What Will You Do If Financial Disaster Strikes?

Originally published on LinkedIn.

What will you do if you lose your job? Or if there is another Great Recession?

In late 2007, after a wild ride during the housing boom, I knew I was in trouble. I never thought things would get so bad so quickly. I was drowning in a sea of red numbers. I needed to make big changes. Right away.

I knew two things for sure–I had to 1) get my expenses down and 2) stop the bleeding. Oh, the third thing: There was no time to dilly dally, hem and haw, or cry in my soup. (Alright, I did cry.)

Here are 10 ways I handled my situation:

1. Moved to a place where housing and other costs were far less expensive. I can see you shaking your head. “My kids are in school, I love my home, my friends are here…” If you lose your home, you are going to have to move anyway. If your situation is as dire as mine was, you should at least look into it. While you’re at it, consider a smaller home. I once lived in a 3800sf home with 6 bedrooms, 4.5 baths, and 2 dining rooms. Where did we eat most of the time? Standing up talking around the kitchen island. I used maybe 1/3 of the space 99% of the time.

2. Shed the poorly-performing assets. I waited longer than I should have to do this. Why? Because I kept thinking about how much money I was going to lose in the short-term instead of how much money I was going to save in the long-term. But, even though I lost more up front than I would have had I gotten rid of the “losers” earlier, it ultimately stopped the bleeding of cash. This was key to my financial turn-around.

3. Stopped spending money on nearly everything.

• Somehow “window shopping” turns into real shopping. It was best for me to stay away from temptation, commonly known as “the mall.”
• No more personal services like manicures, pedicures, and colorists. I can shape my own nails, slap on some clear polish, and dye my own hair.
• No more buying clothes.

I can hear the whining now: “But I have to look my best for job interviews.” Yes, you do. My guess is that if you were recently fired, you already have some nice clothes that you wore to work. No need to buy more.

4. Stopped saying, “It’s only $20 bucks…” (Actually, I used to say, “It’s only a couple of grand…”) 20 bucks here; 20 bucks there, before you know it you’re talking some serious money.

You need to go through your credit card and bank statements and find the hidden waste. Do you really need to spend $10 a month on a book club or $14.95 a month for credit card fraud protection (the credit card companies’ fraud prevention measures and some diligence on your part is sufficient). Do you really need vanity plates? Do you need to add another [enter name of un-needed item] to your collection? Do you want to feed your family? Are your collections of stuff edible?

5. Stopped going out to restaurants and taking vacations. (Except for special occasions when someone else was paying for it.)

6. Checked my “I’m rich” ego at the door. Yes, I used to think I was rich. I could have been, but between bad decisions and bad timing, I lost the opportunity. Now it was all about not ending up sleeping on someone’s couch. I had to stop caring so much about what others thought.

Most of what we spend money on is to impress other people. Bigger homes, sportier cars, fancier jewelry. It’s a competition you can never win. There will always be someone richer, smarter, younger, and better looking than you. So what?

7. Lived with the car I already owned. I did not need to have a new car every 2-3 years. The one I owned worked fine and, besides, I didn’t have a car payment. Savings Tip: Wash your car yourself or do a cheap one at the local gas station. No one knows you paid $250 to get your car detailed, but you.

8. Canceled cable and stopped going to the movies. To this day, I have only an internet connection and Smart TVs with Netflix and Hulu. I have plenty to watch. (I can watch my news shows live streaming online.) Just think of all the times you sit on the couch flipping through channels while spending $200 a month for all those movies you don’t want to watch.

9. Created a realistic budget and tracked every dime I spent. For awhile, I gave myself $25 a week for food. I put the cash in a jar and when the money was gone, that was it. I got really good at it. To the point where I had money leftover. The crockpot is your friend. (How to save money on food is a different article.)

10. Managed my own money. I’m not telling you to not use a broker, but no one cares about your money like you do. I started paying attention to the investments in my own portfolio and making my own decisions. I would still consider my broker’s advice, but I didn’t always take it. There was a key moment in September, 2007 that I did not follow his advice. My situation would be very different if I had just followed him blindly. I would have been forced to go back to a full-time cubicle job. I’m lucky; my company would have re-hired me. But, once you’re free, it’s hard to go back.

What I did not do: Cancel my health insurance, stop paying my taxes, homeowner’s and car insurance, or long-term care coverage. Amazing to me that folks won’t quit smoking or stop buying take-out food, but they’ll stop paying for health insurance. Really?

Desperate Times

They say that desperate times call for desperate measures. Truth is, most of these things that we consider essential to our happiness are not required.

Today, my life is my own. I don’t need to get a regular job. (I live on rental income.) My lifestyle is not for everyone. But, I have a choice. Do you? Are you forced to get (or stay in) a job because you’re paying a huge mortgage for a huge house, a big car payment for a fancy car, large minimum payments on 10 credit cards you used on fancy dinners, vacations, and who knows what else?

Get Your House in Order

Are you prepared for a big financial hit? Like another recession? Or being fired? Do you have an exit strategy for your investments? The number one thing you can do before financial disaster strikes is to get your house in order now. In this way, desperate times will require less desperate measures. And, you will already be mentally prepared to downsize your life.

Here’s a great book worth spending money on: Your Money or Your Life by Vicki Robin and Joe Dominguez

Disclosure: Please understand that I do not hold myself up as a shining example. I still spend more money than I think I should. But one thought will keep me in check: I think about being in my 50s looking for a job. That works 95% of the time.

Aviva Gittle is a writer, publisher, real estate investor, and realtor’s assistant. Her company, Aviva Gittle Publishing, offers great stories for children in English and Spanish, including the Kitten and Friends / Gatito y amigos series. Aviva’s website, www.GoToGittle.com shares the stories of authors, illustrators and others who create books and creative media for children.