Financial setbacks come in all shapes and sizes, from a pay cut to an unexpected trip to the hospital or car accident that insurance didn’t cover. No matter what causes the financial setback, be honest with yourself about your situation so you can move forward to bigger and better things. “It is helpful to be realistic and understand that denial will only make the problem worse,” counsels Marcio Silveira, a certified financial planner in Arlington, Virginia.

Reset Your Budget

No matter what the financial setback, you have to figure out how to budget going forward. For example, if you had to take a pay cut or switch to a lower-paying job, you have to recalculate how you want to allocate the income you do have. If you incurred a large expense and now have monthly debt payments, you have to decide how you want to reduce your spending in other categories to make up for that cost. “Go back to basics, adjust your expenses to the income level after the setback and generate the surplus to get back on track,” advises Silveira.

Focus on the Future

 

Remember that your financial setback doesn’t have to define the rest of your life — this understanding can help you stay motivated as you work to rebuild your finances. “Understand that a set back is not the end, but only a bump in the road,” says Silveira. “Many very successful individuals had setbacks but were able to keep going.” According to Silveira, Henry Ford declared bankruptcy twice before changing the world of manufacturing. As part of your plan for recovering, consider setting milestones where you reward yourself in some way, such as going out for a nice dinner — or something else you enjoy — after you reach certain amounts of money in your emergency fund. That way, not only are you saving, but you’ve motivated yourself to do it.

Cut Excess Expenses

 

Don’t wait until your bank accounts hits zero to start cutting back on your expenses wherever possible. Once you know what’s going on — say, a pay cut — lowering your expenses even before it occurs can keep your head above water for a longer time. For example, you might consider cutting cable and fitness center memberships unless an early termination fee makes these cost-prohibitive. Similarly, if you have a land line and a cellphone, you might make the decision to discontinue one line to save money. Selling one car when you have two also can help cut expenses. Not only does this bring in some extra cash, it also saves you money on insurance and registration fees.

Planning for the Future

Create a plan to minimize the chances of another financial setback having such a substantial impact on your finances in the future. No plan is guaranteed to hold up against every potential financial setback, but planning for the future can reduce the chances of future setbacks having such a catastrophic effect. Silveira recommends building an emergency fund of six months worth of living expenses. For example, if your rent, food, transportation and other costs total $2,100 per month, you should have $12,600 earmarked for financial emergencies. He also advises purchasing insurance to cover “catastrophic losses” and to avoid consumer debt, such as carrying balances on your credit cards. Finally, he suggests putting at least 20 percent down when you buy a home.