Amy Hamilton Chadwick looks at what you need to do to survive a financial disaster.

Hopefully, you’re doing everything you can to protect yourself against financial disaster. But unexpected events can conspire to leave you floundering.

An investment gone bad or a job loss on its own might be manageable, but if someone in your family falls ill at the same time, or your marriage breaks down, you could be left in serious financial strife.

It’s also possible you could be dragged into someone else’s quagmire; a partner or family member who makes bad decisions can leave you with debts to pay.

Once you’re in a financial hole, it can be difficult to know what to do. There’s often a sense of embarrassment that leaves you feeling reluctant to ask for help or tell other people about your situation.

It can be both paralysing and isolating to feel as though you’re back at square one. The older you are when problems occur, the worse this feeling can be. But even if you never recover your former wealth, you can take steps to improve your financial future.

Step 1:
Get over the grief

The first stage of coping? “Get over the grief,” says Royden Shotter, AFA, certified financial planner and director of Echelon Advisers.

Accept that it will take time and hard work to claw your way back to a better position – and that there will be stressful periods and setbacks along the way. “There are some things you can’t control and you can’t worry about those. Focus on what you can do.”

Step 2:
Ask for help

Be brave and ask for help – from the experts, be they Family Budgeting Services or professional financial advisers. An adviser will help you make a plan to get your life back on track and your debts paid off as fast as possible.

“People do want to help, but often those in trouble don’t ask. You might be amazed at who will be willing to help you,” says Shotter.

Step 3:
Lower your standard of living

Some Kiwis are in hardship and genuinely can’t make any cuts, but Shotter says he sees more people who could spend less, but choose not to.

“It’s our mentality that there’s a minimum bar for how we think life should be lived. If you’re starting again, can you move that bar a bit lower?”

Step 4:
Consider your house

Do everything you can to avoid being forced to sell your house, says Shotter, even if that means renting it out and downsizing or moving to a more affordable region.

If you do need to sell, get it over and done with, take the money and buy another house if you can – even if you need to change location. Ideally, try to own a no- or low-mortgage house as you approach retirement.

Step 5:
Put your career in survival mode

Out of the workforce? Find a way back in. Already working? Look for ways to earn more.

Desperate times call for desperate measures. If your job doesn’t have strong future earning potential, can you take a sideways step into a different area? Could you earn more by going on contract and working longer hours? Will you need to work until you’re 70?

When you’re in a financial pit, take a break from thinking about your career in terms of your passions and interests. You don’t want to be in a toxic environment or damage your health, but Shotter points out that sometimes, “it’s all about survival”.

Step 6:
Plan and protect

As you gradually move out of the red and into the black, plan ahead to prevent another financial disaster, and protect the gains you’ve made.

Talk to your adviser, review your insurances, and think carefully about how you’re applying your money to debt and investment.

“I like to think that people who’ve ended up in a disaster are more likely to be a bit entrepreneurial,” says Shotter.

“Making mistakes is one thing. Not learning from them is the real failure.”

What are the main causes of insolvency?

In the 2015/16 financial year, 3,871 New Zealanders applied for personal insolvency procedures. The top causes were:

• unemployment or job loss

• overuse of credit facilities

• relationship breakdowns

• ill health.

Administered corporate liquidations numbered 147 in 2015/16, down from 416 in 2012/13. The top causes of corporate liquidations were:

• failing to put money aside for taxation

• adverse economic conditions in the industry

• having another business fail

• legal action against the company.

Recovering before retirement

In 2007, Dan* was friends with a successful property developer. Every day he heard about properties being sold off-plan and resold for huge profits once completed.

Dan bought four townhouses from his friend’s company, expecting to see impressive gains. But two years later, the tide turned. Some developments were abandoned, others liquidated, and those properties that were finished were worth less than he’d paid for them.

At the age of 55, Dan was staring down the barrel of insolvency, avoiding it by selling his house. He eventually bought another house in Auckland in 2014, but still struggled to pay the mortgage.

After some research, he found he could earn a lot more money in Australia. He sold his Auckland house, moved across the ditch and bought a less expensive property.

Dan is now 63 and approaching retirement with the expectation of a mortgage-free home and a comfortable lifestyle.

It’s not the massive wealth he imagined when he bought his investment properties, but he successfully retrenched and recovered.

* Not his real name

By Amy Hamilton Chadwick

First published November 2 2017

The editorial below reflects the views of the editorial contributor only and content may be out of date. This article is sourced from a previous JUNO issue. JUNO’s content comes from sources that it considers accurate, but we do not guarantee that the content is accurate. Charts are visually indicative only. JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions.