Financial hardship is when you have difficulty meeting your financial obligations and afford necessities. Since I started this blog (It’s been 3 months!), I have been writing about money mindset topics and personal finance basics like budgeting, emergency funds, and boosting your income. However, I acknowledge that for someone going through financial hardship, all of that information might be overwhelming, and saving for an emergency fund will be difficult.
Table of Contents
Reasons for financial hardships
There are several reasons one might face financial hardship, these include and is not limited to the following:
Job loss
A lot of people have lost their jobs as a result of the pandemic this year. As I wrote before in my previous post about financial stability, economic cycles, and instability in the macroeconomy often trickle down to households. Pandemics, natural disasters, wars, and famines are real in different parts of the world. The extent to which the economy is devastated is dependent on the extent of damage and how robust the government’s response is to minimise the effect on households. Job loss is a possibility for anyone regardless of the state of the economy. Unless you are working for yourself, this is always a possibility.
Illness
Financial hardship can often be caused by illness. One of the things I am most grateful for while living in the UK is the National Health Service (NHS). The NHS is not without its challenges but the fact that anyone can gain access to quality health care regardless of affordability is one of the most humane things in the world. Even in the UK, families can still be thrown into financial hardship when someone can no longer work due to illness or have to stop working to care for a member of the family. This is even direr in other parts of the world where access to health care is difficult or expensive. It only takes a major illness to wipe out emergency funds and any investments. This is why some would argue that health care should not be run for profit but that is a debate for another day.
Huge debt
Being neck-deep in debt brings untold financial hardship. Remember the magic of compounding? Failing to pay back your debt could mean that interest on debt starts to accumulate interest. This can easily spiral out of control.
Facing financial hardship?
If you are facing some financial hardship now, what do you do? I have coined what I call my 3 Rs of surviving financial hardship. They are Reflect, Respond, and Recover.
Reflect
The first thing I will advise you to do when faced with financial hardship is to reflect. Take a step back from everything, if you are in the position to be alone in a quiet place, do so, or take a walk to clear your thoughts. I will also suggest you do a self-reflection before talking things through with your partner if you have one. While reflecting, ask yourself a few questions. These might include:
How did I get here? If the reason you are in financial hardship is due to the mismanagement of your finances, then you need to admit it to yourself. If it was due to events you didn’t have control over, then this might help you put things in perspective quicker
Was this avoidable? Was I just unlucky/unfortunate or was this due to my recklessness?
The purpose of this is not to beat yourselves down but to get to a point where you fully acknowledge and have a complete grasp of how you got into financial hardship.
To conclude your moment of reflection, put things in perspective. If you are reflecting, it means you can think and are still alive and well. Things might be hard now, but not for long! So once we fully acknowledge how we got here (often times we know already), you need to completely believe that YOU’VE GOT THIS!!! Some things may be out of your control, but you can respond appropriately.
Respond
How do you respond? Do you throw a pity party? Withdraw? Wish it all away? Different scenarios of financial hardship will call for different responses. However, whatever it is, do not withdraw. A lot of us tend to withdraw when we go through hardship. But almost everyone, at some point or the other, will suffer a measure of hardship. Some might not face financial hardship, but hardship all the same. So surround yourself with people who will be encouraging. So here it is:
Find a support group
This could be your family, a church community, or friends. Make sure you have an outlet to connect and relate with people. This will give you a break or time away from your worries.
Develop a plan
Develop a plan to navigate this season. This will depend on the situation, for example;
Job loss– are you getting a new job? Starting a side hustle? Taking a temporary job while looking for your ideal job. This might mean that you take gig jobs that will allow you the flexibility to look for your ideal job and leave you time to attend interviews.
Illness– If you are facing financial hardship, concentrate on getting better. If caring for someone, focus on them getting better. That needs to take priority. Check whether you are eligible for statutory sick pay, claims from your pension provider, some pension providers provide ill-health retirement if you need to stop working due to an illness. Also, check with your insurance company what you are entitled to if you have insurance cover.
Huge debt- If you are in financial hardship due to large debts, you need to decide on a debt management approach. It might be important to seek help and advice.
Recover
Whatever your situation, try to stay positive and take good care of your mental health. Engage in activities that help you remain joyful. Music, nice long walks are some of the things I love to do when having a difficult time. Find reasons to be grateful, you will be surprised how much you still have going for you. Put your response plan into action and take a day at a time. Focus on what you can control. It will be over before you know it. “Weeping may endure for a night, but joy will come in the morning“. Recovery is when every day is better than the last. If you have ever been ill, you will understand this too well. Recovery starts at the point when the fever breaks and your appetite starts to return.
Moving forward
When the period of financial hardship is over, reflect on the lessons learned from your experience. Here is a reminder of key finance principles that would help you prevent financial hardship or reduce the effect of financial hardship in the future:
Financial goals– as soon as you are in recovery mode, set goals for your finances. These may include plans to avoid/eliminate debt or long term plan for building wealth.
Budget– carry on budgeting, you must have had to budget your way out of this crisis. And most importantly, keep to it.
Emergency fund – you need this to provide a cushion. Aim to save a minimum of 3-6 months worth of expenses.
Insurance– do you have health, sickness, and life cover? consider taking out insurance or check that you have adequate cover for possible emergencies. Income protection insurance might be useful if you are self-employed in a single-earner household.
Savings and Investment– Savings and investments are one of the keys to a life of financial freedom. It is important to spend less than you earn to have something left over to save and invest.
Multiple income streams– Consider adding developing multiple streams of income to your goals. This means that you are not over-reliant on one income.
If you have any questions or need help with your finances, drop me an email at tolu@valuespeaks.com and I will respond as soon as possible. As always please share this with someone that might be struggling at the moment. Have a valuable week!