How to Make a Financial Recovery Plan

Last October, Rahkim Sabree came home to his duplex on fire. He rescued his dog and fled to safety, but his home was largely destroyed.

In the weeks after the fire, as he worked through insurance paperwork, he focused on his financial recovery. That included setting up a new home in a rental, leaning on family and friends, and tackling bills.

Unlike many consumers navigating such an unexpected event, Sabree is a financial professional: Not only is he an accredited financial counselor in the Hartford, Connecticut area, but he also wrote a book, “Overcoming Financial Trauma,” which came out shortly after the fire.

He suddenly had a fresh traumatic experience to share with readers — not something he had expected or wanted — but what he calls a “sacred aligning of experience, research and practice.”

Financial experts say consumers experiencing their own financial recovery may want to start by processing emotions before making a plan to rebuild savings and reset longer term goals.

Here’s a six-step recovery plan.

1. Create a safe space

After a traumatic financial experience that involves unexpected and heavy losses, it can be hard to let yourself relax. You might be on edge, and worried another disaster will hit.

That’s why Sabree says to first make sure you are in a secure spot where you can unwind before tackling financial tasks.

“When you’re dealing with a hard reset, you have to focus on nervous system regulation,” Sabree says. If your body is tense, and you’re on high alert, it’s hard to make sound financial choices.

That’s why Sabree settled into his rental before he started opening up insurance correspondence.

Leaning on community can also help speed up the process of feeling “safe” again. His friends helped him replace basics like clothes, socks and toothpaste.

2. Tackle financial tasks

“Once you feel safe, you can peek under the hood in terms of the numbers,” Sabree says. Whatever financial hardship you’re recovering from likely comes with bills, paperwork and other to-dos. Organizing those action items can help you make progress.

Once Sabree started opening his mail again, he sorted out his bills with the gas company, cable provider and insurance company. Tackling those tasks allowed him to regain control of his financial life.

3. Pay off debt

Financial recovery plans often revolve around paying off debt. Perhaps you had to put a lot of unexpected health care expenses on a credit card, or use a personal loan to pay for home repairs.

Philip Gallant, managing partner at The Optimus Group, a financial planning firm in Clifton Park, New York, suggests taking time to reevaluate all of your debt. This could include auto loans, credit cards, student loans or a mortgage.

“Set a goal for the end of the year. If your debts are at X now, what number do we want them to be at by December 31? And what is the strategy to do that?” he asks.

Giving yourself a target can help you decide where to put extra payments each month.

4. Update your insurance coverage

Financial recovery plans sometimes rely on insurance coverage. In Sabree’s case, homeowners insurance helped cover the fire-related costs, for example.

That’s why Gallant suggests reviewing your insurance coverage, including health insurance, disability insurance and life insurance. “Understand what it covers,” he suggests.

In some cases, you might want to add additional riders such as an accelerated death benefit in the event of a significant health diagnosis, which can help pay for end-of-life care or replace lost income, Gallant says. Doing so can alleviate some of the worry that comes after experiencing financial trauma.

5. Wait on big purchases

If you have your eye on significant purchases — such as a new car — Gallant suggests pausing to weigh that decision.

“Big items can really mess up your financial life,” Gallant says. “Where is the money going to come from? What are the ongoing costs? How will it affect your lifestyle?”

Gallant advocates for applying the 24-hour rule to give yourself time to consider those questions, and decide if you still want to make the purchase. “Sleeping on it really does work,” he says.

6. Tackle long-term planning and goal-setting (once you’re ready)

Once the immediate-term needs are addressed, it’s time to start thinking long-term. Gallant suggests checking in on retirement savings and reviewing fund selections. “If you have a target date fund, make sure it’s still within your risk range,” he says.

You also could make a simple pledge to begin adding to savings again, or resume college fund contributions.

Sabree urges people not to rush themselves through the recovery process. “Financial trauma can be pervasive. It looks different for everybody,” he says. It could take days or months to feel ready to engage in long-term planning again.

In his case, Sabree says he’s still focused on short-term needs. “Sometimes, we’re in a rush, and that can hurt us in the long run. You can’t build on a shaky foundation,” he says.

As a financial professional who experienced a disruptive event firsthand, he knows that it’s OK to take his time getting back on track.