Perhaps you invested in the wrong cryptocurrency; perhaps you drank it all away at the local pub. Maybe you suffered a terrible event like a fire, or someone got sick and now you have to pay off their medical bills. Or it could be that you just lost all your investments in a financial crash. Whatever happened, the money that you’ve worked so hard to save is pretty much gone and you’re back to square one.
So, what now?
Well, the first thing you should do is: Nothing. Obviously, feel free to scream, cry and curse the heavens, but don’t make any major financial decisions without thinking it through first. Even if time is against you — say, you’re rapidly approaching retirement — you still should take at least a few days and attack your problem with a clear head, if you can.
“It’s not easy to reinvent your financial life,” cautions Adam Ditsky, CPA, who continues that oftentimes the hardest thing for people to deal with is coming to terms with their new reality. This financial calamity may very well force a new way of life on you, but to properly assess the damage, you’re going to have to confront the fact that you may need to give up some stuff.
The next piece of advice is, don’t go it alone. If you can afford some sort of financial advisor to help you plan for this, it’ll probably be worth it, so long as it’s someone you trust. If you can’t afford one, you could try asking for help from a friend or a family member with an accounting background — this means that you’ll have to share your finances with them, but Ditsky says that some level of accountability may actually help.
The bad, yet obvious news: If you want to get back to where you were, you’re going to need a budget to get there. “It needs to be a living and breathing document,” Ditsky offers, saying that your budget should be reviewed, revised and updated regularly. This should be something you keep in Excel, Quickbooks or whatever software you prefer, and include all of your expenses for the month.
Every month, review your budget and see how it lines up with your spending for the previous month. If you’re over budget because you forgot a necessary expense, adjust accordingly. If you’re over budget because you didn’t factor in unnecessary expenses, be more careful next month. If you’re under budget, great, save that. You also should set yourself up with quarterly and yearly benchmarks as you go along, as just saving for a goal that isn’t until five years from now can be disheartening.
One aspect of building that budget is to see what you can part with (regular dinners out, etc.). Ditsky also says that you should be aware of what he calls the “cumulative effect of small expenditures,” i.e., things like daily coffees at Starbucks or perhaps subscriptions to services you don’t use that much. All of these things may seem cheap on their own, but when added together and looked at over the course of a year, it may add up to thousands of dollars.
Hopefully, you can build a budget that still allows you to afford your mortgage, car payments or any other major things — if not, you may have to start looking at selling some stuff. “That can be extremely hard,” Ditsky admits, saying that “people hate to sell shit when they’re being forced to.”
Of course, where you are in your life will also affect how you deal with things. If you’re a young guy in your 20s who lost your inheritance because you opened a bar that didn’t work out (FYI, don’t expect too much sympathy on that one), the good news is that you’ve got time on your side, and you can likely build your life back to a comfortable space. And if you kept your expenses low enough in this situation, you’ll likely be able to go on living as you did — so long as you can find a job fast enough.
If you’re a family man with a wife and kids and you were saving for a house that you just lost your nestegg for, things are definitely going to be more complicated, but still not hopeless. Set your timetable back another five years, or perhaps scale down what you originally had in mind by choosing a smaller house. Or maybe choose a neighborhood that’s less expensive than your original goal. Essentially, you either have to scale down your dream or delay it.
If you’re someone older who lost their money just a couple of years from retirement, obviously you don’t have the time to build that money back up. The good news in this situation — if there is any — is that someone who is older has a lot of options, especially if you own your own home. If you planned to retire at 62, you may want to look at retiring at 67 instead, and thus, drawing a larger payout from social security. If you’ve got any pensions or IRAs or anything like that, you may want to assess taking them later, so that they’ll pay out more when they do.
Or, maybe, you should look into taking one of them earlier so that you can keep the cash flowing in. If you own a home, you can take out a mortgage, which is simply a loan with your house as collateral. If you’re still paying off your home, you may want to try a reverse mortgage — that’s a little more complex, but essentially, it’s a loan on the equity in your home (which means the value of your home minus what you still owe). There’s also a cash-back refinance, which is basically extending and refinancing your mortgage with an aim to have lower monthly expenses.
And those are just a few of the options: There are actually a dizzying amount of choices for people nearing, or in, retirement to get money when they need it, but unfortunately, those vast choices have led to a predatory marketplace. “This is why so many older people get conned,” says Ditsky, as things are confusing and “oftentimes you may run into someone who will do what makes the most sense for their commission instead of what’s best for you.”
That’s why, if you happen to be in that near-retirement situation, you definitely want to find a financial advisor you can trust — someone who can lay out all the options and help you choose what’s best for you and your unique circumstances. Ditsky — who cautions not to take anything in this article as financial advice per se — says that while it’s good for anyone to get some help through their financial issues, it’s especially important for older people.
No matter your situation though, Ditsky says that when building your new financial life, “You can’t remove all joy.” So, when budgeting in all of those necessary things, also budget in the occasional night out, too. Ditsky equates it to having a diet and a cheat day: If you’re too restrictive, you’re all the more likely to break down and then devour an entire German chocolate cake.