Facing The Financial Crunch

Economist and Washington Post columnist Steven Pearlstein wrote this morning that most of those who are in charge of the governing of the world's economy just don't 'get it:' they've underestimated the severity of the economic crisis that's in the process of swallowing up the world's financial markets. I'm no economist: in fact, although I have a passing understanding about how money works (I know my 'credits' from my 'debits'), I haven't a clue when it comes down to knowing why anything works the way it does. I can't explain the niceties (a very ironic term, under the circumstances) of how and why it all happened, but I do read, and I think I 'get it.' That 'it' under the circumstances has a huge impact on you: those of you who are facing or experiencing the midlife transition. It's you and your future that just got thrown under the bus.

As of now, 'doing everything right' no longer ensures that, when the smoke has cleared, you're going to have anything like the future that you've envisioned. The rules no longer apply; that's because for years the people who were in charge of the rules thought that they weren't important. Yet, you and I and the vast majority of the people reading this didn't readily grasp that when some of the rules no longer apply, all the rules come into question. 'Playing by the rules' and investing wisely only makes sense when 'the rules' actually apply. Once that's gone, what's to play by? Let's take a quick look at what middle aged (and post-middle aged) people may be facing for the next decade or more.

I hear people like Steven Pearlstein trying to explain to us that the current economic crisis has taken aim not just at the nebulous 'financial markets,' but directly at your future. I understand that this isn't just a theoretical 'financial crisis', it's a credit crisis. I think I understand it like this: let's say that you've left the 9-to-5 workforce and have created your dream career as an independent consultant. That much isn't speculation; it's fact. Since 'retirement' as we 'boomers once envisioned it no longer exists (and we want to stay productive longer), the role of independent consultant awaits most of us (if you're not already there). Let's say that you've done a lot of work for your main client, and you're owed a lot of money. One day, as you're opening your mail, you find a legal-looking document that says your customer has filed for bankruptcy and all payments to you are suspended until further notice. Further investigation shows you that the best you can expect to receive is just pennies on the dollar that you were owed.

You're now experiencing a credit crunch. Your bills are coming due, your creditors are calling, your credit score is dropping like a rock. Like almost everyone else in the country, you've leveraged your small independent business by running up a large credit card balance. In a flash, your available credit is maxed out, and you can no longer make the purchases (and pay the monthly charges) that keep your business going. Even if you've 'done everything right' and maintained several months of savings as a cushion against hard times, you face the very real prospect of using up your cushion to maintain your business, not being able to raise enough capital to make up the difference, and being left flat broke.

That's what's happening right now across the country, only on a massive scale. Remember the late-night infomercials that would teach you to get rich quick in real estate, with 'no money down' and using 'other people's money' (OPM)? To some extent, all of us have been doing that right along. Your credit cards are, in fact, using OPM to finance your lifestyle. The bursting of the mortgage bubble (what are mortgages but OPM?) has left financial institutions (those who manage OPM for you) with invoices that can't be paid, with property that's worth pennies on the dollars owed (even if there were buyers, but now they, too can't find any OPM to use) and that's costing those institutions in maintenance charges. Cities and towns aren't getting their anticipated real estate taxes (that finance city services as well as financing their debt). So, as they say, "The beat goes on." The more people default on their loans, the less credit (OPM) there is available, the more people can't buy things or pay their bills, the more people default on their loans.

That leaves those of us facing, in, or beyond midlife (that's just about everyone) in a very precarious position, and that's why I have to talk about it here. Although they stopped enforcing the rules about ten years ago, it's taken this long to catch up with us. It's here now, though, and the situation promises to take people who are experiencing the midlife transition to some very scary places. As I've pointed out on several occasions, escapism remains one of the principal ways that men (and women) try to avoid having to make the midlife transition. In just one month (September, 2008), escaping the realities of midlife has just become a whole lot harder. Escaping takes cash — exactly what's in increasingly short supply. As the credit and liquidity crisis deepens, it becomes really evident that we're left with few choices but to hunker down and to do whatever's necessary to preserve what's most important. For many people, that's going to come down to choices about food, clothing and shelter.

Midlife presents you with an invaluable opportunity to focus on those things that you decide are most important to you. As you enter the midlife transition, it's more important than ever to have a really clear idea of exactly what those things are. What are you not willing to do without, and why? What are you willing to do to preserve what's most important to you? What are you not willing to do? If you're faced with the prospect of living within your means (no access to OPM) and without any meaningful safety net, what would your life look like? What choices would you have to make? Since your midlife transition provides you with an unparalleled opportunity to create a practical, proactive, disaster recovery plan for yourself, now's the time to formulate it. Remember, without such a plan, you're left in an essentially reactive mode, and reaction to a crisis can not only be ineffective, it can also make the crisis worse.

Have you taken the time to look at what's most important to you? Have you decided what lengths you're prepared to go to to preserve it (and you mustn't cop out by saying, 'Any lengths,' either: be specific)? What's your plan for the worst-case scenario (because it's closer to you than ever before in your life)? These are all hard questions — they're midlife questions — and how you answer them will have a hefty impact on how you think, how you behave, and, ultimately, what your future will look like, regardless of how the economic crisis plays itself out.