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Take Small Steps After Financial Tragedy

bMG-McCullough-Chrisy Chris McCullough

In these economic times, it’s an all too common occurrence that someone loses their home, loses their car, loses their job, or has built up so much debt they are going to file bankruptcy.

What are the steps that can be taken after one or more of these financial tragedies hits? Let’s take a look at what can be done to rebuild your standing in the financial community.

First, analyze what caused the financial hardship. Was the house too big? Was the car too extravagant? Was everything purchased on credit really necessary? My guess is taking a good, hard look will determine at least some of the financial tragedy was self-inflicted. Of course, something like unemployment can’t be avoided. The key there is to get back to work as soon as possible, even if it isn’t at the income level of the previous job.

So now that you’ve downsized and gotten back to work, how do you rebuild? First is to set a budget and stick to it. Determine what your monthly income is and what your monthly expenses are and don’t let the expenses outweigh the income. Prioritize your monthly expenses and always begin with your housing. Whether it is a rent or mortgage payment, cover this expense first. Work your way down the list of priorities by covering the necessary monthly bills first and then get into your personal expenses – luxury car payment, dining out, entertainment, etc… Personal expenses are always things you can do without.

Second, be sure to pay your bills on time. Avoid all unnecessary fees that come with paying a bill late or getting carried over to the next month. By paying your bills on time, you will begin to rebuild your credit rating. It will take time, but paying on time, every time, will slowly restore your good name to creditors.

Third, if at all possible, save whatever you can into a retirement account. Whether it is the 401k at your job or putting money into a regular or Roth IRA, begin to build for the future again, even if it’s as minimal as $20 a month. Not only are you saving for the future, but there are tax advantages that go along with it.

Talk to your local banker, or meet with a financial adviser, about setting up a plan to get back on your financial feet. Small steps will take you a long way.

Chris McCullough is Rabobank, N.A. Vice President and Branch Manager in Murrieta. Rabobank, N.A. has 119 retail branches in California, including Murrieta. www.RabobankAmerica.com.