Ever wonder how you’d handle a complete reversal of your finances? I have a friend who had a lifestyle most people would envy and lost everything, including her marriage. I didn’t meet her until after her recovery from her financial disaster. She is one of the most resilient, generous people I know and was kind enough to let me interview her about the changes in her life, the financial lessons she learned and her advice to you on how to avoid finding yourself in a similar situation.

The High Life

“My life was very plentiful with many material objects.

6,000+ square foot custom designed home – 6 bedrooms, 5 bathrooms and two full kitchens
Photography and recording studios
In ground swimming pool
Custom designed furniture
Six cars
Trips
Private education for both kids
Entertainment

I never priced groceries, just grab and dash. We belonged to a private country club as well. We also had an investment property that we rented to a family member.”

Tell Me about Your Finances

“I did not think of my financial future. I was in my mid to late 40s and I thought the gravy train would never stop. We had many investments, 401(k)A type of Defined Contribution Plan available in the US. There are three types of contributions that can be made to 401(k)s.
• Pre-tax - No taxes are paid on the contributions or any changes in... More and IRAA personal retirement savings plan available in the US. There are two types of IRA:
• Traditional - No taxes are paid on the contributions or any changes in the market value of the investments ... More retirement accounts for us as well as the children. My husband was a very successful stock broker, financial planner and money management specialist. We had a dual income, and mine paid for the cream on the top.”

What Happened?

“The stock market along with the real estate market became very soft in 2007. When I began to notice that these change were imminent, I suggested that we liquidate assets into a strong cash position. My husband dismissed my thoughts on this topic because I had never been persistent in being a co-manager of our funds. The economy was showing its ugly powerful head and so was our 40-year marriage.

Things went from bad to worse. We lost our home. Instead of getting money from the buyer when we sold our house, we had to come to closing with a six-figure check to pay off the mortgage balance (because we owed more than we got for the house). Otherwise, we would have had to negotiate a short sale with the holders of the loan on the house to try to get them to accept only the amount for which we sold it, but chose to close in a traditional manner due to a prideful attitude that made no sense at all.

We divorced. The money, the investments and the lifestyle were gone. I was 59 years old. Our children were grown and gone. Thank God they had their educations!”

What Did You Do?

“I moved into a house with five other people to secure a reasonable rent of $600 a month. I rolled up my sleeves and decided to re-invent myself as a strong salesperson with a steady stream of income. As part of creating a fiscally responsible lifestyle, I consolidated my debt and made a conscious effort to understand my taxes and my expenses. These changes allowed me to pay off the tax liabilityWhen used as a noun, the amount you owe to someone else. When used as an adjective, an insurance coverage that protects you when you cause damage or injury to someone else or their property. for which I was half responsible after the divorce.”

What is Your Life like Now?

“My lifestyle now is very simple.

I use one credit card.
If I can’t afford something, I don’t buy it.
I shop at thrift stores, make curtains, paint, have learned some electrical skills and can do just about anything.

Having made the financial changes, I now have the opportunity to travel. I have investments and simple monthly debt. My credit score is very high and I am able to contribute to my savings account and an IRAA personal retirement savings plan available in the US. There are two types of IRA:
• Traditional - No taxes are paid on the contributions or any changes in the market value of the investments ... More on a regular basis.”

What Advice Do You Have?

“I learned these financial lessons that might help your readers:

Always know your cash position whether or not you are wealthy.
Have a good grasp on your finances. Knowledge is power.
Cash is king.
Know your financial position at all times.
Stay away from credit cards and their incredible interestA charge for borrowing money, most often based on a percentage of the amount owed. rates.
Save and keep adding to your retirement.”

Closing Thoughts from Susie Q

You’ll notice that my friend’s financial lessons learned are similar to themes you’ve seen in posts I’ve written, especially in the post on advice we gave our kids.

Only invest in things you understand.
Always have an emergency fund that is highly liquid (e.g., in cash).
Maintain a budget.
Only buy things you can afford.
Be careful with credit cards and debt.
Save for retirement.

Her story, though, provides real-life insights into why these actions are so important.

You’d never know if you met my friend now that she had to make such a long recovery from financial disaster. She is always upbeat, willing to lend a hand and a great motivator. In fact, she contributed to the initial costs of this blog because she was so thrilled that I am willing to share my knowledge with others to help them be financially literate. I hope I am as resilient as she is if I ever face an equally daunting challenge.

Financial IQ by Susie Q celebrated its first birthday last week. In the first year, we published 52 posts on our site, two of which were guest posts from other authors, and published two posts on other blogs. In case you haven’t had time to keep up with reading the posts as they are published, we provide you with a list of our ten posts with the highest page views. (We note that there were two periods during which our site wasn’t “talking” to Google Analytics, so there might be a few posts that should have made the top ten, but didn’t.)

#1 Advice We Gave our Kids

This post had almost 1,000 page views in large part because it is the only post we’ve had featured on Money Mix. It provides a list of 7 themes about money that my kids heard frequently as they were growing up or as they were starting to make their own financial decisions. In addition, I added two other pieces of advice I wished I had given them.

#2 Should Chris Pre-Pay His Mortgage

This post was one of my favorite ones to write! Chris @MoneyStir published a post given a lot of detail about his financial situation. He asked others whether their opinion on whether he should pre-pay his mortgage. In my response, I showed Chris that, given his particular circumstances, he would be substantially better off after he fully re-paid his mortgage a large percentage of the time if he invested his extra cash instead of using it to pre-pay his mortgage. One of the broader takeaways from this post is the importance of isolating a single decision and not confusing your thinking by combining separate decisions into one process.

#3 Introduction to Budgeting

Introduction to Budgeting was our very first post. I’m not sure how high on the list it would have been had we published it later, as many of our friends viewed the post just to see what we were doing. I still think budgeting, whether done in great detail or at a high level, is a critical component of financial literacy, so hope that it is valuable to our regular followers and not just our curious friends.

#4 What to Do Once You have Savings

This post is the first in a series of three posts intended to provide a framework and guidance once you have some savings. The series talks about how much to put in emergency savings, how to save for big-ticket items, savings for retirement and deciding whether to pre-pay your student loans. For each type of savings, it provides suggestions for appropriate asset choices.

#5 Getting Started with Budgeting

This post is the first in a series of nine posts on how to create a detailed budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year.. The process starts with tracking your expenses to see how you are spending your money. Subsequent posts talk about setting financial goals and figuring out how you want to spend your money. The series finishes with monitoring your expenses to see how you are doing relative to your budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year.. This post includes a spreadsheet that allows you to track your expenses.

#6 New vs Used Cars

This post totals up all of the costs of owning a car to help you understand how much better off you might be by buying a used car rather than a new car. For some cars, it is much less expensive to buy used, whereas for other cars it doesn’t cost much more to buy new especially if you plan to own it for a long time.

#7 Traditional vs Roth Retirement Plans

This post provides lots of information about Traditional and Roth IRAs and 401(k)s. It also explains in what situations a Roth is better than a Traditional plan and vice versa, including some examples. The biggest determinant of that decision is your expectations about your marginal tax rateA “marginal” rate is the amount by which the result changes if you make an addition or subtraction to one value in the calculation. In this case, we add or subtract an amount from taxable income... More at the time you save relative to your marginal tax rateA “marginal” rate is the amount by which the result changes if you make an addition or subtraction to one value in the calculation. In this case, we add or subtract an amount from taxable income... More at the time you make withdrawals. The post provides lots of information on taxes, too, to help you make that decision.

#8 New Cars: Cash, Lease or Borrow?

This post explains the costs related to buying a new car with cash, leasing a new car and borrowing to pay for a new car. It provides a detailed illustration for three different models. The best choice among those three options depends on your ability to pay cash, how many miles you plan to drive, and the terms of each individual offer. For some cars and situations, leasing is less expensive than borrowing whereas, for others, borrowing is better. It also provides a spreadsheet that allows you to compare your offers.

#9 Car Insurance

I was surprised that this post made the top 10. I spent my entire career in the insurance business so probably have forgotten how complicated car insurance is! This post describes all of the important terms and coverages you’ll find in a car insurance policy. It also provides some insights on how to decide what coverages, deductiblesThe amount that you pay before the insurer starts reimbursing you either in part (see coinsurance) or in full. Deductibles can apply per claim (as is usually the case for auto collision and homeowners... More and limits to select.

#10 Health Insurance

On the other hand, it didn’t surprise me at all that this post made the top 10. In fact, I would have expected it to rate higher than it did. As with #9, this post explains all of the terms included in health insurance policies. Its companion post explains how to select the health insurance plan that best meets your needs and your budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year.. That post includes a spreadsheet that follows along with the calculations. I recently had to select an individual health insurance plan as my COBRA benefits expired. I used exactly the process described in this post to make my decision!