Thursday, September 11, 2014

Finances & Life Decisions -- Righting Some Wrongs

Conventional wisdom in the form of counselors, life coaches, and literature & books on the grieving process asserts that no major life decisions or financial decisions should be made for 12 months -- 6 in extreme cases -- after a divorce, the death of a close loved one, or other significant loss.

Conventional wisdom is wrong.

I'm not a financial planner or whiz of any kind, nor am I a life coach or a counselor. But I've been down this road; I've dealt with two major losses -- the loss of a job and the loss of a spouse -- and I know that many of the "rules" we've heard throughout our lives are not gospel. In fact, in some -- perhaps many -- cases, following those rules will create huge problems; conversely, breaking those rules may be the best thing a person can do.

Let's look at my own situation.

When my husband passed away, 65% of my household income disappeared. Unfortunately, 100% of what had been our expenses were now mine . . . and I had 35% less income to work with. We hadn't been living hand-to-mouth, but my part-time teaching salary simply could not cover all of our monthly financial obligations.

Fortunately, I received a modest lump-sum life insurance payout. Had I listened to conventional wisdom, I would have promptly deposited that check and done nothing with it for a year.

What would have been wrong with that? At the time, 2 of the 4 family cars were not yet paid off. Each of those loans had a percentage rate of approximately 6%. At the time I received the insurance payout, various savings accounts -- even those paying the very best interest rate -- were paying far less than 6% interest. Conventional wisdom dictates that I should have continued paying 6% interes while earning around 2%.

Now, I'm not a mathematician. I'm not even a budding mathematician. But even I could see that earning 2% interest while paying 6% interest *when I had the money to pay off the loan without significantly impacting the balance of total funds* simply didn't make sense.

Similarly, I don't hold a PhD in anything, but I was smart enough to realize that not doing a thing about my employment situation would mean that I would be teaching part-time not only that current school year (my husband passed away in early September) but also the next. And I was smart enough to know that that was not a good idea.

So what did I do?

I ignored conventional wisdom.

But I didn't just run out begin doing things will-nilly.

First, I made a list of monthly expenses and noted what could be immediately eliminated (land-line phone, for example) as well as the outstanding balances on what could be paid off (cars, small credit card balance, etc).

I still didn't make a single financial decision. Instead, I made an appointment with a trusted financial advisor and discussed my entire financial situation with him. I made careful notes of his recommendations, and then I visited a 2nd trusted financial advisor and did the same thing again (without telling the second advisor what the first advisor said).

Then I made decisions that were in line with my own common sense and the advice of both financial advisors (they were 100% in agreement in their recommendations). These decisions allowed me to live within my means -- and without undue financial stress -- until my income changed.

That positive change in income came because four months after my husband passed away I turned my attention to finding a new teaching position. I did the normal job-seeking things -- updated my resume and my reference pool, began haunting appropriate websites, etc -- and had secured a full-time position for the following school year before the current school year ended.

That gave me plenty of time to list and sell our home (another major life decision that could not wait), find a place to live in the city I would be moving to, arrange for the sale of large items I would no longer need or have the room for and for moving, and then get settled in my new home before starting my new job.

For me, waiting an entire year to make any financial or major life decisions would have created significant -- even catastrophic -- problems.

I'm not saying that others -- you, for example -- should do what I did. Perhaps you should wait 6 months, or even a year, before making a big financial or life-altering decision.

What I am saying is that you should ignore the so-called "rules", enlist the advice of appropriate advisors that are trusted, reliable, and credible, and move forward in a manner in which you feel comfortable and that is right for you.

Oh, there's another "rule" I need to address. When I was a young girl, an elderly female relative informed me that a lady never talks publicly about finances and politics.

Yep. She was wrong, too.

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