3 ways to recover from poor financial decisions

One of the most difficult parts of military life can be creating a stable financial environment for your family. Whether you have unreimbursed PCS expenses, unplanned family emergencies, or a loss of spousal income, it can be difficult to feel as though you’ve got a firm foundation for the financial well-being of your present and your future. But even more than that, what if you’ve had a misstep? What if you’re struggling with finances due to past financial decisions that you’ve learned from, but are still reflected in your current credit score or debt repayment plan? Then what?

Thankfully, you can recover. Hope is not lost. Be encouraged. Check out these three actionable steps that you can take today, right now, on the road to financial recovery.

1. Set up a budget. 

Whenever you’re starting to plan for future purchases, or even recovering from recent ones, the amount of money you owe someone else- aka your debt- matters, and it can feel overwhelming at times. Start by looking at what money is coming in, what expenses are set, and what expenses you can reduce. If you haven’t been tracking your money in/ money out, then find a way to get a good look at it. Whether you use an envelope & cash method, a tracking app, a website, or a hand entry style spreadsheet, the important thing is finding a system that works for you. By really tracking what dollars are coming in and what dollars are going out, you can start to see the areas that need extra attention.

2. Repair your credit. 

If you’re recovering from poor financial decisions, then it’s likely that your credit score has taken a recent hit- or is at risk of damage. A credit score is a way to communicate your likelihood of repaying borrowed funds for big purchases (like a house or car), as well as tracking your payment history. A credit score also lets everyone from landlords to employers to future lenders know how reliable you are, and whether or not you might be living above your budget. There are two key parts to repairing your credit.

First is to reduce the usage of your credit limit, ie, reduce the amount of money you owe to different entities in comparison with how much they’ve made available to you. Sometimes that can be done through balance transfers, renegotiations, or even asking for credit line increases. Another option is through debt consolidation, through an entity like our sponsor Veteran’s First. They offer debt consolidation through a VA cash-out refinance loan for homeowners with existing equity in their homes. Meeting with a trained financial professional can help you determine the best option for your family. One of the most important parts of reducing your credit usage is to stop spending outside of what you can afford. To be clear, sometimes credit cards can be very useful tools in your family’s financial plan (I’m looking at you, travel lounges and mileage accounts for OCONUS families), but they are only helpful when used responsibly. If you have a difficult time staying within your limits, consider switching your routine to using your checking account only for a time as a good way to help retrain your habits until you’re ready to consider credit again.

The second method to repair your credit is to establish a history of on-time, regular payments with a credit reporting entity. Whether it be your rent checks, utility companies, or through your current debt repayment plans. It is important to create a track record of paying the minimum payment, or more, on time, month after month. This will help to show progress from your past financial decisions to where you are now, and where you hope to be.

3. Start an emergency fund. 

Often, financial trouble sets in due to unforeseen circumstances. Things like a set of tires mid-PCS, or an unplanned trip home due to a family emergency. Whatever the cause, for many military families, large unplanned expenses can make the difference between stable finances and financial trouble. After you’ve created a budget for your family, and you have a plan in place to repair your credit, start an emergency fund. The words “emergency fund” might seem scary, but truly it’s just creating a designated space to start preparing for the next inevitable crisis. Start small, with an amount that feels doable and creates a consistent habit for you. You could try placing the next tax return into an emergency fund, or something as easy as taking your lunch to work one day each week and using the $10 that you saved to grow the fund. Again, set yourself up for success by creating a sustainable habit, and increasing the savings as you’re able. 

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