Emergency financial recovery

February 1, 2013, 2:20 pm David Koch Yahoo!7

If you want to recover from a disaster you’re going to need a plan to get you back on your financial feet.

For the second time in three years Australia is being ravaged by fire and devastated by flooding. As I write, four deaths have been confirmed, a record 280,000 properties left without power and $43 million in insurance claims lodged. These figures are all tipped to rise with the floodwaters.

It’s an extremely harsh blow for everyone affected, and especially so for a lot of people who are going through the trauma for a second time. Aside from the physical and emotional impact, it can also be ruinous for a lot of family finances too, even if insurance companies wear a big portion of the bill.

To get back on your financial feet after such a savage blow, whether the result of the most recent spate of natural disasters, an ugly divorce, a bad gamble or a sour business deal, these are some of the most important steps to take.

Take stock and prioritise

After a financially crippling event, the first step is to take stock of your monetary position and set out your immediate priorities.

Whatever planning you had previously done, your situation, your goals and your plans have now changed so sit down to assess your current financial picture, income sources, and savings goals.

Just like in your personal life, setting goals gives you something to aim for and motivates you. In normal circumstance that might mean getting out of debt or a savings goal for something you really want. Other times this might mean a new roof on the house or car to take the kids around.

Whatever the case, an honest assessment of where you’re at and what you need to do get where you want to be will help you stay positive and on track as milestones are reached.

Understand expense and income sources

Redo the household budget to reflect your new circumstances. Make sure you have a realistic understanding of all of your expenses, in conjunction with your sources of income.

An important part of this is knowing exactly where your money is going each day. And I mean all of it. Sit down with your bank and credit card statements and list everything you’re spending money on, from rent and food to clothes, coffees, transport, insurance and everything else.

Then take around a notebook for the next month and write down every time you spend cash. At the end of the month look at your list and I bet you’ll be amazed at where the money goes and you’ll see some obvious areas to save.

Try and live below your means until you get back to some sort of normality.

Don’t take on too much debt

The temptation when the chips are down is to accept those bank credit offers and ratchet up the borrowings to get you through this patch, but unless you effectively manage your debt situation things could turn sour.

So whatever you do, within reason, do not max out credit cards on anything that is not absolutely essential. And even then, consider all other alternatives for finance like disaster relief loans, charities and family help before committing to burdensome debt.

As you consciously try and avoid getting into debt, you should also try and pay off existing debts. The recovery from financial abyss will be much more manageable without a quickly growing interest burden looming over you too.

Get a job

If you don’t already have a job, it’s a good idea to try and get one. Not only will it increase the family’s income, and take financial pressure off, but it also gives you a sense of your own financial independence and can be hugely beneficial to mental wellbeing.

Once you’ve combated the short term finances, it’s just as important to look further ahead to ensure you’re in a better position should you get into strife again. This starts with setting 2-3 year financial goals and building an emergency fund equal to 10% of your salary.

Just as important is reviewing your will, superannuation and estate planning, as well as embarking on a financial education program. This process can be made easier with the help of a financial planner.

More from David Koch:
Gold buyer's guide
What's the best way to sell your property?
Can your personal finances stand an economic crisis?

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