I used to tell my classes and my kids that the real test of their ability to cope with life would come if they lost everything they had. This potential disaster very nearly happened to me about 30 years ago when I had made a stupid mistake in opening a second book store and the energy bust in Wyoming led to declining rentals in our student apartments at the University of Wyoming. My oldest son is an attorney and he nervously awaited our decision to declare bankruptcy so he would have something to do filling out some papers. Just kidding. We survived thanks to some careful planning and resource allocation, plus my wife's incredible endurance in managing our household finances.
Every day we learn of someone who has lost everything, or nearly so, and is approaching or in the midst of financial and personal collapse for reasons of health, family, finances, and unforseeable disasters. Some of these problems come under the heading of what I called "avoidable grief" in an earlier post on this blog. And avoidable grief is what we're talking about now. Hindsight is always sharper and clearer than foresight, of course, but sharper and more intelligent foresight could have saved much of the misery that confronts us when the roof caves in.
Some of the most frequent causes of personal loss come from mismanagement of household finances. Trust in unqualified financial advisers has led to wiping out 401(k)s, IRAs, pension benefits, and personal savings. The recent recession created many such losses, but many, if not most, complete disasters could have been avoided if funds were invested with a financial manager who switched quickly from stocks to bonds and some money funds. Fortunately, we had such a financial adviser since our son, who did cause grief as a teenager, mostly with long hair and ridiculous clothes, redeemed himself and saved our necks, so to speak. A good deal of grief comes from failure to save in the first place, to waiting too long to begin putting a nest egg together. The complaint most frequently heard is that "we don't have enough to live on anyway, so we don't have an extra $10 to save." Some early financial advice and budget planning is critical. I was talking to a young woman the other day who told me that her husband liked to spend all his money and that he turned a deaf ear whenever she mentioned to him that they needed to set up a household budget. Decades ago, I taught two sections of consumer economics to home economics students at Colorado State University. When I cautioned them that they needed to begin financial planning early and be prepared for the possibility of financial collapses from divorce, illness, loss of jobs, and other reasons, the sweet young women became much less sweet and actually became quite hostile, knowing with certainty that their marriages would be perfect and their lives without problems or blemishes. A degree in home economics was all that they needed to go forth and live a dream life and a dream marriage. So much for cautionary home economics. I hope they all had a happy life without problems and financial issues.
Having some kind of financial plan is absolutely critical. Knowing how much is spent on what and how much discretionary income is left, if any, is only the beginning. Too much of the recent financial collapse came from unrealistic expectations in thinking that megamansions were available to any and all just by signing some papers, that jobs would never be lost, that a new boat or a new car or a granite counter top would make one happy and the money would come like manna from heaven.
To be continued . . . . .Feel free to contribute!