Two years ago, Jennifer Beach had a little piece of the American Dream.
She lived with her husband and three children in a nice house in a good neighborhood in Florida. They had money in the bank, an affordable fixed-rate mortgage and a 401k.
"We thought we were doing everything right," Jennifer said.
Then her oldest daughter, then 13, got sick and spent a month in the hospital, followed by three months in a wheelchair.
The girl recovered, but the family's health insurance didn't cover all the bills, which now total more than $80,000. Jennifer lost her job after taking too much time off to care for her daughter. A few months later, as the recession deepened, her husband lost his job.
Attempts to modify their mortgage turned into "a cruel joke," Jennifer said, as their lender repeatedly lost the paperwork they sent. Jennifer and her husband drained their savings trying to keep afloat.
"I don't have a car, I don't have credit cards, I don't have anything. It's like I fell off the map," she said. "How do you get back on your feet after something like that?"
Millions of Americans have seen their finances wrecked by unemployment, foreclosure, medical bills or other setbacks, and are likely wondering the same thing: How do you rebuild after financial disaster?
Here's the reality: You may never get back the life you lost. But it is possible to rebuild your finances and your credit over time.
This column won't help you if you're still in the middle of your crisis, although it may give you hope that there will be life afterward. If you're still struggling, please read "How not to pay your bills," "Where to turn when you're desperate," "Swallow your pride -- and seek help," and "In case of layoff: A financial fire drill."
Jennifer's economic recovery is still a ways off. She's attending a local college to get a business degree, an education paid for by Pell Grants. She also qualifies for food stamps and Medicaid, two forms of aid she never thought she'd need but is grateful to have.
Once she finishes school and finds work, however, she can start to refurbish her financial life. So can you, once your crisis is past and you have a steady income again. Here's how.
1. Start with your overhead. To make sure you have enough money left over to rebuild, you'll want to keep an eagle eye on your "must have" expenses -- the shelter costs, food, utilities, insurance, child care and minimum loan payments that form your essential bills. After losing so much and living without for so long, it would be easy to rush into commitments that you can't really afford in your efforts to restore some normalcy to your life. Resist the temptation. Keep those "must haves" under 50% of your after-tax income. For more, read "How much should you spend on. . . ."
Be particularly cautious about housing costs and car payments, because it's easy to overdose on those. Read "Does renting make sense?" and "The real reason you're broke" before you commit.
2. Get $500 in the bank. You now understand the need for a fat emergency fund, but building it up enough to cover three to six months of expenses can take years and shouldn't be your top priority right now. A $100 cushion in your checking account and an additional $400 in savings will be enough to cover most minor emergencies. Plus, it will start you on the road out of paycheck-to-paycheck living. For more, read "Why you need $500 in the bank."
Continued: Think about retirement
