovery plan.
What Is A Financial Recovery Plan?
A financial recovery plan is a framework that you can use after facing an unexpected or exceptional expense. Thus, it will help you to take back control over your finances. It can also serve as a great way to learn about your financial situation and start developing healthy financial habits.
In short, a financial recovery plan should cover the following topics: debt, budget, savings, and credit score.
How To Create Your Financial Recovery Plan?
Following these 9 steps to create your financial recovery plan. Even if everyone has a unique situation, we believe that the majority of people can benefit from these steps.
1 – How To Assess Your Financial Situation?
As the first step, you have to assess your financial situation. This step is primordial because it will determine how deep you have to go to recover financially. No matter what you think, there is always a solution to any financial problem.
Start by looking into your credit card statements and bank accounts to get a sense of the damage. Your goal is to understand the real impact of your Christmas shopping by summarizing all your expenses and calculating the total amount spent.
The key here is to stay honest with yourself. The last thing you want to do is to lie to yourself because it will directly impact your situation assessment step. So, the closer you are from reality, the best your financial recovery will be.
2 – How To Create Your Financial Recovery Plan?
Before starting to look into the other steps, you need to develop a plan and determine your short-term and long-term goals. These goals will help you focus on the things you need to do and will keep you motivated and accountable to yourself along the way.
So take the numbers you calculated in step 1 and pick a deadline for when you want to have fully recovered from your Christmas shopping. Then, identify 2 or 3 milestones in your timeline to keep track of your progress and make sure you are going in the right direction.
For example, if you have to save $1,500 in 3 months, your milestones could be to check every month that you are saving at least $500.
3 – How To Tackle Your Debt?
Most of the time, people are taking credit card debt to shop for Christmas. But as you may know, credit card debt is one of the worst debt you can carry. If you want to know why or learn about how you can pay your debt quickly, read our debt guide.
For example, you can make extra payments each month to pay less interest. Similarly, you can consider a balance transfer or a debt consolidation.
4 – How To Create Your Budget?
Creating your budget is a powerful tool to understand how much money you earn and spend. Keep in mind that spending less than your earnings is key to save faster, and it will also help you build healthier financial habits.
The more you try, the best you will become. So don’t worry if it doesn’t go as planned at the beginning. Also, don’t be afraid to make a few sacrifices for a short period to accelerate your recovery.
5 – How To Prioritize Your Spending?
It is impossible to not spend money regularly unless you live on a self-sufficient farm. However, some items are more indispensable than others. That is why prioritizing your spendings is so critical.
For example, paying for food is more indispensable than paying for entertainment. Similarly, paying your debt is more critical than buying a new car.
6 – How To Save More Money?
There are a lot of ways you can save money. Especially after Christmas because we usually buy more things that we need. So, one thing you can do is to return all the Christmas decorations, wrapping papers, or wish cards that you didn’t end up using. Similarly, you can return gifts that won’t hurt anyone’s feelings.
There are plenty of other ways to save money without having to make too many sacrifices. For example, you can save on your utility bills.
You can also use tricks like the 50/50 strategy. This strategy consists of saving the same amount of money that you are paying for your non-necessity expenses. Thus, it is a great way to quickly save money and hold yourself accountable for all your purchases.
7 – How To Improve Your Credit Score?
Your lenders are using your credit score to determine your interest rates. The higher your credit score is, the lower your interest rates are. In other words, improving your credit score is a crucial step in your financial recovery plan.
After improving it, you can consolidate your debt at a lower interest rate. If there is something you should never do, it is making late payments because it will strongly affect your credit score and for a long time.
8 – How To Open A Christmas Fund?
Planning for big purchases can reduce the impact it has on your finances. Think of Christmas has one of them, and it is happening every year.
So what can you do to better plan your Christmas expenses? Create a Christmas fund. It is similar to an emergency fund, but the only purpose of this money will be to do your Christmas shopping.
It is an excellent idea because it will allow you to save money throughout the year instead of starting in December. By using this strategy, you can make sure that you will have enough money to buy gifts for all your friends and family.
For example, if your Christmas budget is usually around $1,200, saving $100 a month starting in January will suffice to do your Christmas shopping in December.
9 – How To Get Financial Help?
However, if you need more than that, you can get professional help. It can be counterintuitive to pay someone to help you with your finances when you are struggling, but it is worth it.
Professionals know what questions to ask and how to tackle different financial situations. In other words, they will teach you what to do by pinpointing the actions that you can follow to have a significant impact on your finances. In case you are interested in learning more about it, visit our financial services page.
In conclusion, you have all the keys to create your financial recovery plan. The only thing remaining is for you to take the first step and save money. Also, make sure to write everything down so you can read it regularly to keep your motivation high.