Losing a job or watching your portfolio evaporate can trigger an emotional tumult akin to what someone feels after losing a spouse, suffering through a divorce or winning the lottery. Frequently, people feel compelled to take action.
Don't be hasty, say financial experts.
The worst time to make irrevocable financial decisions is when emotions are running hot. Too often, people jump behind the steering wheel before they've determined their financial destination.
This should be "a decision-free zone," said Susan K. Bradley, a financial planner in Palm Beach Gardens, Fla., who wrote "Sudden Wealth: Managing a Financial Windfall." "This is a time to prepare and plan, not a time to do."
At life's turning points, Bradley instructs clients to draw up a "bliss list." They dream of possessions they want to accumulate, goals they want to accomplish, even what they want to be remembered for. Then she attaches price tags to each wish and the hard part begins: prioritizing what's affordable.
"Any life-changing move should have a process," Bradley said. "How do you decide if you can afford to be a one-income family? How do you decide if you can afford to go back to school? ... You have to identify the variables and then test."
To be sure, chaotic times like these probably will require a tight rein on spending. But prioritizing your goals can enable you to transform what could be a sense of deprivation into a feeling of empowerment. Then, saving money isn't about denying yourself things you can't afford. It's about affording what you want most.
The problem is many Americans believe their paychecks already are stretched to the snapping point. A financial crisis such as a layoff can trigger "panic mode," said Denise Topolnicki, author of "How to Raise A Family on Less Than Two Incomes."
"What you have to do is calm down and tell yourself that you have more control over your spending than you think you do," said Topolnicki, who quit her job in Manhattan so she could be a freelance writer and spend more time with her husband and two kids. "If you look at where your spending money goes, a lot of it is by choice. There are many dollars that pass through our hands that we have power over."
Gaining control of your spending means taking spending off auto-pilot, says Denise Hughes, a financial coach in San Carlos, Calif., and Millbrae, Calif. It starts with tracking your spending and studying your behavior to determine why you splurge. And it will require plotting out each month's spending in advance.
To break you out of the habit of spending "unconsciously," Hughes recommends that you write a check to the credit-card company every time you whip out your plastic, then mail them all in with the bill.
It also means being clever about finding cheaper ways to satisfy your desires. If what you really crave is a romantic rendezvous, could you substitute a Mendocino, Calif., getaway for a cruise to the Caymans? If what you want is quality time with your kids, why not visit the park or crawl on the carpet to play checkers saving the cost of movie tickets, arcade games and a stale vat of popcorn? If you want to spend time with friends, why not invite them over for a potluck instead of treating them to a pricey restaurant?
"If people aren't in touch with areas of deprivation in their lives, then what can happen is we throw money at things to fill us up. That doesn't work," Hughes said. "We really need to examine our true motivation and why we aren't able to live within our means.'
For Topolnicki, getting a grip on spending involves tracking what she spends, sticking to shopping lists and hunting for sales. And she has adopted a "replacement-cost lifestyle" that disciplines her to buy only what needs fixing or replacing, not what strikes her whim.
"It changes your thinking about what's a 'want' vs. a 'need,"' Topolnicki said. "After you do it a while you really don't feel deprived. You feel like you're in control. You're not feeding your urge to shop and then feeling sorry about it later when you get the credit-card bill at the end of the month. When you get that bill and it's a manageable amount, you feel empowered by what you've done."