Recovering from Financial Ruin

An exposition on this topic will no doubt find widespread resonance, given that this is the reality that currently confronts a large of persons. And even for those whose current circumstances cannot be classified as financially ruined, it is still instructive to peruse and be familiar with the coping strategies that are indispensable to reverse this horrendous situation.

 Before addressing the topic proper, it is useful to give a meaningful definition to financial ruin to ensure a common understanding and properly contextualize the discussion. Firstly, not all adverse financial scenarios are, or ought to be, deemed ruinous. Adverse financial scenarios range from temporary job loss, reduction in family income, reduction in home (or real property) values, losses on stock market investments etc. This listing is certainly not exhaustive, and none of the scenarios itemized, in and of themselves, represent financial ruin. Financial ruin exists where there is an adverse change in financial circumstances such that:

(a)    it is extremely difficult to reverse the effects

(b)    there is a net liability position – what is owed is more than what is owned

(c)    there is no immediate prospect of finding alternative sources of similar income levels, thus making it long term in its effect..

 Existing under the such circumstances is quite difficult for anyone, especially if there was substantial wealth prior to the ruin. In fact some persons are unable to deal with the new reality imposed by financial castration and experience mental breakdowns, and in the extreme, commit suicide.

 This leads to the first step to take if one is to recover from financial ruin, and that is the development of an indefatigable will to survive the associated trauma, followed by a similar desire to recover. It sounds easy, but is actually quite difficult to achieve, and begins with a psychological makeover. This means there must be acknowledgement and acceptance of the adverse change in financial circumstances. In its practical application, such acknowledgement and acceptance means confronting the reality of being unable to afford (sometimes even the most basic) necessities. Certainly it means doing away with expenditure on non-essentials such as  vacations, eating out (especially at expensive restaurants) and jewelry, and reducing the scale of economic existence (e.g. smaller apartment or more fuel efficient vehicle).  In other words, a new mindset must be cultivated to deal with these realities. If one is able to develop this attitude to deal with the new financial dispensation,  the first hurdle will be crossed. To do this successfully the will to survive must have primacy of place and must never be subordinated to issues such as pride and concerns about what friends and acquaintances may say.

Usually financial ruin does not occur in an instant or in a vacuum and careful analysis can pinpoint its genesis. The second step is to assess what were the causative factors that lead to the present situation, combined with a vow to learn from these mistakes to prevent future recurrence. The assessment should then be followed by a review of all actions (or lack thereof) that were taken (or not) to identify alternatives that would have produced more favorable financial results. To be of value though, the assessment and review must be dispassionate, complete and honest, otherwise the opportunity to learn from past mistakes will be lost.

The two steps above focused mainly on mental preparedness to manage a new financial reality, but the next step is designed to provide basic material necessities and really should occur in tandem with the first two. It involves identifying the source that is most likely to generate income in the shortest possible time. This may be income that is far less than was previously being earned  and that is not from a source that is within your normal sphere of expertise or economic activity. The key is to explore all options available so as to quickly generate earnings to meet basic survival needs – e.g. utilizing skills in different ways (a past accountant might consider teaching accounting), leverage past relationships and contacts where possible into economic opportunities or seek assistance from friends and relatives ( raise equity for small business ventures etc).  Here again, strength of character is needed to take a step or several steps down the economic ladder for the sake of survival and it helps if the “diminution” is viewed as a temporary situation, necessary to achieve a much larger goal,

 Once the new mindset is riveted and there is some flow of income to meet basic needs, the process of recovery is on its way. The next steps will involve exploring opportunities to reenter your previous field of operation or engage in new economic activities that have the potential to generate income similar to levels previously enjoyed. All avenues will have to be used – e.g. calling in favors from past business acquaintances and friends, learning a new set of skills if there is no opportunity in your previous industry etc- to recover from the crisis.  Importantly though, it must be borne in mind that often times than not, the recovery will be a slow process and will require extraordinary effort, diligence and steadfastness. Human nature being what it is, there will be impatience, borne of the desire for a quick return to the previous financial status, inexorably leading to feelings of despondency and frustration. It will be challenging to maintain the motivation to carry on and there should be participation in activities that provide such motivation- working out, reading or listening to inspirational messages, joining support groups etc.

 It is not impossible to recover from financial ruin, just very difficult to do so. While there is no universal blueprint, there are some critical steps that can be taken to enhance the likelihood of reversing fortunes. Adjust the mindset to deal with the new realities, subordinate pride and ignore naysayers, be steadfast and unwavering in efforts to reverse the negative situation and be willing to explore all options including going outside of your normal sphere of economic activity. These actions will not guarantee recovery but they will significantly improve its likelihood.

 And by the way, a healthy dose of medicine from the goodly Lady Luck will not hurt at all!