A Little Economic History
It is much easier to position your life before, rather than during, an economic crisis.
It's also truly amazing how fast a credit crunch can sweep across markets.
This month, a decade ago, was the mid-point for the toughest 90-day stretch of my financial life. Taking it back to October to December 2008...
My prospective earned income went to zero at a time when...
My Business/Personal cash burn rate was $10,000 a week. Simultaneously...
My net worth dropped by 67% and...
I was facing a potential claim 20x in excess of what remained. The one bright spot was my family life...
Our first child was born and we were very happy within our marriage.
The only reason I didn't follow a friend into bankruptcy was a pre-crash restructuring. I had been scared by four events :
The US was offering loans without income verification.
The UK was offering loans without bank covenants.
Down in New Zealand, I used both of the above and borrowed to pay my living expenses at a time when...
I had a personal guarantee outstanding that covered most my assets, and all my net worth.
There is a line in Fooled By Randomness about Russian Roulette. It goes something like...
Even if the gun has a million chambers, there are some games you don't want to play.
I was enjoying my life and didn't want external circumstances to force a financial reboot at 40-years old. So... 2005-2007 was a time of significant change.
The restructuring took three years (2005-2007). It prevented ruin, but still resulted in a lot of pain when credit markets slammed shut in 2008.
At the time I was working in the UK. The entire chain of my business life went from Great-to-Insolvent in 180-days (bank, joint venture partner, developer, general contractor, sub-contractors, employer, CEO).
Just like that. Gone.
2009-2012 were spent clawing back.
Key steps:
Downsized family home, spending and aspirations. Embrace Your Hubris!
Invested the downsized capital into a Downtown Boulder rental property. Two units, where the little unit's rental income would enable us to live for "free" in the larger unit.
Invested our remaining funds in a redevelopment opportunity that I could hold FOREVER, because it was debt-free and cash flow positive.
Turned a loss making triathlon hobby (draining $75k annually) into a cash generating consulting business ($4,000 per month).
By 2013, we achieved cash flow break even. We were so blasted from our young family (up to three kids) that I don't remember appreciating the significance of what we achieved.
Within my financial peer group, our story is not unique. Lots of people had a similar ride. However, they don't necessarily blog about it.
Financial memories are short.
Remember.
You don't get killed by prices falling -- price volatility is emotionally painful but not financially fatal.
Companies, Your Personal Ethics, Friends and Families... All can get crushed by running out of cash in a banking crisis.
Where's your cash flow statement?