How To Rebound After A Financial Loss Northwestern Mutual Contributor Northwestern Mutual Contributor, Northwestern Mutual By Judy Martel Whether it’s the result of divorce, a health crisis, job loss or simply the wrong choices, a reversal of fortune can deliver a devastating blow to both your budget and your self-esteem. The key to recovery is in recognizing that as you rebuild your financial life, you may have to change the way you think about money. “This may not be a popular opinion, but the most critical element to rebounding after financial loss is to analyze the situation, doing a sort of post-mortem, to figure out what role you played in creating the event,” said Brad Klontz, an associate professor at Kansas State University and psychologist who specializes in financial psychology. “It’s so easy to project blame outside of ourselves,” he added. But his research finds that, for better or worse, individuals who are successful and wealthy believe the events they experience in life are the result of their own actions rather than external factors. How To Rebound From Financial Loss Successfully overcoming financial loss is a two-pronged approach that blends a healthy psychological relationship with money and financial savvy. The Easy Path Is Rarely the Right One Klontz went on his own journey of self-discovery after making a foolhardy financial decision that left him broke. He completed graduate school with $100,000 worth of student loans during the height of the dot-com stock market bubble and was enticed by a get-rich-quick scheme. “I grew up relatively poor and was desperate to get out of debt,” he said. “All my friends were making six figures by trading tech stocks, so I sold everything I had and invested it all in tech stocks.” The bubble burst in three months, and in a painful lesson, he lost everything within six months. After that, he rebuilt his finances the old-fashioned way—by saving at least half his paycheck and putting it toward paying off debt. Art Blick, wealth management advisor with Northwestern Mutual in Princeton, N.J., said the key to rebuilding your financial life is to set realistic expectations and stick to a road map that doesn’t stray during the market’s gyrations. “Don’t worry about what you can’t control,” he said. “Come up with a plan that tells you where you are and what you have to do to reach your goals.” The recession forced many people to consider whether their plan was one that could carry them through good times and bad. That’s not to say the recession wasn’t a big financial shock to a lot of people, who watched helplessly as the value of their homes and retirement accounts plummeted by as much as half of their previous values. “I always say if you had a 401(k) before the recession, you had a 201(k) after,” Blick said. “In 2008 and 2009, people were really bombed out; it was a really bad time and the worst I’ve seen in my career,” he added. But historically, the stock market has always recovered; it’s just a matter of waiting it out. Those who stuck to their plan and didn’t sell investments in a panic already have, in some cases, seen them return to previous levels and, very possibly, exceed them. In fact, Blick noted, after the market tanked, those who stayed in were buying equities on the cheap. In addition to diversified investment choices, a solid financial plan includes control ovethose extra expenses and debt that can erode your goals. Those who don’t suffer as much during financial crises are the ones who live within or below their means. “It’s not what you make, it’s how you spend,”
Posted on: Thu, 20 Mar 2014 10:55:35 +0000
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