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Starting Again After A Financial Hit

Despite your best efforts, unexpected disasters can befall your finances. Diana Clement asks the experts how to get your money, and mindset, back on track.

19 October 2021

Losing a partner

When your partner dies, or you break up, you may be left with a lot less income, or none at all.

Often, it’s the female who finds herself on a benefit and in debt, says Mary-Ellen Gadd, of the Citizens’ Advice Bureau’s Wellington Budget Service. In many cases, a partner has run the finances. People who’ve become used to eating out and buying nice clothes can find their new financial life impossible. “The thing I’ve noticed is they don’t want or appreciate the need to change their lifestyle,” says Gadd.

In double-income families that split, both partners will have less money coming in to finance two households. Typically, Gadd will create a debt repayment plan and sometimes ongoing budgeting assistance.

That often starts with working out ‘needs’ from ‘wants’. Prepare for the worst by being independent with your finances. “You can go out and find work, if needed,” says Gadd. Life insurance can help you be better prepared, should your partner die, she says.

Redundancy or illness

Credit unions and banks often see clients who can’t work because they’ve lost their jobs or fallen ill.

Most won’t have savings or redundancy insurance, says Gavin Earle, chief executive at NZCU Baywide. He says staff can look for ways to help their financial position, such as claiming on credit union insurance, or making KiwiSaver hardship withdrawals as a last resort. They’ll review the person’s loans and encourage them to speak to their creditors.

“We refer them to experts, such as the local Community Law Centre, Citizens’ Advice Bureau or their lawyer for advice. We also urge them to access free budgeting advice through the Moneytalks website.” No-one thinks these events could happen to them, until it happens, says Earle.

“You can prepare yourself by looking into insurance cover, watching your levels of debt and aiming to live within your means. Have a little bit of savings for such an occasion.”

A bad investment decision

So, you’ve made a bad investment decision.

If you can catch it before you fall to the bottom of the cliff, all the better, says Jeff Stangl, chair of the CFA Society of New Zealand. He says too many investors hang on to the bitter end. People always try to avoid making losses. Stangl speaks from experience. He held onto one investment bought in the wake of the Global Financial Crisis at what looked like a bargain NZ$40 a share. It eventually dropped to $1. Sell investments that the fundamentals don’t justify.

The second common mistake is averaging down. When the stock falls, you buy more, which brings the average price closer to the original. If you keep buying more to save a bad investment, you could end up with nothing. To claw your way out of the hole, you need to recognise you made a bad decision, says Stangl. “Then go right back to investing 101.” Downgrade your expectations. “Don’t take huge risks. Squirrel away every cent and then diversify.”

A scammer takes your money

If you’re a scam victim, you may have lost huge sums of money or even your life savings before the reality of the con dawns on you. It might take someone else telling you that you’ve been a victim. The trauma of being tricked by a scam can be more psychologically damaging than losing money any other way.

Victims, says Bronwyn Groot, manager, fraud education, at the Commission for Financial Capability (CFFC) will often have their confidence ruined. They could find their relationship breaks up over what’s happened. They can become socially isolated, and may not be prepared to confide in others.

You need to pick yourself up, says Groot. Stop blaming yourself and beating yourself up. Give yourself time to grieve, then look forward, not back at the past. Only then can you take similar steps to those suggested by Stangl, far left, to start saving and investing again. There is life after scams.

Your business goes bust

Losing your business can be a double or triple-whammy. You’ve lost money, your job, your creditworthiness, and possibly even your home. It’s common in business for owners to offer personal guarantees or borrow against their homes, says Tim Fairbrother of Financial Advice New Zealand.

When their business fails, some will declare bankruptcy, which clears the debt. Others will be too proud to take this step and spend years paying back hundreds of thousands of dollars, says Fairbrother. “Get some people around you who’ll give you honest feedback,” he says.

It’s unlikely you’ll be able to borrow money to start a new business, says Fairbrother. That means you’ll almost certainly need to get a job very soon. “You need to understand that failure has happened, and you need to learn from that.”

Published 25 November 2019

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