The older I get, the more I realize the sun doesn’t always shine. Everyone, and I mean everyone, is going to face financial problems at some point. It’s not if they’re going to come, it’s when. One of the best ways to prepare is to expect challenges, build a rainy-day fund, keep debt under control, and be wise about your financial commitments.
However, difficult times can still sneak up on us. Maybe you’re trying to hold a business together, going through a divorce, dealing with fraud or embezzlement, or facing an unexpected change in your industry or market. These situations can happen quickly, and before you know it, you’re living week to week financially and simply trying to hold everything together.
When that happens, tax planning probably isn’t your first concern. You need to stabilize the situation, understand where you stand, and start making decisions. Here are some practical steps that can help when you’re facing financial problems, and frankly, they’re worth thinking about even when things are going well.
1. Look at the Big Picture
Take some time to reassess both your long-term and short-term career and business goals. Do you still like what you’re doing? Is it helping you achieve your financial and life goals? What needs to change?
Don’t keep beating a dead horse if the business doesn’t have any life left in it. Oftentimes, we become emotionally attached to a particular plan of attack. Sometimes you need to step back, look at the entire situation objectively, and be willing to make a change.
2. Crunch the Numbers
Create two personal financial statements. First, create a balance sheet listing your assets and liabilities. Second, create a cash-flow statement showing exactly what money is coming in and where it’s going.
This isn’t always a comfortable experience. I realize many of you don’t want to see your financial problems in black and white. It can be depressing. I know. But you need the numbers if you’re going to make good decisions.
Do the same thing for each of your business ventures. You’ll quickly start seeing where the leaks and losses are. Don’t be emotionally attached to a project, employee, business, investment, or piece of real estate. Look at the numbers and be objective.
3. Make the Tough Decisions
Once you know which businesses, assets, or expenses are draining your resources, you can start doing something about them. Maybe it’s a rental property that isn’t performing. Maybe it’s a business partnership that isn’t working. Maybe there are expenses you simply can’t justify anymore.
Start by making a punch list of the biggest drains on your finances and tackle them one at a time. Be humble and realize you may have to eat “beans and rice,” as Dave Ramsey says, for a while. Be willing to sacrifice where needed. Cut unnecessary expenses and consider selling luxury items you can live without.
Circle the wagons. Once you get back on track, you can decide which parts of your old lifestyle you actually want back.
4. Reevaluate Your Business Model
As the market changes, your business may need to change with it. Look for new ways to improve your services, reach customers, increase revenue, or serve a more profitable niche.
Don’t stay married to a business model that isn’t working anymore simply because it worked in the past. Making changes can be uncomfortable, but if the business is already headed in the wrong direction, refusing to adapt isn’t going to fix it.
Ask yourself what your customers need now, where the opportunities are, and what you can realistically change.
5. Invest in the Right Education
Buy a book, take a class, earn a certification, or develop a new skill. Look for practical ways to improve your marketability or strengthen your business.
But be smart about how you spend your education dollars, especially when money is already tight. Focus on affordable, targeted education that can improve your skills, income, or business rather than spending money simply because someone promised you the next big opportunity.
6. Make a Plan to Eliminate Debt
If high-interest debt is eating away at your cash flow, make a specific plan to attack it.
One approach is to prioritize the debt with the highest interest rate while continuing to make the required payments on your other debts. Once that balance is eliminated, move to the next one. Other debt-payoff strategies may work better depending on your circumstances, but the important thing is to stop treating debt as a vague problem and turn it into a specific plan.
And remember, getting out of debt is only half the battle. You also need to address the spending, cash-flow problems, or circumstances that created the debt so you don’t end up right back where you started.
7. Build a Team of Advisors
I realize talking about financial problems can be embarrassing, but this is exactly when you need an objective third party who can give you hard advice.
You don’t have to do this on your own. Talk to trusted professionals, mentors, family members, or other people who understand the situation and aren’t afraid to tell you what you need to hear. Sometimes you’re simply too close to the problem to see all of your options clearly.
Build a team of people who can help you look at the numbers, challenge your assumptions, and make better decisions.
The Bottom Line
Don’t give up. Financial problems can force you to make uncomfortable decisions, change plans, cut expenses, or admit that something simply isn’t working. But ignoring the numbers or hoping the problem fixes itself generally makes things worse.
And remember, one of the biggest expenses most of us face throughout our lives is taxes. When money is tight, the last thing you need is to pay more in taxes than you legally have to. That’s where having the right tax advisor in your corner can make a real difference.
You don’t have to figure all of this out alone. Through the Main Street Tax Advisor Network, you can find a tax professional who has been trained by me to speak my language and understand proactive tax planning. There’s an entire network of advisors ready to help you look for legitimate ways to reduce your tax burden, keep more of what you earn, and hopefully take at least one financial pressure off your plate. We’re in this together, and sometimes the first step forward is simply getting the right person on your team.
It’s not that successful people don’t have challenges, it’s that they have learned to cope with them. You can do it!
