Recovering from Financial Loss: A Practical Guide

Lots of folks have been put through the ringer (financially) over the last several years. You might still be on spin-cycle yourself. Our homes, jobs, investments and financial futures have all been turned upside down. It’s easy to feel powerless.

Sure there are many things you can do to reduce this feeling. Track your spending. Build up a cash reserve. Buy the right amount of life insurance. But when all is said and done, you could do all the right things and still end up on the wrong side of the track through no fault of your own.

This is a fact of life and nobody can change it. Risk is a part of life.

Ryan has written some really great articles here on how to recover financially. I want to take 2 minutes to discuss how to recover emotionally. While I’m no therapist, I have seen first hand how devastating it is for people when they suffer catastrophic financial loss. While I was growing up, my father, who was a big risk taker and speculator lost everything. When that happened, his optimism and his hope and faith in the future, died. His emotional response was more devastating to his financial future than the loss itself.

The reason I bring this up is simple; if you’ve suffered some major financial setbacks, you owe it to yourself to look at the emotional baggage. If you don’t, it will weigh you down and color all your important financial decisions. Here’s an approach I suggest you take:

1. Evaluation

What happened and why? Could a reasonable person have avoided this pitfall or not? This is critical. If you need to learn a lesson here, learn it. If you lost money in investments, did you invest to aggressively? Or did you invest appropriately and the market just got hammered? If you lost your job, could a reasonable person have seen it coming? Have you been trying to find alternatives or even weekend jobs to keep you afloat? What is a reasonable lesson for you?

2. Proportion

How bad is the situation? I received an e-mail from a woman who told me that when she left her husband she had to live on someone’s couch for 2 months. At the time, she only had $20 in her pocket. That’s pretty frightening….but it isn’t living on the street. Of course, this is an extreme example but the point is, we often tell ourselves that things are much worse than they really are. Are there going to be consequences from your financial loss? Yes. Are they going to impact your financial future? Maybe. But is this the end of the world? Absolutely not.

3. Balance

When I was growing up, I thought nobody had it harder than I did. (By the time I finished high-school, both my parents had passed away.) This is a terrible mindset to grow up with. Fortunately, as I got older and started meeting people, I realized almost everyone I know has had to deal with hardships and difficulties. Many people I know grew up in far more difficult situations than me. This realization helped me get balance and it helped me see that it’s normal to struggle sometimes. It’s just a part of life.

Take a moment and think about friends or acquaintances and what they’ve gone through. If you’re like me, you end that exercise with a great deal of gratitude for what you have now and you forget about things you may have lost.

These three steps will make you feel much better but that’s not why I am suggesting that you take them. Make no mistake, feeling positive about yourself is critical to making smart financial choices in the future. Hopeless people make bad financial decisions because, somewhere deep inside them, a voice tells them that it doesn’t matter anyway.

To bring it all together, you have to take all the right action to make your financial ship as sea-worthy as possible. But having done that, you have to let go of the past and find hope.

How have you overcome past financial setbacks? What was it like?