Recovery from Financial Disaster
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 assetsThe value of things the company owns and amounts it is owed More 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. More 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. More 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.
Susie Q is a retired property-casualty actuaryA professional who assesses and manages the risks of financial investments, insurance policies and other potentially risky ventures. Source: www.investopedia.com/terms/a/actuary.asp More and mother of two adult children. As her children were moving from their teens into their 20s, she found she was frequently a resource on many, many financial decisions and she had insights and information she could provide to them. She spent a significant portion of my career building statistical models of all of the financial risks of an insurance company and interpreting their findings to help senior management make better financial decisions. She is the primary author at Financial IQ by Susie Q and volunteers with other organizations related to financial education.