Financial Independence: Tough Times and Bankruptcy

When it comes to money, I continue to suggest that you read either the book, Your Money or Your Life by Joe Dominguez and Vicky Robbins or find the old taped course " How to Transform Your Relationship With Money and Achieve Financial Independence" by Joe Dominguez. Money along with Food are two things that live an emotional life within us that often distorts how we use and respond to them. This distortion leads to us acting in a way that may satisfy an emotion in the short-term but leads us away from what we want.

When you combine the emotion of your childhood regarding money, with the general lack of education we receive about it, it is no wonder that most of us have little to show for the amount of money that has passed through our lives.

The collapse of the real estate and stock markets in late 2008 and the tightening of consumer credit has affected both the overall economy and nearly every household in a significant way. I am in a tight financial position as a result of three events in 2007 and 2008.

1) My divorce settlement was negotiated in August through October of 2007, when the S&P500 peaked and my collective investments were near their maximum value. I agreed to current and near future cash payments to keep as much of my investments as possible. Although my non-real estate investments have bounced back since January of 2009, they are still significantly off their peak.

2) I have been subsidizing college costs for my three children for the last five years and thus spent down my cash reserves and increased my debt.

3) The collapse of the financial markets in September of 2008 caused an instantaneous disruption to the signing of new construction contracts. My primary source of income in 2008 was my position as VP of Finance and Operations for a small green energy construction firm. As the company completed its existing contracts we needed to lay-off nearly everyone and I left to go back to consulting and project management. My agreement had a significant profit sharing structure which was completely wiped out by the Fall of 2008 economic collapse.


In a nutshell, I took a hit which will take several years to overcome, but I am still in a better position than most American households primarily due to the principles in these courses and obtaining an education in how to invest.


Even in a period of temporary distress, the principles of achieving financial independence apply. Your ability to save and invest for the future is the primary lever due to the compounding effect of earning money on your invested money. The relationship between your spending and your fulfillment needs to be examined. Where do you get your morning cup of coffee? How much do you spend a year on it? Can you make it at home less expensively?


Change the word "coffee" to fast food or your favorite convenience or impulse spending item. The point is to either start saving some seed money or to at least begin paying down debt. I would suggest that you do both simultaneously. If you both build a cash reserve and add to the rate at which you pay down your highest remaining interest rate debt, you will both build a cushion in case of a lay-off or income disruption and create more money to build a cushion over time by reducing your outgoing interest payments. (In the current environment, paying off credit cards completely has lead to some people having their credit lines dropped so I would build cash reserves ahead of a complete pay down.)


What if the financial hole you are in is too big to work your way out of it? If your debt from real estate, credit cards, medical bills or the failure of a small business exceeds what you expect to earn in the next two years, you need to strongly look at bankruptcy. Bankruptcy is a legal remedy for obtaining a fresh start in a financial life. The rules are strict and bankruptcy will impact your ability to borrow money for the next 10 years but it can be a useful tool. Companies of all sizes use bankruptcy to secure a new life, when they can not both operate and meet their debt payments.


In many states, bankruptcy will not cause you to lose your home but in others it will. Your 401K and IRAs are protected in bankruptcy, so if they contain most of your savings, those savings will still be there after bankruptcy. One alternative option for eliminating debt that you will see advertised is debt restructuring for credit cards, this can halve your credit card debt but will create income tax liability for the debt that is forgiven as well as damage your credit rating. To see whether bankruptcy may be a tool on your road to financial independence, you will need to speak with a lawyer or financial advisor with bankruptcy expertise.


After two years, your bankruptcy will not affect your ability to qualify for a mortgage. The ten year damper on obtaining consumer credit may be a small inconvenience compared to having much of your income going to debt repayment and depleting your retirement savings.


The methods in the book, Your Money or Your Life, will help you live a life without taking on debt as a means of short-term funding. It is important to remember that even a person of modest means can gain leverage over their financial life. It is also important to remember that "possessing" money is not the goal but rather having that having financial resources supports the goal of living a grounded creative and values based life.

Breathing and Calming the Mind

Although not a great book, I own an interesting book about working with "dinosaurs" that identifies the reptilian responses behind those difficult people at work. When confronted, a reptile either fights, flees or freezes. Inside our human brain are those reptilian impulses and they are triggered during periods of stress and anxiety.

If you want to read more about the evolution of the human mind in a readable book, I would suggest; Boca's Brain by Dr. Carl Sagan. (Yes, it was written by the "billions of stars" astronomer.)

The reptilian response to freeze, results in us holding our breath when we are stressed or in discomfort. It is not just the breath that is frozen, but rather we have involuntarily contracted most of the muscles of our body. When you are in the midst of a reptilian response, it is difficult to maintain an open perspective, let alone harness your conscience and your values.

Both practioners of yoga and buddist mediation already understand the focus upon and use of breathing in relaxation and meditation. During my training as a yoga teacher, the most difficult work we did was learning and practicing the various types of breathing. It was hard to master and exhausting.

When anxious or upset, taking a breath or two before you speak or act gives you a meaningful pause. You can train yourself to notice when you are holding your breathing. During the next 24 hours, make a mental note whenever you catch yourself holding your breath. When you catch yourself doing this take a handful of slow deep breaths. This will assist you in being responsive to the situation as opposed to being reactive.

The creative stance as I've discussed is a responsive stance. It is driven by vision, passion and values. The creative stance requires taking in the truth whether that truth is pleasant or unpleasant. In the creative stance, what works is more important than being right. So when failures occur and bad news comes in....breathe. As they say in sports, "take a breather".

The impulsive reaction to difficulty or disappointment is reptilian and undermines both creativity and our spirit. When we catch our reaction and add breathing and a pause, we empower ourselves to be responsive. We enable our vision, our passion and our values to shape a response. We can context our action against the desired envisioned result we seek. We can filter our options against the values we wish to affirm.

So have a great day. Take a breath and plunge ahead.