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Money Shock Management: Financial Triage
Due to current financial circumstances, many people are experiencing record levels of uncertainty in their lives; not only financially, but physically, and the way we feel and function are suffering. Like a national punch in the stomach, we’re all trying to catch our breath and breathe normally again. “Money shock” management is a three-part process, with a course of action to help productively manage the shock of abrupt life changes, regain stability and deal with a new reality.
There are three stages of money shock:
1) Financial Triage—in which you lower stress levels and restore more rational thinking;
2) Change Management—in which you create a new financial plan; and
3) Well Being—in which monetary wealth is only a third of the equation.
This article discusses the necessary first step: financial triage. When you’re constantly bombarded with what feels like threatening or dangerous information, your adrenal glands continuously pump out adrenaline and cortisol. Severe physical and emotional exhaustion sets in. This chronic stress diminishes your capacities. You’re less able to make rational decisions, see the big picture or creatively solve problems
Financial triage is similar to “medical triage.” It prioritizes threats and dangers, deals with the most hazardous ones first, then moves to a more stable level of care. Before you can move forward, or be comfortable not moving forward (if that’s in your best interest), stress levels must come down. Failing to treat shock complicates an accident victim’s condition and further compromises recovery. Similarly untreated money shock may lead to regrets, poor decisions and other negative consequences.
The goal of financial triage is to replace fear and panic with increased control and confidence, leading to a rise in stability and clear thinking. The equation to reach this goal is: Normalize + Prioritize + Organize = Stabilize.
Talk about your fears and concerns with your financial planner or a trusted advisor. You’ll realize you really do have reasons to worry, given all the uncertainty you’re experiencing. Consider what the current change or loss may mean to you and family and talk through what you think will be different because of it. After you tell your story, pick out the individual fears, concerns and worries and write them down. The process of listing and naming your fears makes them feel less abstract and more manageable. Let’s look at a hypothetical situation with a person we’ll call Phyllis:
Amidst the stock market decline and recession, Phyllis thought her retirement was planned out – a paid-off home, money invested with a son-in-law’s brokerage firm and she had her good health. At first, she assumed she hadn’t been affected, until her son-in-law told her she’d lost about 25% of her principal and her preferred stock income dropped to 50%.
Without the benefit of normalizing, Phyllis was left to absorb this terrible news on her own. She couldn’t sleep and she didn’t want to be with friends or family. Feeling tired and embarrassed Phyllis worried about her adult children’s jobs. Would she need to mortgage her house if they needed money? Might she lose her home? Phyllis’s mental and physical health began to deteriorate and she required medication for the first time ever. After three weeks, her son-in-law told her she was “being silly” and she wasn’t going to lose the house. Her stress continued.
Phyllis’ son-in-law missed the opportunity to validate her feelings and help her name her fears (her health, the needs of her children, her investments and losing her house). He addressed only the fear most unlikely to occur (losing the house) and didn’t give any reason about why she was overreacting.
Once worries and concerns are named and listed, you can move on to prioritizing and sorting them. You’ll sort the list according to the immediacy of the threat: immediate, possible or unlikely. Next, sort these threats by the degree of power you have over them: control, manage and monitor. For Phyllis – her health is an immediate threat. Further market declines and her children’s needs are possible threats and losing her house is an unlikely threat. She can control her health, manage her investments in light of further market declines and what appears to be her discovery of her low risk tolerance, and monitor her children’s needs and the possibility she may need to mortgage her house.
You don’t want to create a plan based on fears, and they don’t just go away because an advisor says everything is okay. Action is what lowers fear. Organizing creates a plan of action according to time frames that even the most stressed person can understand: now, soon and later. Here’s what Phyllis might be able to do: NOW (Immediate threats and anything that can help to regain well being): She can become proactive in stress management and set new goals with her doctor. Phyllis can come up with a protocol for bonds coming due, talk to her children about finances and cut expenses. SOON (Important but less urgent): Phyllis can set more frequent meetings with her advisor and doctor. LATER (Need more time before acting): Consider financial help for children if they need it and if she has the resources at that time. This triage process takes some time and effort. However, your financial advisor is the best person to help you arrange a positive, proactive experience by coaching you through normalizing, prioritizing, and organizing your financial fears.
Bert Livingston is a financial advisor at National Financial Services Group in Jacksonville. He can be reached at 904-296-3300 or firstname.lastname@example.org