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How to Recover From a Financial Setback

Have you taken a financial hit recently? It's not too late to turn things around

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Starting a "rainy day" fund is one way to help get your finances back on track. — Getty Images

The start of a new year is a great time to start anew economically, especially if you experienced financial or personal hardship in the past year.

Perhaps you've gone through a divorce. Maybe you lost a home to foreclosure or endured the sting of personal bankruptcy. Or you might just be emerging from big personal debts right at a time when you would expect to be living the good life.

Well, there are steps you can take to bounce back. Here are a few tips to get you started.

Sign up for the Money Matters newsletter for expert advice.

After bankruptcy: Get past shame and negative emotions

Bankruptcy can carry a terrible stigma. After all, most of us were taught to honor our obligations and pay our bills — no matter what. But the simple truth is that it's not always possible to repay our debts, despite our best efforts.

If you've had to file for bankruptcy protection — or are considering it — know that you're not alone. In fact, older people represent the fastest-growing group of bankruptcy filers in the U.S., according to a University of Michigan Law School study. A May 2011 survey from indicated that one in eight adults in the U.S. — about 13 percent of the population — say they've contemplated bankruptcy.

Still, many people who have filed for bankruptcy protection often initially suffer from guilt and shame. But instead of allowing feelings of failure or disappointment to rule your life, turn those negative emotions around by looking at your bankruptcy as a learning experience. Take time to think honestly about what you could have done to prevent the situation, and then allow yourself the freedom to forgive any mistakes and move on.

Went through foreclosure? Create a "rainy day" fund

According to data from AARP's Public Policy Institute, a record number of homeowners age 50 and above went through foreclosure or were 90 days or more delinquent on their house payments between 2007 and 2011.

If you've recently lost a home, you have probably exhausted most of your savings.

Even if you are content to rent for the rest of your life and never plan to own a house or condo again, one way to bounce back from foreclosure is to rebuild your savings by building a "rainy day" fund and an emergency savings account. Otherwise, it may seem like you can never get ahead or achieve financial stability.

A rainy day fund is a small savings account, typically between $500 and $1,500, that can help you deal with unexpected expenses — like the flat tire on your car or the leaky toilet that forces you to call the plumber.

Without a rainy day fund, you're forced to constantly use credit cards to pay for short-term expenses or one-off emergencies. And since your credit has already taken a hit after foreclosure, overusing your credit cards, which also hurts your credit, is the last thing you want to do.

(See After any financial blunder: Build an emergency fund, on Page 3, for information on emergency savings accounts.)

Next page: Get help for credit woes and post-divorce finances. »

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