A lifetime of personal finances can certainly come with its ups and downs, its successes and failures. Fortunately or not, it’s often those financial setbacks that we remember the most.
The financial pitfalls we encounter along the way to retirement can put substantial dents in our progress towards our golden years. But sometimes those failures are also what we learn the most from as well.
Housing market collapse
The collapse of the housing market hit millions of homeowners hard, sapping equity and leaving many owners underwater on their mortgages.
Our family was among the many affected during this crisis. We had just bought our first home and gotten settled in, having put a 40 percent downpayment on the property. This meant that as the housing market declined, it wasn’t the bank’s money that was being drained from the value of the property but our own.
With outlooks bleak on the value of the property increasing in the near future (as the neighborhood had begun to decline with the fall of the housing market), we took steps to recover what we could from our homeownership debacle. We sold at a substantial loss, selling $65,000 under what we purchased the property for. However, to recover some of our losses, we downsized to a smaller property in a more upscale neighborhood. In this way, we salvaged some of our equity and were able to own a property that was half the size and half the price of our previous property mortgage-free, which now equates to housing-related savings of nearly $27,000 a year compared to our previous situation.
The financial crisis
The financial crisis also had a harsh effect upon our retirement future. Our retirement accounts were drained by nearly 40 percent of their value. Thankfully, we didn’t need the money, so we had time to recover. To do so, I moved my retirement account into a DRIP – dividend reinvestment fund – to better shelter it, yet still make gains on share value. As a self-employed individual, I’m without an employer-sponsored plan, and a DRIP allows me to put monthly dividends back into the plan, building my fund’s share total whether or not I invest additional funds.
When I turned to self-employment more than six years ago, I took a substantial loss to my income, which of course in turn affected my ability to save for retirement. A reduction in income can be tough to handle, but finding ways to compensate can help make up for such a loss.
In my case, I realized that working from home allowed for several such options. First off, we could downsize by one vehicle, which accounts for several thousand dollars in transportation savings each year. But more importantly, I could also handle the childcare duties for our two children, which added up to around $12,000 a year (for each child) in additional savings.
Getting creative and thinking outside the box with such situations can have the savings adding up, even when income has been substantially reduced.
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The author is not a licensed financial professional. This article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.