Even if you're wiped out financially you can start over
Many families find themselves with a special sort of midlife crisis. Rather than struggling with which sports car will best restore youth, some must start over financially after enduring a financial tsunami.
Many families find themselves with a special sort of midlife crisis. Rather than struggling with which sports car will best restore youth, some must start over financially after enduring a financial tsunami. If you’re in that boat, don’t worry, there is hope.
Consider the following plan to get back on track with your family finances.
If you are trying to get back on track financially after a bankruptcy or other financial disaster that has destroyed your good credit, buying a home could be up to seven years away. Homes are great places to raise families, but mediocre investments. Don’t be frustrated needlessly. Rather than buy a home much sooner and pay extraordinary interest rates, consider focusing a portion of your income on saving for a big down payment so that when you buy a home, it will be one that you can stay in until you retire. If your credit survived your financial troubles, make getting back into a home soon your top financial priority. When you buy a home, try to finance it with a loan that will be completely paid off by the time you retire — probably less than 30 years.
. If your credit has been blown up by your financial disaster, count it as a blessing. Being forced to operate without credit for a few years while you restore your credit can be a good thing. If you can’t borrow money, you won’t have to pay any interest. Even if you can borrow money, don’t. Be patient. All you lost that’s really important can be reassembled with time.
In any real financial disaster, the college savings are washed away. That doesn’t prevent your children from starting college. Whatever your college plans were, you need to sit down with your kids and talk about the new realities. Unless their grades will entitle them to scholarships, help them develop plans to fund college on their own. If possible, you may invite them to live at home while they are students — a huge contribution to their total college expense. They can be responsible for tuition. Tax credits, grants, and needs-based scholarships, combined with part-time jobs may get them through local public college programs and leave them graduates in four years without student loans.
If you had good retirement savings before your financial disaster, you may still have them. U.S. bankruptcy laws protect some of those assets. If so, great. Start contributing to your savings again, if you’ve stopped, and move on. If your retirement savings have been wiped out, you’ll need to make retirement a top priority. You may want to begin now to think about delaying retirement a few years beyond the age you’d originally intended in order to give yourself more time to save. It’s better to work a few extra years in your 60s than to starve in your 80s.
Don’t fall into the trap of financing a car as soon as you come out of the dark tunnel of your financial catastrophe. Drive an old clunker, rent cars by the hour, take public transit, just don’t buy a car that you finance. The entire model for financing folks with bad credit is built around two principles: make folks overpay for the car and then make them pay a high rate of interest. You can earn the same return on your investments that people with great credit can. Take advantage of that and start saving for a car purchase. Don’t let the car you drive define you. Let your financial wisdom characterize you.
As you emerge from your financial crisis, look forward and not back. Start saving again, avoid debt for cars and everything else. Make getting back into a home a high priority as soon as your credit is re-established. This week, determine on which of the five guideines above you need to concentrate. If your retirement savings has disappeared, for example, sit down with pen and paper and crunch the numbers so you can determine a new age for retirement.
With the five key guidelines above, you can put your financial troubles behind you and build a happy and contented life.
Devin Thorpe, husband, father, author of Your Mark On The World and a popular guest speaker, is a Forbes Contributor. Building on a twenty-five year career in finance and entrepreneurship that included $500 million in completed transactions, he now champions social good full time, seeking to help others succeed in their efforts to make the world a better place.