Nobody’s perfect. This should be obvious, but we all tend to forget it — and often. We judge other people for their mistakes, and often we judge ourselves even more harshly. I do this too. When I do something that I know is wrong (or merely foolish), I get down on myself, which often leads me to make further mistakes.

Lately, for instance, I’ve been struggling with my diet and exercise. I spent eighteen months losing fifty pounds and developing strong habits. Now, though, with the stress of my mother’s health problems, I’ve gained back a few pounds. I’ve made poor choices. Fortunately, it’s not irreversible damage. Over the past week, I’ve worked hard to return to good habits, but it hasn’t been easy.

In years past, I often struggled with financial mistakes. In fact, I still do sometimes. And I’m not the only one. Rudy wrote recently to share his own experience, and to ask how other people cope with money mistakes. Here’s his message:

I think I’ve made a big financial mistake. I spent too much on a night on the town. Sure, I enjoyed it, but I had a little too much fun, and now have a huge credit card bill. I have the cash to back it in savings, but it still stings. So, I’m sucking it up, admitting that it’s a mistake, and paying the bill right away.

My question is: Have you or any of your readers had a similar experience? Maybe with a larger-than-expected restaurant bill, or spending too much on a hobby, or spending too much on gambling? I’d love to read about how other people handle financial mistakes. Some advice on how to avoid this in the future would be good.

Nobody makes it through life without mistakes. And nobody gets rich without a few stumbles along the way. When you do something dumb (or when something bad happens to you), it’s easy to get discouraged. You can waste a lot of time reacting to problems — bounced checks, emergency car repairs, and the like. Because of this, the best way to deal with financial setbacks is to prepare for them in advance.

From my experience, there are two primary ways to proactively protect your finances from peril:

  • Education. The more you know, the better you can cope with problems. Read personal-finance books, magazines, and blogs. Find folks in your life who have control of their finances, and ask them for advice. Learn how others deal with common emergencies. One great side effect of education is that it reduces stress; when something goes wrong, you know others have found a way out, and that you’ll make it through too.
  • Preparation. But education isn’t enough. You also have to take steps to prepare for routine mistakes and setbacks. One of the best ways to do this, of course, is to start and maintain an emergency fund, a stash of cash to be used only when things go wrong. Putting $500 or $1000 or $10,000 into a savings account is cheap insurance; with a cash cushion, your financial plans can’t be derailed by a single crisis (unless it’s big). Making sure your actual insurance coverage is adequate is another great way to prepare for problems.

Even if you’re prepared and educated, you’re still going to make mistakes now and then. Rudy seems like smart guy, yet he still piled up credit-card debt through a night on the town. Despite my war on clutter, I still buy Stuff that sits around the house.

It’s important to know how to pick up the pieces when things fall apart. Here are some of my favorite strategies for minimizing the damage:

  • Don’t panic. Try to relax and don’t freak out. After you’ve made mistake or suffered a setback, spend some time to distract yourself. (Without spending more money.). Better yet, sleep on the problem. It’s amazing how a little time can provide much-needed perspective.
  • If possible, undo the damage. Some mistakes are reversible. If you blow a bunch of money on new clothes or are feeling buyer’s remorse over your new stack of books, for instance, it’s possible to set things right by returning the items. If that’s not an option, you can often sell things to recoup some of the loss.
  • Don’t dig a deeper hole. Money spent is money spent. Just because you’ve already sunk $200 into a gym membership you’ll never use doesn’t mean you need to keep spending on it. Cut your losses by getting out as soon as possible. And whatever you do, don’t spend more in an effort to assuage your guilt.
  • Keep your goals in mind. A setback is just that: a temporary roadblock on your journey to something more important. Make peace with the past and keep your focus on the future.

Mistakes and setbacks can be disheartening — I know — but remember this tenet of my financial philosophy: Failure is okay. Mistakes are lessons in disguise.

I had a conversation with my Spanish tutor recently about American superheroes. She doesn’t like them. “They don’t have to work for anything,” she told me. “Their powers don’t come from hard work. They’re just given them.” I wanted to argue with her but couldn’t. She’s right. From her Peruvian point of view, my tutor believes it’s more impressive when people overcome failure and long odds to succeed.

Similarly, there’s a Japanese proverb about perseverance that translates as “fall down seven times, get up eight”. I like that. And I agree. Successful people fall just as often as the unsuccessful; the only difference is that successful people learn from their mistakes, get back on their feet, and resolutely march toward their goals.

Have you worked to overcome financial mistakes or setbacks? Have you been successful? How did you keep from giving up? How did you learn to make better choices? What tips or tricks can you offer others to help them get back on their feet? And do you have any specific advice for Ruby regarding his mistake?

Note: Portions of this post were derived from my book, Your Money: The Missing Manual. I recently learned the book has sold 10,000 copies and that I’ve earned back my advance. Awesome! I’m grateful for the support, but I’m even more edified by the kind e-mails I continue to receive from readers. I’m glad the book (and the blog) have been able to help others achieve financial success.

This article is about Ask the Readers, Basics, Psychology