4 actually do-able ways to recover from a financial crisis- including which 'rules' to break.
Michele Cagan, author of The Financial Recovery Workbook and a CPA joins us to share strategies to recover from life’s inevitable financial setbacks
4 Money Tips to Recover from a Financial Crisis
Understand your emotional relationship with money
Know your financial facts
Don't wait for the perfect plan
Don’t follow all the personal finance rules during a crisis
Follow Michele!
Instagram - @michelecagancpa
Facebook - @michelecagancpa
Twitter - @michelecagancpa
Website - MicheleCaganCPA.com
Michele’s Book - The Financial Recovery Workbook
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Instagram - @bobbirebell1
Twitter- @bobbirebell
LinkedIn- Bobbi Rebell
Website- http://www.bobbirebell.com
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Full Transcript:
Bobbi Rebell:
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Michele Cagan:
If you are at the beginning of a crisis and you know it's going to last, the problems, the financial ones are going to last for a while, you should borrow money as soon as you can, because by the time you need to borrow that money, your credit is going to be shot, and you're not going to be in as good a position to borrow it.
Bobbi Rebell:
You're listening to money tips for financial grownups with me, certified financial planner, Bobbi Rebell author of how to be a financial grownup. And you know what? When it comes to money being thrown up is hard, but together we've got this. Hey, grownup friends. This is the episode I wish I had done back in March of 2020 because we're going to be talking about how to recover from my financial crisis. And boy yeah, we needed that when the world shut down back then, but we have it now. Better, late than never, right? Michele Cagan is a CPA and author of The Financial Recovery Workbook, which is a step-by-step plan for what to do when we are hit by a financial crisis. As we go through our adult lives, many of us and those we care about, will get hit with something. It could be a massive unexpected medical bill, divorces, job losses, or just bad luck that hits us financially.
Bobbi Rebell:
What I loved about my interview with Michele, is that not only were we able to discuss very specific ways to deal with a financial crisis, she was also pretty bold about breaking the rules of what we expect experts to tell people to do. She also reveals her own unexpected financial crisis and shares her personal experience, which I really appreciated because just because you're a money expert doesn't mean it can't happen to you. We're all vulnerable at some point in our lives, often at a lot of points. Here is Michele Cagan, CPA and author of The Financial Recovery Workbook. Michelle Cagan. You're a financial grownup. Welcome to the podcast.
Michele Cagan:
Hi Bobbi, thank you so much for having me on.
Bobbi Rebell:
I'm excited to have you on to talk about your latest book, which is also your 12th book. It is called The Financial Recovery Workbook. Now you brought with you specific action items, but before we get to them, what inspired this book? Was there a certain aha moment that said, now is the time after 11 other books?
Michele Cagan:
Well, I've actually had some big financial setbacks in the past few years related to health issues in my family. I was struggling to recover from some of those. And I thought I'm a financial professional and if I'm having a hard time dealing with all these financial pieces, I can't even imagine someone who's uncomfortable or isn't an expert in finance is going to do. So I put together some of the stuff I used with my clients and some of the stuff I used myself. And I thought, let me put this all together in a book that can help people get through things in a way that's manageable step-by-step and will be sustainable so that they can use the skills that they're learning forever in their money journey.
Bobbi Rebell:
And I love the tone of the book because and people can hear it in your voice right now that there's an empathy because so often we vilify people for being in financial crisis. When very often, the things that happen, happen to them, like COVID, for example, that were not in their control that, well, of course you can plan for a rainy day, as they say, and have an emergency fund. Life happens, right?
Michele Cagan:
Absolutely. Most people's emergency funds. Unfortunately aren't big enough to weather a true crisis.
Bobbi Rebell:
So true. And so many things we can't possibly predict. Let's get into your fourth things, your solutions really, that can help us in financial crisis. The first one is actually really the most important I would say, because it's really about taking a step back and assessing things.
Michele Cagan:
Yeah. The very first thing that is helpful to do is to acknowledge, understand, and welcome your existing emotional relationship with money, especially during a crisis. A crisis situation could be something like a divorce or a job loss. They all come with their own huge set of anxiety, fear, self-blame, shame. And it's really hard to separate the emotions from financial tasks and that can leave you completely stuck or make it impossible to move forward. So even if you can't overcome or get rid of emotions, which I'm not suggesting that you do, acknowledge that they're there, pay attention to them, and realize that sometimes when you feel like you can't do something, it's one of your emotions kicking in. And once you face that it can help you take the next step.
Bobbi Rebell:
Right. Especially during a crisis, our emotions can be our worst enemy or our best assets. So, that's the first thing, is to really understand our emotional relationship with money. The second thing you want to talk about is knowing the financial facts so that we can have the best foundation for moving forward. Tell us more about that.
Michele Cagan:
Even not during a crisis, millions of people have anxiety around money and finances and they don't look at it. They don't want to see it. They don't want to look at their bank accounts or their credit card statements, but when you're in a crisis, it's even more important to know what resources you have. You need to know, how much money I have, where can I get more money from? How much space do I have on my credit cards? How much equity do I have in my house? You need to know what your available resources are, so that you can use them in the most effective way and not run out.
Bobbi Rebell:
One of the things that really holds people back though, is that they don't want to make the wrong move. And not only that, they want to make the perfect decision. That's your third thing to talk about, right?
Michele Cagan:
Yeah. That's a really big sticking point. And that honestly happens to me sometimes too. It causes a decision paralysis because you feel like if I do the wrong thing, X, Y, and Z are going to happen. If I do this wrong thing, I'm going to lose my house. And especially when you're emotional, the consequences that you attach to any specific move can spiral and get even bigger. I'm going to end up homeless. My kid won't have dinner tonight kind of stuff. So making a plan, even if it's not a perfect plan, especially if it's not a perfect plan, anything that will help you take a step, one step at a time, because you can always change your plan. Even after you put it into place, if it's not working, you can change it. But if you don't start with a plan and start making moves, everything is just going to get worse.
Bobbi Rebell:
So what advice would you have for people who can't get over that hurdle? Can you give us maybe a real life example of someone that waited and can't make that next move because they're waiting for it to be perfect?
Michele Cagan:
Oh yeah, absolutely. So I was actually dealing with some really high medical bills and I don't know if you've had this experience, but when a child goes into the hospital, they don't tell you how much you're going to have to pay. It could be $200. It could be $20,000. You can't plan for it. You don't know what it's going to be until after all the bills come in. So I had an experience like that and I thought, it's going to be $3,000. And I planned on that and it ended up being a lot more than that because it didn't turn out the way I expected. And it was so different than what I expected.
Michele Cagan:
I went a little bit into anxiety mode where I was like, okay, I need to figure out exactly how I'm going to pay all of this off, where I'm going to get the money from. And I went through circles and circles and circles of the planing until finally I just said, okay, stop circling, make some phone calls, do one step at a time. Call and see if you can do a payment plan, see where you can move some money around and start taking steps instead of just thinking about the plan spiraling and it made a difference.
Bobbi Rebell:
That's the thing. We're talking about true financial crisis. These are not things that can be instantly solved in wrap it up with a bow and move on with your life. Sometimes there's going to be multiple and longterm steps to get out of it, right?
Michele Cagan:
Absolutely. And most people, in the immediate crisis, there are costs involved with that. But most of the kinds of crises that people face, again, job loss, health problems, a natural disaster, they have ongoing costs. If you have a health problem, you might need medicine or extra treatment or doctor visits for six months or five years. It's not just a one and done thing. With a divorce, you have to set up a whole new household. Your childcare is different. You need health insurance in a different way. So many things change and there are so many moving parts that you really need to work not just small picture, but big picture, but you still have to start with the next step.
Bobbi Rebell:
So well said. The fourth one is something that people don't like to say, but I think it's genius. You say that during a crisis, the normal personal finance rules don't apply. So don't follow them. Everyone's always saying follow the things that we know. If you have debt, these are the different things that you can do to pay down the debt. You can use the snowball method. You can use the avalanche method. And this is not just applying to debt. When you say it's okay to break the rules in the crisis, what does that mean? And give us some examples.
Michele Cagan:
So, if somebody's having money a tight finance ... Something came up, they really need more space in their financial. The first thing I tell them to do is stop making retirement plan contributions. Just stop.
Bobbi Rebell:
Really?
Michele Cagan:
Yeah. If you're able to make it up later, that's fine. But if you're choosing between keeping your electricity on or making your mortgage payment and putting money in your retirement account, skip the retirement account for now. I also tell people that, for example, if you are at the beginning of a crisis and you know it's going to last the problems, the financial problems are going to last for a while, you should borrow money as soon as you can because by the time you need to borrow that money, your credit is going to be shot and you're not going to be in as good a position to borrow it.
Michele Cagan:
It's the opposite of what I would normally tell anyone to do. But in a crisis situation, you need to expand your available, your currently available resources, as much as possible. Locking money away in a retirement account, that's not a smart choice because if you need to pull it back out, you've got penalties. You've got interest, you've got taxes if nothing else, unless you put it in a Roth IRA, which is a different situation. I'm just talking more about 401k through work. If you need to use credit cards to make your budget, normally I would tell people, if you can't make your budget without using credit cards, you need to change your budget. But in a crisis situation, if you need to use your credit cards to buy your kids medicine, you do that.
Bobbi Rebell:
Yes.
Michele Cagan:
You use all the financial space you have, and then you work on getting everything under control and managing it better. And then, you can recover financially after the crisis is settled down.
Bobbi Rebell:
Give us a few more tips before I let you go because this is really interesting. I'm sitting here and I'm really processing what you're saying. And I think a lot of our listeners are as well. This is really, I hate the expression thinking out of the box. It's so tired, but it really applies in this case because everything you're saying in the context of a crisis does make sense. And yet, it is breaking so many rules.
Michele Cagan:
I know. I'm sure there are going to be a lot of financial professionals who hate this book because of that, quite frankly, I think another thing that's really important for people to do is prioritize their expenses in order of survival. So a lot of times in budgeting advice, it's always money into savings first, money into retirement first. And what I'm saying here is, you pay your house, food, electricity, car, before you do anything else. You need to make sure you can get to a job interview, to the doctor. You need food, you need to live in your house.
Michele Cagan:
And yes, maybe you can downsize some of those expenses, but those are your priorities, your immediate survival expenses are what to focus on. Another thing that I tell people they can do is increase your insurance deductible so that you'll have lower premiums because right now, the current cash matters more than anything else. People can maybe not look at their credit scores for a few months, because it's very possible that during a crisis, their utilization is going to go up and it's going to drop their credit score. It doesn't mean they're a bad person. It doesn't mean they're a big risk. It means that right now, they need to use their available resources. And then, when things are back on track, everything else will fall into place.
Bobbi Rebell:
If we know of a friend or relative who's in a financial crisis, what is the best way to help them? Because we get a lot of mixed messages. Of course, we want to be there for friends and family, but we're also told, you can't always afford to just be ... Sometimes you worry about being an enabler, depending on what caused the crisis. You want to be there for them, but maybe you can't afford to give them money and you want to loan them, but you don't know how things are spiraling out of control. What is the best way to be there for people?
Michele Cagan:
I think one of the best ways to be there for people is honestly just to listen and not try to fix things for them. That's something that a lot of people forget to do. They hear somebody talking about a problem and they immediately go into fix mode. But a lot of times, someone just wants to be able to listen without judgment and not have someone else swoop in. Just to acknowledge, hey, that situation really sucks. Maybe I can take your kids for a few hours. Would that be helpful for you? It doesn't always have to be about money. It has to do about care and support.
Bobbi Rebell:
That's a really good point. And I love that idea of helping with other things that don't necessarily cost you money, but maybe you can help them with their money situation. Because if you can maybe take their kids and give them free babysitting, or maybe you give them a ride to work, if they don't have a car at that time, things like that, maybe are ways that you can help people that are going through a financial crisis. This has been wonderful, Michele. Where can people find out more about you and pick up the book?
Michele Cagan:
They can visit my website, which is MicheleCaganCPA.com. And the book, I think is now available pretty much everywhere.
Bobbi Rebell:
What are your social channels?
Michele Cagan:
I'm on Twitter @MicheleCaganCPA, Facebook at Michele Cagan CPA, and Instagram. Guess what? It's Michele Cagan CPA.
Bobbi Rebell:
Thank you Michele Cagan CPA for joining us. This has been great. I love the book. I know a lot of our listeners are going to get so much value out of this, not just for themselves, but also for the people that they care about. So thank you so much.
Michele Cagan:
Thank you so much for having me on.
Bobbi Rebell:
Here's my take friends. It was really refreshing to hear someone be so real about the stuff that we really don't talk about. A quick recap here. Michele reminds us not to let her emotions get the best of us in a crisis and to actually look at the numbers. It's really hard sometimes, but that's really the only way we're going to know exactly what we're dealing with in terms of how big a crisis is. We also can't wait for the perfect plan. We may be choosing from a bad plan versus an even worse plan. And that is why we may need to break some of the rules we have been told well, to never break. Her book, The Financial Recovery Workbook, is just that, a workbook. It has lots of tools and worksheets to actually execute a lot of the money tips that we've shared on this episode. For more on the podcast, make sure you go to my website, bobbirebell.com and just click on the podcast tab where you can get show notes and full transcripts of every show.
Bobbi Rebell:
Finally, if you enjoy this podcast, I could really use your help. Please tell a friend. You can tell more than one friend, and if you have a free moment, please leave a review on Apple Podcasts and also make sure you're following the podcast. Wherever you listen to you automatically get new episodes once a week. Thanks to all of you for taking the time to listen and to Michele Cagan, CPA and author of The Financial Recovery Workbook, for helping us all be financial grownups.
Bobbi Rebell:
Money Tips For Financial Grownups is a production of BRK Media, LLC. Editing and production by Steve Stewart, guest coordination, content creation, social media support, and show notes by Ashley Well. You can find the podcast show notes, which includes links to resources mentioned in the show as well as show transcripts, by going to my website, bobbirebell.com. You can also find an incredible library of hundreds of previous episodes to help you on your journey as a financial grownup. The podcast and tons of complimentary resources associated with the podcast is brought to you for free, but I need to have your support in return. Here's how you can do that. First, connect with me on social media at BobbiRebell1 on Instagram and Bobbi Rebell on both Twitter and on Clubhouse, where you can join my money tips for grownups club. Second, share this podcast on social media and tag me so I can thank you.
Bobbi Rebell:
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